Policy brief

Next Generation EU borrowing: a first assessment

What is new about NGEU is not just the increase in the EU’s borrowing power, but also the nature of the expenditure.

Publishing date
10 November 2021

This Policy Contribution was prepared for the European Parliament’s Committee on Budgets (BUDG). The original paper is available on the European Parliament’s webpage (here). Copyright remains with the European Parliament at all times.

The Next Generation EU (NGEU) programme is radically changing the way the European Union interacts with financial markets because of its ambitious and ground breaking new public debt programme. The European Commission has adopted a new, diversified borrowing strategy, similar to that of other major issuers, to raise money safely, reliably and in a cost-effective manner. EU debt therefore has to be attractive to financial markets and must maintain a strong credit rating.

The EU plans to build a full benchmark yield curve by issuing a diverse range of debt securities, with maturities ranging from three months to thirty years. The EU has also set up a primary dealer network of eligible banks to support the issuance programme, with issuance mainly through auctions and syndicated transactions. A well-functioning dealer network is crucial to help the EU sell debt smoothly, maintain liquidity and adjust borrowing plans to market conditions. So far, the EU's first issuances have shown strong investor interest, and the EU has achieved good ratings and strong relative pricing compared to its sovereign and supranational peers.

NGEU borrowing represents a unique opportunity to lay the groundwork for a European safe asset, which could help resolve some long-standing issues with the European macro and financial architecture. For it to succeed, EU debt will need to perform at least as strongly as other major euro-area issuers in terms of primary issuance and on secondary markets. The European Commission will need to monitor its dealer network to make sure it is well positioned to support market operations. It should also be careful that its selections of banks to work with in financial operations are considered fair, transparent and unbiased.

The EU will become the largest green-bond issuer as part of NGEU's mandate to issue up to a third of its debt in this market segment. If successful, this could further serve to bolster the euro’s international role. The EU will need to balance its commitment to new climate standards against current market conditions, to make sure that NGEU debt both supports new climate finance rules and attracts sufficient investor interest.

Overall, EU-level debt should benefit EU capital markets and enhance the financial architecture of the euro area. However, to reap the benefits of EU borrowing fully, the programme would have to be made permanent and its volume larger so that it provides a benchmark yield curve and a long-term safe asset.

Recommended citation:
Christie, R., G. Claeys and P. Weil (2021) ‘Next Generation EU borrowing: a first assessment’ Policy Contribution 22/2021, Bruegel

About the authors

  • Grégory Claeys

    Grégory Claeys, a French and Spanish citizen, joined Bruegel as a research fellow in February 2014, before being appointed senior fellow in April 2020.

    Grégory’s research interests include international macroeconomics and finance, central banking and European governance. From 2006 to 2009 Grégory worked as a macroeconomist in the Economic Research Department of the French bank Crédit Agricole. Prior to joining Bruegel he also conducted research in several capacities, including as a visiting researcher in the Financial Research Department of the Central Bank of Chile in Santiago, and in the Economic Department of the French Embassy in Chicago. Grégory is also an Associate Professor at the Conservatoire National des Arts et Métiers in Paris where he is teaching macroeconomics in the Master of Finance. He previously taught undergraduate macroeconomics at Sciences Po in Paris.

    He holds a PhD in Economics from the European University Institute (Florence), an MSc in economics from Paris X University and an MSc in management from HEC (Paris).

    Grégory is fluent in English, French and Spanish.

     

  • Rebecca Christie

    Rebecca Christie joined Bruegel as a visiting fellow at Bruegel in March 2019 and currently she is a non-resident fellow at Bruegel. Prior, Rebecca was a political correspondent in Brussels for Bloomberg News from 2011 to 2016. Most recently she served as the lead author on the European Stability Mechanism's institutional history, "Safeguarding the Euro in Times of Crisis: the Inside Story of the ESM". She has also served as an expert adviser to a European Economic and Social Committee panel on taxation. She is an experienced panel moderator and has provided occasional reporting and radio commentary on Brexit to Irish broadcaster RTE and to the BBC.

    During a 22-year career in daily journalism, Rebecca wrote for a broad range of newspapers and wire services, from the Bend (Oregon) Bulletin to the UK-based Financial Times. She was a Washington correspondent for 7 years with Dow Jones Newswires and the Wall Street Journal, covering the U.S. Treasury, the Federal Reserve and the Pentagon. She joined Bloomberg in 2008 as senior U.S. Treasury correspondent, a post she held for three years before moving to Europe.

    Rebecca studied classical languages at Duke University and public policy at the LBJ School of Public Affairs at the University of Texas at Austin. At Bruegel, Rebecca will be working on financial services policy and Brexit, and also collaborating with other scholars on a range of research topics.

  • Pauline Weil

    Pauline worked at Bruegel as a Research Analyst until September 2022. She holds a bachelor in Political Science and a master’s degree in International Trade and Finance from Sciences Po Lille. She also studied an MSc in Political Economy of Europe at the London School of Economics.

    Her research interests include monetary policy, sovereign debt sustainability, trade and the energy transition. Pauline’s two regions of expertise are Europe and Asia.

    She wrote a master’s thesis on the European Stability and Growth Pact by focusing on Greece’s adoption of the euro and its government debt crisis. And her second master’s thesis questioned the political and economic sustainability of the Franc CFA currency in the West African Economic and Monetary Union (WAEMU) in the context of European integration.

    Prior to Bruegel, Pauline was a Junior Economist for the credit insurer Coface where she provided country risk analysis on Europe, working from Paris, and then on Asia, from Hong Kong. She also pursued the Blue Book Traineeship at the European Commission, working for DG DEVCO in the Directorate for Asia.

    Pauline is fluent in French and English and has a good command of Spanish.

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