WASHINGTON, April 16 - Spanish Finance Minister Carlos Cuerpo on Thursday called for an expansion of joint debt issuance by the European Union, saying that coordinated borrowing through the European Commission would lower financing costs for member states and support investment needs.
Addressing an audience at the Peterson Institute for International Economics while attending the International Monetary Fund and World Bank spring meetings in Washington, Cuerpo said the EU already possesses most of the prerequisites for issuing a shared safe asset. He pointed to the union's global role in trade, its institutional strength and its resilient market infrastructure as key factors that would underpin such issuance.
Cuerpo outlined a specific framework for how joint issuance could be structured. He suggested the European Commission could borrow on behalf of member states up to a defined proportion - for instance, roughly one-third of annual redemptions and the amount corresponding to the specific deficit permitted under European fiscal rules. Using those two elements as a basis, he projected that in five years the Commission could have a euro-denominated market of about 5 trillion euros.
On the potential fiscal impact, Cuerpo estimated that a 5 trillion euro market issued by the Commission would translate into approximately 25 billion euros in annual savings due to lower borrowing costs, because Commission debt benefits from an AAA rating and thus commands cheaper financing. He argued the commission's lower cost of borrowing is the channel through which taxpayers would benefit.
Recognizing opposition within the EU, Cuerpo acknowledged that Germany and other northern European countries have been reluctant to share responsibility for other members' debts. To address that concern, he proposed a compensation mechanism for member states that already have AAA ratings and can borrow at equally low or lower cost on their own. He listed Germany, Denmark, Luxembourg, the Netherlands and Sweden among those countries that would be subject to such compensatory arrangements.
Cuerpo also compared current scales of issuance, noting that joint debt issuance by the Commission at present stood at 750 billion euros while U.S. Treasury issuance was $40 trillion. He framed the prospective 5 trillion euro market in five years as a meaningful initial step toward establishing a euro-denominated anchor and a safe asset for the bloc.
Context and implications
- Under the proposal, the European Commission would issue debt on behalf of member states within predefined limits tied to redemptions and permissible fiscal deficits.
- Savings arise from the Commission's AAA rating, which would lower the cost of borrowing relative to some national issuers.
- Political resistance from certain northern European countries remains a central obstacle; the proposal includes a compensation mechanism for AAA-rated members.
Questions over political consensus and the design of compensation arrangements remain central to the feasibility of the plan. Cuerpo described the issuance as a step toward providing an anchor for the euro-area financial system and a euro-denominated safe asset, emphasizing the need to take that initial step.