Post-pandemic Eurobonds: Rising interest rates makes repayment (much) more expensive for the EU

Brussels – Post-pandemic recovery and common debt: the future of Eurobonds faces an uncertain path that is not in a favorable direction. The challenges of the unprecedented instrument, justified by a generalized shutdown of the economy due to the spread of the Coronavirus, are beginning to emerge along with all the political implications. Due to higher-than-expected interest rates, repaying EU debt securities will be expensive, affecting the moods of so-called frugal countries, those traditionally wary of committing resources.

As European Parliament insiders point out in a working paper on the 2025 agenda, the debate on the EU’s new multi-year budget promises to be complicated. The 27 member states will need to consider emerging priorities, including the repayment of common debt securities. Repayment of the capital relating to the NextGenerationEU program is due to start in 2028 and last 30 years. “As a result of higher than estimated interest rates, the cost has increased abruptly in the current financial period,” it warns.

 It is not just a question of the money lent but also interest. According to preliminary estimates, “the total cost for the period 2028 to 2034, covering both the capital and the interest rates, is now estimated at between €140 billion and €168 billion (current prices) depending on whether repayment is spread with an equal yearly amount or with an equal share of gross national income (GNI).” 

The EU’s next multi-year budget covers 2028 to 2034, with the European Commission due to submit an initial proposal by July 1. The proposal will have to consider the new priorities. It means new programs and funding areas, starting with defense, including new realities such as repayment of post-pandemic Eurobonds.

The repayment of common debt securities requires member states to draw from their national budgets. This public spending is at odds with the austerity approach typically associated with the northern European member states.