Did Europe Just Agree to Joint Borrowing? Not Exactly

Faced with an unprecedented recession, the European Union is considering a game-changing way to fund recoveries in the nations hit hardest by the pandemic: Issuing debt on behalf of all 27 EU members. Even though the proposal doesn’t involve full mutualization of debt, and still needs the backing of some skeptical nations, it marks rarely seen ambition from the bloc -- and at a time when it’s needed most.

The EU’s initial response to the crisis came mainly in the form of making cheap loans available, a strategy that countries in the south argued would only increase their debt burden and weigh on future economic growth. In response, German Chancellor Angela Merkel and French President Emmanuel Macron championed a 500 billion-euro ($550 billion) aid package financed through the issuance of bonds by the commission -- the EU’s executive arm -- on behalf of the EU as a whole. Proceeds would be distributed to countries most affected by the crisis in the form of grants. Repayments would come from the EU budget, where Germany contributes the lion’s share. The proposal marked a dramatic shift for Germany, which initially opposed any form of mutualized borrowing.