EU’s Bond Benchmark Ambitions Suffer Terminal Growing Pains
The bloc’s ambition to become the regional benchmark issuer is faltering.
The European Union flag and those of member countries at the European Parliament's Louise Weiss building in Strasbourg, France.
Photographer: Stefan Wermuth/BloombergThe pandemic brought out the best in the European Union. The €807 billion ($850 billion) NextGeneration program was lauded as a Hamiltonian moment, delivering a swift and effective response to a sudden economic crisis. Unfortunately, it isn’t aging well. Funded by bond sales that currently total €450 billion and are set to double by 2026, the bloc faces hard decisions on either permanently making the program the main EU financing vehicle — or accepting that centralized borrowing was just a one-time emergency measure.
A near €1 trillion bond market sector with liabilities out to 35 years can’t be left to wither on the vine. The EU hasn’t created a structure fit to last, doing a disservice to the entire euro project. The asset class is intended to shrink just as it reaches critical mass, with net repayments from 2028. To increase the existing structure would require approval from the EU constitutional court and most likely ratification from the German Bundestag. Neither of these look remotely viable, with any plans for extending the program likely to be dismissed as federalist mission creep.