Borrowing in the European Union: from a pure national model to the antechamber of a European fiscal federal solution

Abstract

In this article, the author presents the evolution in the European Union of different borrowing models going through a path which starts out with a purely national model, passes through stages of hybrid (national and European) models, to reach the final stage, a purely European model. The European Union is being pushed, after the Sovereign Debt and the COVID-19 crises, to move from pure national borrowing models to new hybrid ones, starting with the proposals for the creation of Eurobonds and safe assets in the aftermath of the former crisis and evolving with this latter crisis to a European hybrid solution, notably with the package Next Generation EU. Here, European Commission borrowing capacity is fully recognised as a way to finance EU expenditures to be eventually backed up by new own tax resources. This decision is considered as an antechamber of a European fiscal federal solution.

The European Investor State: Its characteristics, genesis, and effects

“…This has translated into support for industries such as hydrogen production, electric batteries, and biomedicine. A prime example of this approach is the "Next Generation EU" (NGEU) recovery plan, which is the largest of its kind ever initiated at the EU level, injecting €750 billion into European economies from 2021 to 2023 (Cabral, 2021). 8 The key question is whether these public investment plans are consistent with the logic of the Investor State or represent a departure from it.…”

Rules or capacity for the EU’s fiscal future? From Werner and McDougall to the present

“…The NGEU blueprint based on conditional grants and loans offers another lever against misuse of EU budget funds through the conditionality attached to their disbursement.3. A permanent fiscal capacity would provide a steady stream of supranational safe assets (Van Riet, 2021) that could gradually come to dominate the sovereign debt market in the EU (Costa Cabral, 2021). This would have a stabilising effect on the financial system and would fulfil the function of macrofinancial stabilisation.…”

“…A permanent fiscal capacity would provide a steady stream of supranational safe assets (Van Riet, 2021) that could gradually come to dominate the sovereign debt market in the EU JPBAFM 36,2 (Costa Cabral, 2021). This would have a stabilising effect on the financial system and would fulfil the function of macrofinancial stabilisation.…”

Does the current crisis mark the end of the EU’s austerity era? Competing political projects in European fiscal governance

“…The EU issues joint bonds to finance the recovery fund and it opted to do the same for SURE, a job insurance instrument that supports national employment and short-time work schemes. Andor ( 2020 : 141) thus views SURE as “a counter-cyclical fiscal capacity” and an initial step toward “a proper stabilisation role at the community level.” In light of these innovative—and highly successful—modes of raising European funds for the RRF and SURE, Da Costa Cabral ( 2021 : 13) concludes that the EU is “mov[ing] aside from pure national borrowing models” and toward “a European hybrid solution.”…”

“…Still, the crises’ main symptoms are strikingly similar: a sharp increase in public debt—in 2010 because of the bank bailout, in 2022 due to spending mitigating the fallout of the pandemic; a widening spread in bond yields between member states, mostly to the disadvantage of the southern periphery; and output levels indicating recession. Despite some claiming otherwise (Da Costa Cabral 2021 ), the effects of the current crisis are again distributed unevenly across the EU. Southern countries like Italy, Spain and Greece went into the pandemic marked by high public debt levels and low aggregated growth over the last decade.…”