Key insights
- Spain is advocating for increased joint EU debt issuance to lower borrowing costs and fund investments. The proposal aims to create a 5 trillion euro-denominated market in five years, potentially saving 25 billion euros annually. However, opposition from countries like Germany, unwilling to share debt responsibility, poses a significant hurdle. While the proposal seeks to create a European safe asset, its impact on US equities is slightly negative due to potential shifts in global capital flows and increased competition for safe-haven assets.
WASHINGTON, April 16 (Reuters) - Spanish Finance Minister Carlos Cuerpo called on Thursday for more joint EU debt issuance, arguing the lower cost of borrowing that would follow would save taxpayers’ money and help finance the much-needed investment.
Speaking at the Peterson Institute for International Economics in Washington, Cuerpo said the European Union already had almost all the ingredients necessary to issue joint debt - a safe asset - because it was a key player in international trade, had strong institutions and a resilient market infrastructure.
"The European Commission could issue on behalf of EU member states a specific share, a certain amount. For example, we could be thinking of about one-third of yearly redemptions and also the specific deficit that is allowed by European fiscal goals," Cuerpo said on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington.
"If we just look at these two elements, that would mean, in five years time, (we) would have a 5 trillion euro-denominated market issued by the European Commission, which would imply 25 billion euros in savings on an annual basis," Cuerpo said.
Germany and some other northern European countries have been strongly opposed to joint EU debt, not willing to share the responsibility for the debts of others.
The savings would come from the fact that the Commission’s borrowing is cheaper, because its debt is AAA-rated. Cuerpo said under the Spanish proposal, there would be some compensation mechanism for EU countries that already have AAA (ratings) and can borrow equally cheaply or cheaper - Germany, Denmark, Luxembourg, Netherlands, and Sweden.
He said joint debt issuance by the Commission now was 750 billion euros, while U.S. Treasury issuance was $40 trillion, but the 5 trillion euros of EU safe assets in five years would be a good start.
"This is a step that we need to take. We need an anchor, we need a safe asset," he said.