Next Generation EU borrowing: a first assessment

What is new about NGEU is not just the increase in the EU’s borrowing power, but also the nature of the expenditure.

Publishing date: 10 November 2021
Authors: Grégory Claeys Rebecca Christie Pauline Weil

This Policy Contribution was prepared for the European Parliament’s Committee on Budgets (BUDG). The original paper is available on the European Parliament’s webpage (here). Copyright remains with the European Parliament at all times.

The Next Generation EU (NGEU) programme is radically changing the way the European Union interacts with financial markets because of its ambitious and ground breaking new public debt programme. The European Commission has adopted a new, diversified borrowing strategy, similar to that of other major issuers, to raise money safely, reliably and in a cost-effective manner. EU debt therefore has to be attractive to financial markets and must maintain a strong credit rating.

The EU plans to build a full benchmark yield curve by issuing a diverse range of debt securities, with maturities ranging from three months to thirty years. The EU has also set up a primary dealer network of eligible banks to support the issuance programme, with issuance mainly through auctions and syndicated transactions. A well-functioning dealer network is crucial to help the EU sell debt smoothly, maintain liquidity and adjust borrowing plans to market conditions. So far, the EU's first issuances have shown strong investor interest, and the EU has achieved good ratings and strong relative pricing compared to its sovereign and supranational peers.

NGEU borrowing represents a unique opportunity to lay the groundwork for a European safe asset, which could help resolve some long-standing issues with the European macro and financial architecture. For it to succeed, EU debt will need to perform at least as strongly as other major euro-area issuers in terms of primary issuance and on secondary markets. The European Commission will need to monitor its dealer network to make sure it is well positioned to support market operations. It should also be careful that its selections of banks to work with in financial operations are considered fair, transparent and unbiased.

The EU will become the largest green-bond issuer as part of NGEU's mandate to issue up to a third of its debt in this market segment. If successful, this could further serve to bolster the euro’s international role. The EU will need to balance its commitment to new climate standards against current market conditions, to make sure that NGEU debt both supports new climate finance rules and attracts sufficient investor interest.

Overall, EU-level debt should benefit EU capital markets and enhance the financial architecture of the euro area. However, to reap the benefits of EU borrowing fully, the programme would have to be made permanent and its volume larger so that it provides a benchmark yield curve and a long-term safe asset.

Recommended citation:

Christie, R., G. Claeys and P. Weil (2021) ‘Next Generation EU borrowing: a first assessment’ Policy Contribution 22/2021, Bruegel

About the authors

Grégory Claeys

Grégory Claeys, a French and Spanish citizen, joined Bruegel as a research fellow in February 2014, before being appointed senior fellow in April 2020.

Grégory Claeys is currently on leave for public service, serving as Director of the Economics Department of France Stratégie, the think tank and policy planning institution of the French government, since November 2023.

Grégory’s research interests include international macroeconomics and finance, central banking and European governance. From 2006 to 2009 Grégory worked as a macroeconomist in the Economic Research Department of the French bank Crédit Agricole. Prior to joining Bruegel he also conducted research in several capacities, including as a visiting researcher in the Financial Research Department of the Central Bank of Chile in Santiago, and in the Economic Department of the French Embassy in Chicago. Grégory is also an Associate Professor at the Conservatoire National des Arts et Métiers in Paris where he is teaching macroeconomics in the Master of Finance. He previously taught undergraduate macroeconomics at Sciences Po in Paris.

He holds a PhD in Economics from the European University Institute (Florence), an MSc in economics from Paris X University and an MSc in management from HEC (Paris).

Grégory is fluent in English, French and Spanish.
Rebecca Christie

Rebecca Christie is a Senior fellow at Bruegel and hosts Bruegel's podcast, The Sound of Economics. She is also the Brussels columnist for Reuters Breakingviews. She writes about the crossroads of markets, policy and politics, particularly where it comes to the European Union and how it interacts with the world. She was lead author on the European Stability Mechanism’s official history book, "Safeguarding the Euro in Times of Crisis: the Inside Story of the ESM".

Over more than two decades in journalism, Rebecca has reported from Brussels, Washington and around the world for Bloomberg News, Dow Jones Newswires/The Wall Street Journal and the Financial Times. She joined Bruegel as a visiting fellow in 2019.

She has also served as an expert adviser to a European Economic and Social Committee panel on taxation, is a regular conference speaker and moderator, and has provided editing and policy analysis to the European Commission, members of the European Parliament, and the African Development Bank. A US-Belgian dual citizen, she holds degrees from Duke University and from the LBJ School of Public Affairs at the University of Texas at Austin.
Pauline Weil

Pauline worked at Bruegel as a Research Analyst until September 2022. She holds a bachelor in Political Science and a master’s degree in International Trade and Finance from Sciences Po Lille. She also studied an MSc in Political Economy of Europe at the London School of Economics.

Her research interests include monetary policy, sovereign debt sustainability, trade and the energy transition. Pauline’s two regions of expertise are Europe and Asia.

She wrote a master’s thesis on the European Stability and Growth Pact by focusing on Greece’s adoption of the euro and its government debt crisis. And her second master’s thesis questioned the political and economic sustainability of the Franc CFA currency in the West African Economic and Monetary Union (WAEMU) in the context of European integration.

Prior to Bruegel, Pauline was a Junior Economist for the credit insurer Coface where she provided country risk analysis on Europe, working from Paris, and then on Asia, from Hong Kong. She also pursued the Blue Book Traineeship at the European Commission, working for DG DEVCO in the Directorate for Asia.

Pauline is fluent in French and English and has a good command of Spanish.