Should EU issue joint debt? ‘Everything is on the table,’ says Michel

“Everything is on the table”, including issuing fresh common debt, to boost the European Union’s sluggish competitiveness and close the deepening gap with the United States and China, European Council President Charles Michel told Euronews.

EU leaders are gathered in Budapest, Hungary, on Friday to discuss the bloc’s ailing competitiveness. The talks will focus on the landmark report written by Mario Draghi, which painted a bleak diagnosis of the bloc’s economy paired with ambitious recommendations to cure what he described as a “slow agony.”

According to the former Italian prime minister, the EU needs to mobilise about €800 billion a year in additional investments to keep pace with global competitors and should issue fresh joint debt, as it did during the COVID-19 pandemic, to reach the huge sum.

Michel said the report was an “excellent basis” for the ongoing debate and argued joint debt, despite its divisive character, should not be ruled out altogether.

“In recent months, we managed to unite the EU on the answer to the question: What do we want to do together to be more competitive and to improve the level playing field within the EU and with partners outside of the EU?” Michel said when asked by Euronews about the possibility of issuing joint debt.

“An important topic in the future will be the financing, the solidarity, and here I can see that everything is on the table.”

Next year “important decisions will be made and there are various options on the table,” he said, referring to the negotiations on the bloc’s 2028-2034 budget that are set to begin in the summer.

Some member states, however, insist joint debt should not be anywhere near the table. Germany and the Netherlands have already rejected, in unambiguous terms, Draghi’s recommendation for fresh borrowing. The draft declaration of the Budapest summit, titled “The New European Competitiveness Deal,” talks about “financing” but makes no explicit reference to joint debt.

With budget talks subject to unanimity rules, any opposition can prove insurmountable.

‘Sense of urgency’

Draghi, who also took part in Friday’s informal summit, described the issuance of joint debt as “indispensable” but stressed it was “not the first thing” on the agenda.

“What the report says is that there are many other decisions that can be taken without immediately addressing the issue of common public financing,” Draghi told reporters.

Priority focus, he added, should be put on addressing the fragmentation in the bloc’s single market and developing a fully-fledged Capital Markets Union, a long-stalled project to drive investment into the defence sector, renewable energy and high-tech. Michel also pointed to the Capital Markets Union and the European Investment Bank as “important” tools that can bring cash in a less controversial way than joint debt.

Draghi predicted the election of Donald Trump as US president would “make a big difference” in US-EU relations as the Republican has laid out a heavily protectionist agenda to relocate industries and impose across-the-board import tariffs.

“The sense of urgency is greater today than it was a week ago,” he warned.

Draghi called on EU leaders to stop procrastinating and take decisive action before the competitiveness gap between the EU and the US becomes irreversible.

“As you have seen over all these years, many important decisions have been postponed because we expected consensus. Consensus did not come but only lower development, lower growth, and now stagnation,” Draghi said.

“So perhaps at this point, I hope that we will find a united spirit with which we can turn for the better these great changes. [If we keep] going in random order, we are too small and we go nowhere.”