The European Union is returning to common borrowing, an idea once treated as an emergency pandemic tool but now increasingly discussed as a way to finance defence, Ukraine support, industrial policy and deeper capital markets. The debate is unfolding as military spending rises, national debt burdens diverge and the EU prepares its 2028–2034 budget, where servicing already-issued European debt is becoming a political problem of its own.
Common debt is no longer exceptional
EU joint borrowing was politically toxic for years. Northern governments feared that common bonds would become a permanent debt-sharing mechanism, while southern economies saw them as a way to lower financing costs and strengthen the euro area. The pandemic changed that balance: NextGenerationEU turned large-scale EU debt issuance from a theoretical project into a market reality.
The question is now returning not as a crisis-only instrument but as part of Europe’s longer-term financial architecture. EU bonds, EU bills and NextGenerationEU green bonds already exist, with proceeds used for recovery programmes, Ukraine assistance and the Security Action for Europe instrument, known as SAFE. Official investor information says the Commission borrows on capital markets on behalf of the EU and uses a unified funding approach through auctions and syndications.
Defence is the strongest new argument
Security has become the most powerful case for common borrowing. Since Russia’s war against Ukraine and the growing uncertainty around US security guarantees, Europe has begun reassessing defence spending at speed. SAFE provides up to €150 billion in loans for EU countries to make urgent and large-scale defence investments, support common procurement, strengthen the European defence industry and close critical capability gaps.
The mechanism matters not only because of its size. It shows how joint borrowing can be used for loans rather than direct grants, with beneficiary states expected to repay the money. That structure is easier to defend politically in countries opposed to a permanent “debt union,” because the formal risk to the common budget is lower than with transfers.
SAFE is a compromise between debt and sovereignty
The Council says SAFE is funded by EU borrowing through EU bonds under the existing unified funding approach, with money provided as competitively priced long-maturity loans. The regulation entered into force on May 29, 2025, and the instrument became the first pillar of the ReArm Europe/Readiness 2030 plan.
Politically, it is a careful formula. Brussels is not creating separate defence-branded Eurobonds, but it is using the EU’s credit standing and market access to mobilise defence financing. For countries with higher national borrowing costs, this can be cheaper than issuing their own debt. For donor states, it is less alarming than a new grant fund.
Old debt is already pressuring the next budget
The current debate differs from 2020 because the EU already has a large debt stock. A European Parliament research briefing estimated that EU debt liabilities had reached €547 billion by the end of September 2024 and were expected to increase by another €448 billion under existing commitments. Of the total, €421 billion will ultimately finance grants, with interest and principal repayments made jointly through the EU budget.
That makes the next seven-year EU budget especially difficult. Between 2028 and 2034, interest and principal repayments on the grant-financed part of NextGenerationEU may total €140 billion to €168 billion. The argument is therefore not only about whether Europe should borrow more. It is also about how the bloc will pay for existing debt without crowding out agriculture, regional development, climate policy, migration infrastructure and defence.
Germany remains the central brake
The strongest resistance to new common borrowing still comes from fiscally conservative states. In May 2026, German Chancellor Friedrich Merz said Berlin would oppose new EU debt despite Germany’s own large borrowing drive for defence and infrastructure. The Financial Times reported that his stance sets up a confrontation with France, which supports a larger EU budget and fresh joint borrowing for defence projects.
The contradiction is clear: Germany is willing to increase national borrowing for security, but it does not want to turn that into an EU-wide practice. For Berlin, the issue is not only economic. It is linked to constitutional constraints, a political culture of budget discipline and the fear that temporary instruments can become permanent.
France and southern Europe see an opening
For Paris, Rome, Madrid and parts of central and eastern Europe, common borrowing looks different. It can finance European public goods without a sharp rise in national interest costs. That matters for countries with high debt ratios, where additional defence, energy or infrastructure spending quickly affects government bond yields.
The French argument is built around European sovereignty. If the EU asks governments to spend more on defence, industry, energy and technology, part of that bill should be financed at the European level. Otherwise, weaker budgets will constrain strategic goals, while richer countries will have more room to subsidise their own companies.
Markets want a European safe asset
Joint debt is not only a budget issue. It also has financial-market importance. The euro area has long lacked a single safe asset comparable in function to US Treasuries. German, French, Italian and Spanish government bonds remain different instruments with different risk, liquidity and yields. EU-level securities could partly fill that gap.
CEPR research argues that new programmes in defence, energy transition, digital infrastructure and strategic technologies could support a European safe asset, improving monetary policy transmission, risk-sharing and capital markets union.
For investors, that would mean a deeper market in securities backed by the EU budget system. For Europe, it could strengthen the international role of the euro. But it works only if markets believe common debt is not a one-off political experiment and that repayment will not become a recurring budget crisis.
Loans are easier than grants
The core compromise runs between loans and grants. Loans, as in SAFE, are easier to sell to sceptics: a country borrows, spends on agreed purposes and repays. Grants are harder because their servicing falls on the common budget and, indirectly, all EU members.
That is why any next wave of common borrowing, if it comes, is likely to be tied to specific priorities: defence procurement, Ukraine support, energy networks, strategic technologies, military mobility and possibly crisis mechanisms. A permanent fund that simply distributes money to member states remains the most contentious model.
The 2028–2034 budget is the battleground
The next multiannual EU budget will be the key arena. It must absorb legacy NextGenerationEU obligations, higher defence needs, Ukraine support, climate programmes, migration infrastructure and competitiveness spending. At the same time, net contributors do not want sharply higher national contributions, while many governments are reluctant to give Brussels new revenue-raising powers.
In that setting, common debt looks like a convenient way to postpone painful choices. That is precisely why it faces resistance. Critics argue that new borrowing can hide the real cost of political promises. Supporters argue it is the only realistic way to finance European public goods that no single country can efficiently fund alone.
Moral hazard remains unresolved
Opponents of common debt point to moral hazard: if countries know that part of their spending can be shifted to the EU level, incentives for national fiscal discipline weaken. That argument remains powerful after the euro-area debt crisis, when disputes over Greece, Italy, Spain and Portugal divided the currency union.
Supporters counter that today’s situation is different. The issue is not rescuing individual countries after national policy mistakes, but financing tasks that affect the whole continent: security, external borders, energy resilience, industrial capacity, Ukraine support and competition with the US and China.
Old taboos are being rewritten
Europe’s debt debate is shifting from whether the bloc can borrow together to what it should borrow for and under what conditions. The pandemic proved technical feasibility. The war in Ukraine created a defence imperative. Higher interest costs revealed the price. The political argument now focuses on design: loans or grants, temporary tools or permanent mechanisms, defence only or a wider budget role, unanimity or more flexible formats.
The biggest uncertainty is whether joint debt will become a normal part of EU policy or remain a series of emergency exceptions. For now, Europe is moving through the second route. Each new instrument is presented as a special answer to a special crisis. But the accumulation of exceptions is gradually creating a new fiscal practice.
As experts at International Investment report, Europe has reached a point where joint debt can no longer be treated either as a forbidden idea or as an automatic solution. It can help fund defence and support the emergence of a European safe asset, but it also shifts political conflicts into future budgets. The key risk is that the EU borrows under the banner of strategic autonomy without creating durable revenue sources or clear liability rules. In that case, common debt would strengthen not European unity but the argument over who ultimately pays for Europe’s ambitions.
FAQ
What is EU joint debt?
EU joint debt refers to borrowing issued on behalf of the European Union to finance common policy programmes. Funds are raised on capital markets through bonds and related instruments.
Why is Europe discussing common borrowing again?
The reasons include higher defence spending, support for Ukraine, industrial and technology investment needs, and pressure on national budgets in highly indebted countries.
What is SAFE?
SAFE, or Security Action for Europe, is an EU instrument providing up to €150 billion in loans for member states to finance defence procurement and strengthen the European defence industry.
How are loans different from grants?
Loans are repaid by beneficiary countries, making them less controversial for the EU budget. Grants are not repaid directly and are serviced through the common budget, which creates more political conflict.
Why is Germany opposed to new common debt?
Germany worries about permanent EU liabilities, pressure on the common budget and weaker fiscal discipline. Berlin also cites constitutional constraints and a political tradition of debt caution.
Why does France support joint borrowing?
France argues that European public goods, including defence and industrial policy, should be financed at EU level so that countries with different debt burdens can still pursue common strategic goals.
Could joint debt strengthen the euro?
Yes, if the EU bond market becomes deep and liquid enough. It could partly function as a European safe asset for global investors.
What are the risks of common debt?
The main risks are higher future budget obligations, conflict between net contributors and beneficiaries, moral hazard and the absence of permanent revenue sources to service the debt.
Will new joint debt become permanent?
That is unresolved. The EU has mostly created special instruments for specific crises, but the accumulation of such tools is gradually making common borrowing part of its financial practice.
How does this affect investors?
If the EU continues issuing large volumes of bonds, investors will have more liquid EU-level securities. Demand and pricing will depend on confidence in the bloc’s fiscal governance.