Supranational debt and financing needs in the European Union

Abstract

The COVID-19 pandemic has substantially affected the financial trajectory of governments, which have seen their financing needs increase significantly. Against this background, the European Union has launched a series of programmes to smooth this financing in the short term, through the activation of credit lines to cover direct or indirect health expenses and temporary unemployment scheme-related expenditure. Further, it has approved a recovery fund (dubbed Next Generation EU), which will transfer resources from the European budget to the Member States for investments that enhance competitiveness and social and environmental sustainability. In this connection, this paper firstly estimates the increase in financing needs at the European level. Secondly, it sets out the supranational measures adopted to address the consequences of the pandemic, to be financed with debt issued by the European Commission, on behalf of the Member States. Finally, it characterises the starting point of this situation, i.e. it provides the main figures on euro-denominated supranational debt currently in circulation and reviews the arguments in favour of the importance of increasing this type of debt and pan-European safe assets.