A new report by the pro-European think-tank Bruegel, published on 12 September, looks at how the European Union finances its debt by analysing the legal feasibility of the EU borrowing on the capital market to finance European public goods.
The first option is to repeat the Next Generation EU model by raising funds established as ‘other revenue’ by the EU Council. The second option integrates debt financing into the EU budget by creating a new category of “own resources”.
Funds established as “other revenue”
As regards the first option, the authors consider that there is no general obstacle in EU primary law to the repetition of NGEUs. it would simply be necessary to amend the Own Resources Decision (ORD) to borrow other revenue (external earmarked revenue) and create an off-budget item.
However, with each NGEU financing, the legal space for repeating NGEU-type constructions shrinks.
“Given that NGEU-type debt financing creates a large off-budget liability, it challenges the relationship between other revenue and own resources”, say the authors of the report.
As with NGEU, any future fund financed in this way (through “other revenue”, as opposed to “own resources” as referred to in the ORD) would therefore have to demonstrate that it is a one-off and temporary measure, and the revenue would have to remain significantly lower than the EU budget, thus complying with the requirements of Article 311 of the Treaty on the Functioning of the Union (TFEU).
Funds established as “own resources”
As for the second option, which consists of creating a new category of own resources, the authors state that this could create “a long-term EU safe asset”, but that it has not been tested and is “potentially controversial, with risk of legal challenges”.
The EU primary law does not prevent it from financing its budget through debt. However, the EU is subject to balanced budget requirements and must have sufficient resources each year to cover its debt.
Flexibility in the allocation of funds
Finally, whether through new extra-budgetary funds of the NGEU type or within the budget, borrowed funds can be allocated in a highly flexible way: to finance the fight against climate change, for example, but also to cohesion policy, infrastructure or research.
If the proceeds of borrowing are established as an “own resource” in an amended ORD, the borrowed funds could even be used for the general financing of the EU budget.
To see the Bruegel report: https://aeur.eu/f/8lc (Original version in French by Pauline Denys)