More common European borrowing is inevitable – but will it deliver?
Common borrowing is becoming unavoidable. The real question is whether Europe can turn it into a strategic instrument for coalitions of committed countries – including non-EU partners – or stumble into a rushed and divisive crisis compromise.
For years, Europe has argued over whether it should ever issue common debt. But that debate is now being rapidly overtaken by events. EU member states no longer have the fiscal space to finance priority public investments from national budgets alone. Defence, climate transition, industrial competitiveness and economic security all require sustained collective spending. The reconstruction of Ukraine will add to the debt.
When that moment comes, the sums involved will not only strain national fiscal capacities; they will also be politically difficult to sell domestically. Raising taxes or cutting spending to transfer vast amounts of money to Ukraine via national budgets is unlikely to command durable public support in many member states. Joint borrowing – whatever it is ultimately called – will therefore become less a choice than a necessity.
In practice, Europeans are already edging in this direction. The agreement on a substantial Ukraine loan before Christmas reflected a growing recognition that collective financing, based on common borrowing, is indispensable when shared priorities exceed national means. Elements of this logic were already embedded in Next Generation EU and in more recent initiatives such as Security Action For Europe, where part of the proposed financing architecture relies on common borrowing. The direction of travel is clear, even if the destination remains contested.
The real question is therefore not whether higher levels of common borrowing will emerge, but whether it will be created deliberately or improvised in crisis. Poorly conceived eurobonds, rushed through at a moment of emergency, would deliver limited economic impact while proving deeply politically divisive. They risk encouraging free riding, with some countries benefiting from collective financing or from the public goods it provides without fully committing to the strategic objectives that justify it. Efforts to keep all member states on board could further dilute ambition, producing lowest-common-denominator solutions that satisfy neither markets nor voters.
Such an outcome would be corrosive. National electorates would see common debt as opaque and open-ended, benefiting countries whose democratic commitment is in doubt, while fiscally cautious member states would fear permanent transfers. Rather than strengthening Europe’s capacity to act, the instrument could end up constraining it – if agreement can be reached at all.
There is, however, another path. If designed strategically, common borrowing could meet economic, fiscal and political objectives simultaneously. It should be understood not as a uniform EU-wide mechanism but as a financing tool for coalitions of the willing: groups of countries prepared to invest jointly in clearly defined shared priorities, from defence capabilities to Ukraine’s reconstruction to critical cross-border infrastructure, and common flagship projects.
Structuring such borrowing outside, but in parallel with, the EU treaties – as with the European Stability Mechanism – would provide flexibility and credibility. It would remove some institutional constraints that slow decision-making, allow progress without being blocked by internal opponents and make it possible to include like-minded non-EU partners facing the same strategic challenges.
Conditional participation would be central. Access to common financing should depend on adherence to agreed principles and commitments, whether related to fiscal responsibility, the rule of law or support for shared geopolitical objectives. If deviating from these commitments carry a significant financial cost, the mechanism could deter future backsliding should governments or their priorities change, thereby strengthening Europe’s democratic resilience.
Well-designed common borrowing would also have an important financial dimension, helping to foster the Savings and Investment Union. The creation of a large, safe European asset would deepen capital markets, provide a benchmark yield curve and increase the euro’s appeal for global investors. In a world searching for liquid and reliable assets, such instruments would not only finance public investment but also strengthen Europe’s financial sovereignty and its global economic role.
Over time, such European bonds could evolve into a permanent framework to finance genuinely European public goods while excluding those unwilling to support the common strategic direction. In doing so, they would reduce free-riding and align incentives more closely with collective goals.
Higher levels of common borrowing – in whatever form they take – are coming. The choice is stark: wait for the next crisis and settle for a hurried compromise that is economically suboptimal and politically toxic or design a strategic instrument that underpins coalitions of committed countries, reinforces shared principles and delivers tangible benefits. If Europeans get it right, common borrowing will not be a reluctant expedient. It will become a cornerstone of Europe’s economic strength, security and democratic resilience.
Fabian Zuleeg is Chief Executive and Chief Economist at the European Policy Centre.
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