EU Recovery Fund to Jolt Sovereign Debt Markets
Posted on 07/22/2020
Thanks to a viral pandemic and lengthy negotiations, the European Union (EU) is taking a significant leap to becoming one of the largest supranational issuers. The EU got permission for a recovery fund that will be financed through joint debt. The controversial rescue fund is tagged at €750 billion and will be used to deal with damage from the COVID-19 pandemic. Of that €750 billion amount, €390 billion will be provided in the form of grants to member states most affected by the pandemic and €360 billion will be made available as loans. The EU is in effect becoming a major entity in sovereign debt markets. To finance the fund, the European Commission will issue bonds on the financial markets on behalf of the EU. These funds plan to be repaid through EU revenues from years 2029 to 2058. The European Commission is looking at a set of new taxes to help fund the recovery fund, as well as climate change-related projects. The commission is looking at a carbon tax and a digital tax.
At the moment the EU has a paltry amount of €54 billion of outstanding debt. The EU did not borrow any money in 2019 and borrowed just around €5 billion in 2018.
In addition, the EU has plans to borrow around €100 billion in September 2020 to finance its SURE unemployment scheme.