By Jan Strupczewski

BRUSSELS (Reuters), – France, Italy and Spain said Thursday that they believe more EU permanent debt issuance is a topic worth discussing when the 27-nation bloc revises its fiscal rules in the next year. Germany will likely resist this suggestion.

Mario Draghi (the Italian Prime Minister) and Emmanuel Macron (the French President) wrote jointly in the Financial Times about how the EU’s 800-billion recovery fund has proven to be a great success. This was a first for all, as the whole bloc borrowed for the first time.

The leaders stated that new proposals would merit in-depth discussions, and not be clouded with ideology with the goal of better serving EU’s interests as a whole.” They also linked to a paper by four economists. One of them is Macron’s advisor, the other Draghi’s.

This paper suggests that the EU should establish an EU Debt Management Agency to manage the increase in public debt due to COVID-19. It would be able buy debt from European Central Banks issued by EU countries during the pandemic.

Because the EU can borrow at lower rates than any individual country, the agency could use the money it raises from the market to create its own EU debt.

“A debt assumption plan involves a gradual transfer a part of the national public debts of an EU Debt Management Agency. To cover interest payments in the future, contributions would be received from governments. According to the paper, “the debt will not be eliminated.”

It stated that “The fact that it will all be intermediated by the European Agency will result in a decrease in the debt burden because the Agency will have the ability to issue debt at more favorable conditions than high-indebted countries.”

Germany is opposed to the EU issuing joint debt. This has been based on EU treaties and its constitution, as well as concerns over taking responsibility for debts of other countries.

It is clear from the coalition agreement that the German government has reached that the joint borrowing to finance the recovery fund was an ad-hoc arrangement. The Netherlands, Finland, Austria and other countries oppose any further permanent joint debt issuance.

In the article cited by the Macron-Draghi, it was stated that the EU’s debt agency could purchase the debt accumulated during the 2020-2021 pandemic over five year periods.

The paper contained a table that showed Spain as having added most debt between 2020-2021. Its debt-to-GDP ratio increased by 24.1 points, to 119.6% GDP. Italy followed closely with a 19.2 percentage point rise to 153.5%, and France with 17.8 percent to 115.3%.

“The Agency would purchase sovereign bonds with new Agency bonds. Reference market prices will be used to determine the price for EU bonds of comparable maturities. The paper stated that the Agency would refinance the Agency bonds on the market once the Agency bonds mature.”