Europe did something during the Covid crisis that once looked politically impossible: its governments agreed to borrow hundreds of billions of euros together.
Now the bigger question is whether that historic experiment should remain an emergency measure — or become a blueprint for financing Europe’s next generation of challenges.
The European Union’s NextGenerationEU recovery program was established at €806.9 billion in current prices, making it the centerpiece of the bloc’s unprecedented post-pandemic economic response.
The program allowed the European Commission to borrow directly from capital markets and distribute money across member states through grants, loans and other EU programs.
What began as an extraordinary answer to Covid consequently created something much bigger: a large-scale European debt market and proof that the EU’s 27 members could collectively borrow when confronting a common crisis.
That precedent is at the center of the latest debate highlighted by Bloomberg Opinion.
Europe’s problems have changed dramatically since Covid.
Today the continent needs enormous investment in defense, artificial intelligence, semiconductors, energy grids, clean technology, digital infrastructure and industrial competitiveness.
And the uncomfortable question is becoming harder to avoid:
If Europe was willing to borrow together to rescue its economy from a pandemic, why should it refuse to borrow together for challenges that could determine its economic and geopolitical future?
THE €807 BILLION EXPERIMENT
NextGenerationEU was revolutionary because Brussels itself became a major borrower.
Its Recovery and Resilience Facility was originally designed with €723.8 billion of grants and loans supporting investments and reforms across member states.
Governments had to meet agreed milestones before receiving money, with spending directed heavily toward the green transition, digitization and economic resilience.
The Commission says at least 37% of national recovery-plan spending had to support climate objectives and at least 20% digital priorities.
The financial experiment also demonstrated that investors were willing to buy European Union debt.
During the first year of the program, EU bond offerings attracted order books seven to 14 times larger than the securities available, while the average funding cost for the Commission’s 2021 transactions was just 0.14%.
Those extraordinarily low borrowing costs did not last as global interest rates subsequently increased.
But Europe had established something it previously lacked on this scale: a significant pool of jointly backed EU bonds.
And Brussels has already demonstrated that Covid borrowing was not necessarily a one-time experiment.
EUROPE IS BORROWING TO REARM
The EU’s €150 billion Security Action for Europe, or SAFE, program is financed through borrowing by the European Union on capital markets.
SAFE provides long-term loans to member states for defense investments including ammunition, missiles, air-defense systems and other military equipment.
Nineteen member states have submitted investment plans under the mechanism.
SAFE forms part of the broader Readiness 2030 strategy, which Brussels says could mobilize more than €800 billion in European defense investment.
That is politically important.
A few years ago, large-scale EU borrowing was justified by a once-in-a-century pandemic.
Now common borrowing is being used for European security.
The precedent is becoming harder to describe as temporary.
EUROPE’S INVESTMENT PROBLEM IS EVEN BIGGER THAN ITS COVID FUND
Former European Central Bank President Mario Draghi has put a staggering figure on the investment challenge confronting Europe.
His landmark competitiveness report estimated that Europe needs an additional €750 billion to €800 billion of investment every year through the end of the decade.
That number is sometimes misunderstood.
Draghi is not proposing that Brussels borrow €800 billion every year.
The estimate covers additional investment from both public and private sources in areas including energy, transportation, digital infrastructure, innovation, defense and security.
But the comparison is striking.
Europe’s entire Covid recovery program totaled roughly €807 billion.
Draghi says Europe may need nearly that much additional investment every single year to restore competitiveness and meet its existing objectives.
The problem is that European capital markets remain fragmented.
Businesses often depend heavily on banks rather than deeper equity and venture-capital markets.
The European Commission says the continent needs to mobilize more private savings through its Savings and Investments Union.
Reuters reported this week that Europe has around €35 trillion in household savings that policymakers increasingly want to channel toward productive investment.
Yet implementation of the Draghi agenda has been slow.
According to Reuters, only about 15.7% of Draghi’s proposed reforms had been fully implemented by early October, with another roughly 40% partially addressed.
AI MAKES THE INVESTMENT GAP EVEN MORE URGENT
Europe’s financing weakness becomes particularly visible when compared with America’s artificial-intelligence boom.
U.S. technology companies are borrowing and spending enormous sums on chips, data centers and electricity infrastructure.
European businesses remain substantially more dependent on their own cash.
Reuters reported, citing ECB research, that around 72% of euro-area companies planning AI investments expect to finance them from internal resources.
Only 16% expect to rely on bank loans, 6% on equity or venture capital and just 1% on bond issuance.
That matters because AI infrastructure requires extraordinary amounts of capital.
Without deeper European financial markets — or greater public investment in infrastructure that benefits multiple countries — Europe risks falling further behind the United States and China.
BRUSSELS ALREADY WANTS A MUCH BIGGER BUDGET
The European Commission has proposed a long-term EU budget of almost €2 trillion for 2028 through 2034.
The proposal includes a €409 billion European Competitiveness Fund designed to support clean technology, digital transformation, biotechnology, defense and space.
Horizon Europe would receive another €175 billion for research and innovation.
The political problem is that several major net contributors are pushing back.
Germany, Denmark, Finland, the Netherlands and Austria have called for a substantially smaller increase in the next EU budget.
German Chancellor Friedrich Merz has been particularly resistant to expanding joint European borrowing, arguing that governments must maintain fiscal discipline and prioritize spending rather than simply issuing more debt.
Reuters reported that Berlin considers the Commission’s proposed budget expansion unrealistic.
This exposes the central divide.
France and several southern and eastern European governments have historically been more open to European-level financing.
Germany and other fiscally conservative governments worry that repeated joint borrowing could gradually turn an emergency mechanism into a permanent “debt union.”
AND THE COVID BILL HAS NOT DISAPPEARED
NextGenerationEU borrowing must eventually be repaid.
Repayment is scheduled to begin in 2028 and continue through 2058.
For the 2028-2034 budget period, the European Commission has proposed allocating about €24 billion annually toward NextGenerationEU principal and interest payments — around €168 billion over those seven years.
That creates an unavoidable trade-off.
Every euro used to repay pandemic debt is a euro that cannot automatically be spent on defense, research, energy infrastructure, agriculture or other EU priorities unless governments contribute more money, Brussels creates new revenue streams or the debt structure changes.
Spain has already proposed altering the repayment profile in a way Reuters reported could create roughly €70 billion of additional budgetary space.
But debt restructuring proposals remain politically sensitive, especially among governments that originally agreed to NextGenerationEU only because they were assured it was temporary.
FRANCE IS A WARNING THAT DEBT STILL MATTERS
Arguments for additional European borrowing are also colliding with one of the most difficult bond-market environments Europe has faced in years.
France provides the clearest warning.
French 10-year government borrowing costs have approached 5%, reaching levels not seen since 2002 as investors worry about its budget deficit, political instability and growing debt burden.
France expects a deficit above 5% of GDP in 2026 and plans a record €340 billion of bond issuance in 2027.
Euro-area finance ministers and the European Central Bank have urged Paris to restore fiscal credibility.
The situation is important to the common-debt debate because it demonstrates that borrowing is never free.
Markets may differentiate between EU debt and the sovereign obligations of individual member states, but investors ultimately still care about repayment capacity, inflation and political discipline.
Joint borrowing can distribute risk.
It cannot eliminate risk.
THE ARGUMENT FOR MORE EU DEBT
Supporters of common borrowing argue that certain investments simply make more sense at the European level.
A cross-border electricity grid benefits multiple countries.
A European air-defense system cannot be efficiently designed as 27 entirely separate national programs.
Semiconductor plants, AI infrastructure, satellite systems and strategic supply chains can have continent-wide benefits.
European governments acting individually also risk duplicating spending and bidding against each other.
Pooling financing could create scale while directing resources toward projects that serve the entire single market.
There is another financial argument.
A larger and more liquid pool of EU bonds could eventually provide European investors with something closer to a common safe asset, helping deepen capital markets and potentially strengthen the international role of the euro.
NextGenerationEU already moved the European Commission from a relatively small borrower to a significant issuer in global bond markets.
THE ARGUMENT AGAINST IT
Opponents see a very different risk.
If Brussels can repeatedly borrow enormous sums backed by future EU budgets, governments may become less disciplined about national finances.
Countries with relatively low debt could ultimately find themselves politically responsible for programs benefiting states with much weaker fiscal positions.
There are also questions over who decides which investments qualify as genuinely European priorities.
Defense?
Almost certainly.
Cross-border electricity grids?
Probably.
National pension systems?
Much harder to justify.
The larger common borrowing becomes, the more politically explosive those decisions become.
And rising global borrowing costs make every new bond more expensive than during the ultra-low-rate environment in which NextGenerationEU was created.
The current turmoil in European bond markets reinforces those concerns.
The Financial Times reported on October 9 that European officials are increasingly wary of weakening fiscal rules while investors are already questioning government debt sustainability.
Italy and Greece have sought additional flexibility to deal with energy-related budget pressures, but Brussels has pushed back, warning that repeated exemptions could undermine confidence.
THE MOST LIKELY FUTURE MAY BE SOMEWHERE IN BETWEEN
Europe may never create a fully fledged federal Treasury resembling the United States.
Political resistance remains enormous.
But the idea that the European Union will never again borrow collectively after Covid has already become difficult to defend.
SAFE is financed through EU borrowing.
The bloc has borrowed to support Ukraine.
Brussels has developed the institutional machinery needed to issue large quantities of debt.
And Europe’s needs in defense, energy, technology and strategic infrastructure are becoming increasingly difficult for individual governments to finance alone.
That suggests the future may not be unlimited “Eurobonds.”
Instead, Europe may increasingly use targeted common borrowing for projects where the benefits clearly cross borders.
Defense could be the model.
Energy grids could follow.
Critical infrastructure, advanced technology and industrial projects may come next.
EUROPE’S BIGGEST QUESTION IS NO LONGER WHETHER IT CAN BORROW TOGETHER
Covid answered that question.
It can.
The harder question is whether Europe can agree on when it should borrow together, what the money should finance and who ultimately pays the bill.
The €806.9 billion pandemic recovery fund showed that Europe can mobilize enormous financial firepower when political leaders believe they face a common emergency.
Today, Europe faces a different collection of emergencies: war on its eastern frontier, an intensifying technology race with the United States and China, expensive energy, an aging population and declining industrial competitiveness.
The pandemic borrowing program therefore may eventually be remembered as more than an economic rescue package.
It may have been the moment Europe discovered that collective debt could become another instrument of collective power.
But turning that precedent into permanent policy will require persuading skeptical governments and investors that Europe can borrow together without sacrificing fiscal discipline.
That battle is only beginning.
