I have always sided with the sceptics, not out of hostility to European integration but because I believe much of the enthusiasts’ agenda is practically impossible. That makes me less a sceptic than a realist but let us not split hairs.
My position has not changed but the world around Europe has. Russia is waging war on the continent. America’s security guarantees have evaporated. I can understand why that drives people towards closer union. I am just not persuaded by what is being proposed.
In early February, Bundesbank President Joachim Nagel called for Europe to issue more joint debt. He called it a “safe asset” to attract global investors and bolster the euro.
This was no Brussels bureaucrat talking. This was the head of Germany’s central bank. For decades, the Bundesbank was the institution most fiercely opposed to pooling European debt. A few years ago, barely two members of the European Central Bank’s governing council backed the idea. Now the Bundesbank, the former bastion of monetary and fiscal orthodoxy, has switched sides.
So, what are Eurobonds? They are debt issued collectively by EU member states. Instead of each country borrowing on its own, at interest rates reflecting its economic strength, the borrowing is pooled. Everyone borrows together. The strong prop up the weak.
The idea surfaced during the euro crisis of the early 2010s. Germany and the fiscally conservative north blocked it every time. Their objection was simple. Why should prudent countries guarantee the debts of profligate ones?
I agreed with that objection then. I still do.
Crises move goalposts, though. The 2020 pandemic broke the taboo. EU leaders jointly borrowed 800 billion euros for a recovery fund. That was supposed to be a one-off. Germany’s constitutional court approved it on that explicit basis.
It is never a one-off. Since then, the EU has borrowed again to finance aid to Ukraine. Each time the precedent grows stronger and the legal fiction wears thinner.
Now the crisis is security. NATO wants European members spending 3.5 per cent of GDP on defence by 2035. The Kiel Institute, a respected German think tank, has proposed two trillion euros in joint defence bonds over the next decade. No single European country can fund that alone.
Consider Germany’s Chancellor, Friedrich Merz, and a contradiction that sums up the whole mess.
In March 2025, Merz gutted Germany’s constitutionally enshrined debt brake, the rule that had defined German economic identity for over a decade. He unlocked 500 billion euros in infrastructure spending and exempted defence spending above one per cent of GDP from all borrowing limits.
Germany’s 2026 defence budget is 83 billion euros, twenty billion more than the year before.
He did this by rushing the vote through the outgoing parliament before the new one could take its seats. The man who had campaigned against debt broke his own party’s core commitment within days of taking office.
Yet when Macron proposed Eurobonds at the EU summit in February 2026, Merz refused by pointing out the constitutional constraints. It was a self-contradiction: Merz tore up the rules at home yet invokes the constitution to block joint borrowing in Europe.
I have some sympathy for Merz. Yes, the contradiction is glaring, but it points to something real. The economic objections to Eurobonds have not disappeared.
Joint borrowing separates spenders from payers. National governments keep full control of their budgets while the costs are shared. That is a recipe for spending other people’s money.
Italy is the prime example of this moral hazard problem. When the country joined the eurozone, its borrowing costs fell sharply to match Germany’s. The savings were enormous.
Over fifteen years, the Italians could have paid off their entire national debt. Instead, Italian governments spent the windfall on consumption. The debt barely moved. Why would Eurobonds produce a different outcome?
Greece tells the opposite story. Under pressure from creditors, it restructured its economy, digitised its health system and consolidated its public finances. Its debt-to-GDP ratio has dropped from over 200 per cent to around 150. Painful, yes, but it worked. Eurobonds would remove exactly the pressure that made Greece’s turnaround possible.
Nagel’s “safe asset” pitch defeats itself. A jointly issued bond may look safe on the day it launches, but the moment it exists, it weakens discipline across the continent. Debt accumulates, and the bond becomes progressively less safe. The instrument undermines the creditworthiness it was supposed to provide.
Debt mutualisation also assumes that strong economies will stand behind the collective guarantee. But Germany is no longer strong. Its economy has shrunk in two of the last three years. Industrial output has fallen four years running. The Federation of German Industries calls it the longest downturn since reunification.
Eurobonds are thus not pooling strength. They would be pooling weakness, hoping nobody notices.
There is also the question of who benefits most. The loudest advocate for Eurobonds is France, the large EU member state whose political class has proven least willing to get its finances in order. Italy tries fiscal restraint, if insufficiently. Spain benefits from growth. Paris simply lacks the will.
Joint European borrowing would let France shift part of its burden onto the EU. That is not solidarity but cost-shifting with a European flag draped over it.
Eurobonds are still the wrong answer because the old logic still stands: those who spend must also pay. Sever that link and you get moral hazard, not as a theoretical possibility but as a certainty.
Funding defence through borrowing structures that erode discipline is a way of creating a new crisis while trying to fix an existing one.
Yes, the continent needs the capacity to defend itself. But it does not need instruments that entrench the habits which left it vulnerable.
When even the Bundesbank changes its mind, the old certainties are gone. Sound economics, however, is not a fashion to be discarded when the geopolitical weather turns.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
My position has not changed but the world around Europe has. Russia is waging war on the continent. America’s security guarantees have evaporated. I can understand why that drives people towards closer union. I am just not persuaded by what is being proposed.
In early February, Bundesbank President Joachim Nagel called for Europe to issue more joint debt. He called it a “safe asset” to attract global investors and bolster the euro.
This was no Brussels bureaucrat talking. This was the head of Germany’s central bank. For decades, the Bundesbank was the institution most fiercely opposed to pooling European debt. A few years ago, barely two members of the European Central Bank’s governing council backed the idea. Now the Bundesbank, the former bastion of monetary and fiscal orthodoxy, has switched sides.
So, what are Eurobonds? They are debt issued collectively by EU member states. Instead of each country borrowing on its own, at interest rates reflecting its economic strength, the borrowing is pooled. Everyone borrows together. The strong prop up the weak.
The idea surfaced during the euro crisis of the early 2010s. Germany and the fiscally conservative north blocked it every time. Their objection was simple. Why should prudent countries guarantee the debts of profligate ones?
I agreed with that objection then. I still do.
Crises move goalposts, though. The 2020 pandemic broke the taboo. EU leaders jointly borrowed 800 billion euros for a recovery fund. That was supposed to be a one-off. Germany’s constitutional court approved it on that explicit basis.
It is never a one-off. Since then, the EU has borrowed again to finance aid to Ukraine. Each time the precedent grows stronger and the legal fiction wears thinner.
Now the crisis is security. NATO wants European members spending 3.5 per cent of GDP on defence by 2035. The Kiel Institute, a respected German think tank, has proposed two trillion euros in joint defence bonds over the next decade. No single European country can fund that alone.
Consider Germany’s Chancellor, Friedrich Merz, and a contradiction that sums up the whole mess.
In March 2025, Merz gutted Germany’s constitutionally enshrined debt brake, the rule that had defined German economic identity for over a decade. He unlocked 500 billion euros in infrastructure spending and exempted defence spending above one per cent of GDP from all borrowing limits.
Germany’s 2026 defence budget is 83 billion euros, twenty billion more than the year before.
He did this by rushing the vote through the outgoing parliament before the new one could take its seats. The man who had campaigned against debt broke his own party’s core commitment within days of taking office.
Yet when Macron proposed Eurobonds at the EU summit in February 2026, Merz refused by pointing out the constitutional constraints. It was a self-contradiction: Merz tore up the rules at home yet invokes the constitution to block joint borrowing in Europe.
I have some sympathy for Merz. Yes, the contradiction is glaring, but it points to something real. The economic objections to Eurobonds have not disappeared.
Joint borrowing separates spenders from payers. National governments keep full control of their budgets while the costs are shared. That is a recipe for spending other people’s money.
Italy is the prime example of this moral hazard problem. When the country joined the eurozone, its borrowing costs fell sharply to match Germany’s. The savings were enormous.
Over fifteen years, the Italians could have paid off their entire national debt. Instead, Italian governments spent the windfall on consumption. The debt barely moved. Why would Eurobonds produce a different outcome?
Greece tells the opposite story. Under pressure from creditors, it restructured its economy, digitised its health system and consolidated its public finances. Its debt-to-GDP ratio has dropped from over 200 per cent to around 150. Painful, yes, but it worked. Eurobonds would remove exactly the pressure that made Greece’s turnaround possible.
Nagel’s “safe asset” pitch defeats itself. A jointly issued bond may look safe on the day it launches, but the moment it exists, it weakens discipline across the continent. Debt accumulates, and the bond becomes progressively less safe. The instrument undermines the creditworthiness it was supposed to provide.
Debt mutualisation also assumes that strong economies will stand behind the collective guarantee. But Germany is no longer strong. Its economy has shrunk in two of the last three years. Industrial output has fallen four years running. The Federation of German Industries calls it the longest downturn since reunification.
Eurobonds are thus not pooling strength. They would be pooling weakness, hoping nobody notices.
There is also the question of who benefits most. The loudest advocate for Eurobonds is France, the large EU member state whose political class has proven least willing to get its finances in order. Italy tries fiscal restraint, if insufficiently. Spain benefits from growth. Paris simply lacks the will.
Joint European borrowing would let France shift part of its burden onto the EU. That is not solidarity but cost-shifting with a European flag draped over it.
Eurobonds are still the wrong answer because the old logic still stands: those who spend must also pay. Sever that link and you get moral hazard, not as a theoretical possibility but as a certainty.
Funding defence through borrowing structures that erode discipline is a way of creating a new crisis while trying to fix an existing one.
Yes, the continent needs the capacity to defend itself. But it does not need instruments that entrench the habits which left it vulnerable.
When even the Bundesbank changes its mind, the old certainties are gone. Sound economics, however, is not a fashion to be discarded when the geopolitical weather turns.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
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