18 May 2021

Debt mutualisation across EU Member States has recently been brought to the forefront of discussion. Firstly, because of the European Central Bank’s (ECB) balance-sheet operations, through Eurozone members’ public debt purchases in financial markets or via TARGET2 balances, where the balance of payments amongst countries are recorded.

Secondly, through the settlement and ratification of the Next Generation EU package that deals with the aftermath of the Covid-19 pandemic. Both the ECB’s sovereign securities purchase programmes and the pandemic funding injection have been addressed by the German Constitutional Court in 2020 and 2021. This unveiled some constitutional weaknesses in the EU that must be sensibly solved as soon as possible to avoid major undesired effects.

The briefing suggests deepening the Single Market through fiscal harmonisation, sound monetary policy, and by maintaining the free movement of goods, services, and people. EU decision-makers should not rely on monetary or fiscal weapons that distort competition and create perverse incentives.