sinn108_KENZO TRIBOUILLARDAFP via Getty Images_PauloGentiloni Kenzo Tribouillard/AFP via Getty Images

Europe at Debt’s Door

The European Commission’s ongoing borrowing spree is economically irresponsible and clearly inflationary. By continuing to issue common bonds to finance its expenditures, the Commission is harming European savers and undermining the creditworthiness of national governments.

MUNICH – Hit hard by the COVID-19 pandemic and the war in Ukraine, the European Union needs money. And given that Paolo Gentiloni, the bloc’s economy commissioner, cannot get it directly from the EU’s member states, he wants to borrow it. The purpose does not seem to matter. What matters is that the Commission receives money – lots of it – even if that means amassing a mountain of debt.

In 2020, Gentiloni played a key role in creating NextGenerationEU (NGEU), the emergency program that enabled the EU to borrow over €800 billion ($858 billion) to deal with the effects of the COVID-19 pandemic. Last May, he wanted to raise funds to aid Ukraine, and in October he suggested issuing joint debt to help European citizens with their gas bills. Now, amid a wave of common debt issuances, the European Commission plans to compete with US President Joe Biden’s $369 billion Inflation Reduction Act, which includes subsidies for clean-energy projects. While the new plan might not involve new borrowing, it proposes a new “European sovereignty fund” to invest in green technologies.

It is doubtful that the benefits of these programs will justify their costs. For example, there seems to be no correlation between the distribution of NGEU funds and the severity of local COVID-19 outbreaks. There is, however, a negative correlation between NGEU aid and GDP per capita, with some of the poorer countries that were less affected by the virus received staggering amounts of money.