Commission plans to raise €800 billion for NextGenerationEU
Today, 14 of April, the European Commission has decided to use a new approach of diversified funding in order to raise around €800 billion until 2026 for the recovery of the EU. This plan of action will allow the Commission to get the necessary amount of money efficiently, in a way that will also attract investors to Europe and strengthen the international role of the euro.
The funding will go to the NextGenerationEU programme, which has the goal of helping the EU recover from the coronavirus pandemic, and it will happen by borrowing on the financial markets. According to plan, about €150 billion will be borrowed per year, which means that the EU will be one of the biggest issuers in euro, and by 2058 all of it will be paid back.
Diversified funding strategy
A diversified funding strategy integrates different funding instruments and techniques, along with transparent communication to the market participants. In this case, the strategy would combine the following:
- Annual decision on borrowing volumes and 6-monthly communication on the funding plan's key parameters
- Structured and transparent relationships with banks supporting the issuance programme (via a Primary Dealer Network);
- Multiple funding instruments (medium and long-term bonds, some of which will be issued as NextGenerationEU green bonds, and EU-Bills) to maintain flexibility in terms of market access and to manage liquidity needs and the maturity profile;
- A combination of auctions and syndications, to ensure cost-efficient access to the necessary funding on advantageous terms.
This approach would help the Commission to guarantee a bigger market absorption ability by using a broad range of maturities and instruments and by making funding operations more foreseeable. Also, the possibility to auction debt will make the funding operations even more effective, which in turn will help handle the large funding needs. At the same time, the Commission will manage to get low cost and low execution risk, beneficial for all Member States, by allowing flexibility to decide when to execute funding operations and which funding techniques or instruments to use.
The Commission will set up a Primary Dealer Network to facilitate the efficient execution of auctions and syndicated transactions, support liquidity in the secondary markets, and ensure the placement of our debt with the widest possible investor base. It will adopt and publish its first annual Borrowing Decision and Financing Decision, and first NextGenerationEU funding plan. The NextGenerationEU borrowing is expected to start this summer, depending on the approval of the Own Resources Decision by all Member States. Funding plans will then be updated semi-annually.
Image © European Commission, 2021