POLITICO: Europe suffers from bad management and lack of money

Pic.: europeanceo.com

Madrid wants governments to be jointly liable for borrowing huge amounts of money to boost the bloc’s coffers.

Spain has urged the EU to break one of its biggest taboos and force governments to become liable for each other's debt — to double the bloc's spending power.

Madrid’s center-left government demanded a repeat of the EU’s joint borrowing scheme, used in a limited way from 2021 to finance post-Covid recovery programs and due to expire next year, as a permanent way of super-sizing its central budget.

While the idea of more joint debt is popular in Spain, France and Italy, it has long been strongly opposed by Germany and other mainly northern European countries, which don't want to be on the hook for other governments with higher borrowing costs.

With the EU organizing its budget over a seven-year period, the Spanish government set out its priorities ahead of the first official meeting of EU commissioners on Tuesday evening, where they will begin the arduous task of sketching out the 2028-2034 version.

“A common loan-based mechanism financed by joint borrowing would sustain strategic investments and finance European public goods,” the government wrote in an informal document seen by POLITICO.

Spain is the first major European country to officially outline how the EU's next seven-year budget should look. The Commission is expected to put forward its proposal this summer.

The EU's total budget currently stands at €1.2 trillion which, on a yearly basis, is under one percent of its total economic output.

An even more controversial idea Spain is pushing consists of postponing when the EU’s €300 billion debt is paid back to try to improve cash flow. The move is designed to create more space for the Commission to fund common priorities including the transition “toward a green economy” which, according to Spain, deserves more money.

“This reprogramming will alleviate short-term fiscal pressures, ensure liquidity in the EU bonds market and allow continued investments for the future European economic model,” the document reads.

But the so-called frugal countries see this idea as a slippery slope toward creating a "fiscal union" where the Commission permanently takes on debt on behalf of its 27 members.

The EU’s budget commissioner dismissed this option during his hearing with EU lawmakers in November. 

To allow even more spending, Madrid suggested using part of the €422 billion held by the European Stability Mechanism, the eurozone’s bailout fund, to tackle the economic fallout from the war in Ukraine.

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