Every person with income, assets or savings in euros is waiting anxiously to see what will happen to France in the next weeks, after the PM, Bayrou, warned the population that if they don’t urgently reform their fiscal spending, they will need to seek IMF intervention.
That led me to ask: ok, we know that many countries in Europe now have debt-to-GDP ratios higher than 100%. But how does the European Commission debt ratio look like?
What I found made me even more anxious. Let me walk you through it.
First, we need to remember that the European Commission is not a financial institution. Its role is not to borrow and lend money. It is a political institution, a kind of “secretariat” responsible for implementing the policies decided by EU member states and citizens.
Historically, the Commission’s borrowing capacity was very limited. But that changed in 2020, when the COVID crisis opened the door for issuing EU bonds—joint debt sold in the private financial markets to finance EU policies.
By the end of 2024, in just four years, the Commission had issued circa €650billion of these securities, divided into the following programs: SURE €100bn, NextGenerationEU €520bn, Ukraine Facility €33bn.
But that number alone doesn’t say much. Is €650bn large or small? How can we assess it?
The Commission is not a country, so it doesn’t have a GDP we can use as a benchmark. But it does have yearly cashflows—what member states pay in. In a way, it can be assessed more like a company. Every year it receives contributions from members, and more recently it is exploring revenues from what it calls “own resources” (still to be developed)
So taking 2024 as reference, if the total payments from member states were about €143bn, that means that the Commission’s debt-to-revenue ratio at the end of that year raised to around 450%
Put simply, in 2024 the European Commission had 4.5 times more debt than the income it received. And on average, every year it had been borrowing 1.2 times what it collected in cash
This is mind-blowing and unnerving, especially if you realise that the borrowing is not showing signs of stopping. NextGenerationEU will keep issuing debt until 2026. And just last week, a new package called SAFE was approved: another €150bn of fresh debt, this time to lend to member states to buy weapons. And who knows how many more programs are still to come
And here’s the point: as an individual, you would never be allowed to do this. But the Commission can, because these bonds are guaranteed by EU member states themselves. Yes, the same member states like France, whose own PM say they are at the doorstep of an IMF bailout
Mind-blowing, unnerving, and against all laws of gravity, logic and common sense.
But hey, you know, I’m sure the problem is me. I’m probably over-exaggerating and there’s nothing to worry about. I’m sure there’s a logical explanation that I just can’t see.
So let’s just sit back, relax and wait for the eurozone to crash.
