The search for a European safe asset has generated no shortage of proposals, but these proposals require, from the outset, a degree of mutual trust that European countries have not yet achieved. This column sketches a political-economy roadmap which starts from what is politically feasible today, and from there builds a conditional path towards a European safe asset, without losing sight of the long-term perspective.
As Europe confronts a more fragmented and dangerous geopolitical environment, its search for strategic autonomy increasingly raises a financial question: can a monetary union without a common safe asset remain fit for purpose?
To be sure, the search for a European safe asset has generated no shortage of proposals. Over the past fifteen years, economists and policymakers have explored a wide spectrum of solutions: Eurobonds, Blue-Red Bonds, securitisation of national bonds into senior and junior tranches (ESBies), leveraged funds built around the European Stability Mechanism, and proposals centred on fiscal union.
Yet the debate remains stuck. Even under today’s geopolitical conditions – and absent a major shock creating a European ‘Hamiltonian moment’ – it is difficult to see how a coalition of sufficient scale could be assembled upfront around any of the existing proposals, let alone agreement at the level of the whole euro area/EU.
The core political-economy constraint is that these proposals require, from the outset, a degree of mutual trust that European countries have not yet achieved.
Europe’s safe-asset problem is, therefore, not only a design problem. It is a sequencing problem. The current safe asset debate is economically sophisticated, but politically too front-loaded. Europe cannot ask member states to cross some of their hardest red lines right from the start. Historically, European integration has never proceeded that way. Economic and Monetary Union itself did not begin with Stage 3.
Against this backdrop, we sketch a political-economy roadmap toward a European safe asset.
If Europe cannot jump directly to a European safe asset, the question becomes: can it get there gradually, but also over a reasonable time horizon?
We argue that in today’s new context it can.
A key insight is that Europe’s debate on common debt is no longer taking place under the same political conditions that prevailed during the sovereign debt crisis or the pandemic. For the first time, a new alignment of incentives is emerging (Demertzis 2026). Two shifts matter.
First, the rationale for common borrowing is moving from solidarity to mutual self-interest. This is particularly evident in defence and strategic autonomy.
Even for countries with large national spending plans, security ceases to be purely national once threats can cross allies’ borders. A national missile shield stops being national the moment a missile can fly over neighbouring countries.
Second, the rationale is moving from transfers to fiscal efficiency. Many European public goods (EPGs) – integrated missile and drone defence, satellites, cyber infrastructure, transnational energy grids, secure cloud systems, joint research platforms, etc. – exhibit strong economies of scale.
Producing them through 27 parallel national efforts is not only strategically inefficient; it is fiscally inefficient. Europe is increasingly paying a fragmentation tax. Even for countries that enjoy lower national borrowing costs, joint procurement and financing of EPGs may be fiscally cheaper overall. Economies of scale, interoperability, and lower duplication costs can more than offset any funding premium on common debt.
This shift fundamentally changes the political economy of common debt.
The recent defence-financing initiative launched by the UK, the Netherlands, and Finland illustrates this shift. Participating countries plan to capitalise a new institution that would support bond issuance for joint procurement and defence investment (HM Treasury 2026). While this does not lead to a European safe asset, it signals that coalition-based strategic financing is becoming politically viable.
If a new pathway can be opened, what needs to change, and how?
In recent work (Dorrucci and Rossi 2026), we identify what we call the ‘Brussels Consensus’. Due to well-known institutional, legal and political reasons, the issuance of European common debt has remained within six clear boundaries for more than seventy years – from the European Coal and Steel Community in the 1950s to NextGenerationEU and Ukraine-related borrowing today.
This defines the status quo (t0 in our roadmap), as illustrated in Figure 1.
Figure 1 The ‘Brussels consensus’: Limits of joint borrowing today
Today as in the past, the issuance of common debt in Europe complies with six limits: (1) ad-hoc policy objectives, often in response to shocks and crises (i.e., issuance does not serve strategic/lasting goals); (2) temporary; (3) financing of new expenditure only (“flow” approach), with no replacement of legacy national debts (stock approach); (4) limited risk mutualisation (e.g., no joint guarantees); (5) issued by institutions such as the Commission or the ESM, not by a common Treasury with a permanent central fiscal capacity; (6) consistent with the principle of no permanent transfer union.
A key implication of our framework is that, to build a genuine European safe asset, Europe does not need to cross all six boundaries in Figure 1; crossing the first four would already be sufficient to create one. Only beyond that point does the standard argument become valid; the cart of a European safe asset cannot come before the horse of a full political, fiscal and transfer union. That is the truly long-run horizon: the perspective of a future European Federation.
Moreover, any credible roadmap must reconcile two equally important realities:
Reconciling these realities leads to a roadmap that starts from what is politically feasible today, and from there builds a conditional path towards a European safe asset, without losing sight of the long-term perspective.
The first step is building on the current momentum by crossing the first two boundaries of the Brussels consensus. Instead of ad-hoc and temporary borrowing, Europe would move to permanent financing of strategic investment in EPGs (Figure 2).
Figure 2 Step 1: Permanent financing of European public goods
While this would not directly produce a European safe asset, it would create the institutional, fiscal, and market conditions under which one could eventually emerge.
We argue that the most politically realistic avenue would be an open coalition of willing states operating through a new intergovernmental arrangement. It would establish a dedicated special purpose vehicle (SPV) outside existing EU budgetary constraints, not as a substitute for existing institutions, but as a pragmatic solution where unanimity is unattainable. The SPV would issue Strategic Investment Bonds.
Three design features are critical for Step 1:
Within a few years, such a framework could create a predictable issuance programme, build an investor base, and test governance mechanisms in practice.
Step 1 would therefore serve a dual purpose:
Only once Step 1 is established does Step 2 become politically realistic.
Step 2 consists in also crossing the third and fourth boundaries of the Brussels Consensus. Joint borrowing would move from a pure flow approach toward a stock-and-flow approach, and include stronger forms of risk mutualisation (Figure 3).
Figure 3 Step 2: Stock-and-flow approach, more risk mutualisation
The SPV would begin issuing European Safe Bonds, gradually replacing part of national sovereign debt along lines similar to Blanchard and Ubide (2025, 2026).
A genuine European safe asset requires three additional elements:
A natural objection is that today Germany opposes not only the mutualisation of legacy debt, but also permanent common borrowing for strategic purposes.
This objection cannot be ignored. Germany may not be indispensable to initiate Step 1, nor for the arithmetic of a European safe asset. A coalition of large euro area sovereigns could in principle achieve sufficient scale. But Germany remains disproportionately important for credibility. A coalition without Germany would face higher funding costs, weaker market acceptance, and greater political fragility.
The relevant question is, therefore, not whether Germany says no today, but under what conditions it might say yes tomorrow.
Three conditions matter.
First, moral hazard concerns must be taken seriously. Well-designed common debt must preserve incentives through automatic enforcement, clearly defined revenue backing, and sound fiscal governance.
Second, Germany must be persuaded that Europe faces structural underprovision of non-excludable public goods. Security in Germany is only as strong as Europe’s weakest border. Likewise, German Bunds remain safe, but they are not scalable enough to anchor the euro.
Third, German domestic politics are evolving. The reform of Germany’s debt brake (March 2025) reflects growing recognition that strategic investment cannot be subordinated to fiscal dogmas. That logic may eventually extend to the European level, if coupled with proper safeguards to preserve fiscal sustainability. Moreover, prominent German academics, entrepreneurs and policymakers have recently opened to joint procurement and financing of defence-related EPGs, as well as the creation of a European safe asset (e.g. Schularick et al. 2026, Nagel 2026).
We believe that eventually crossing the last two boundaries of the Brussels Consensus, which would likely materialise through a future constitutional transition, would considerably strengthen the long-term sustainability and credibility of European common debt (Figure 4).
But today, the absence of a European Federation should not prevent gradual progress where political conditions already allow it.
Figure 4 Long run: Full political, fiscal and transfer union
Europe’s safe asset debate is often framed as a binary choice between financial engineering now and fiscal union first. But a third way exists: feasible sequencing.
A step-by-step approach will not be costless. Early issuance will remain relatively expensive. Markets will initially be small and illiquid. But a feasible second-best may be preferable to waiting indefinitely for a first-best political settlement that may never arrive.
Europe not only needs a safe asset. It first needs a politically credible path toward one, and pragmatic federalism (Draghi 2025) is the only way forward.
Source : VOXeu
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