Lifting the curtain on the EU’s debt

The EU’s far-reaching response to a series of major shocks has turned it into a major borrower on international financial markets. Debt issued by the EU on behalf of its member states now stands at close to 5½% of GDP, almost twice as much as six years ago. This column highlights two crucial issues associated with this trend. It reviews implications for conventional debt statistics and looks at debt servicing obligations.

In advanced democracies, the availability of high-quality data is one of the foundational pillars of rational, evidence-based decision making; at the minimum, it contributes to transparency and accountability. When new relevant developments emerge, statistical offices typically recast their ‘nets’ to make sure policymakers and citizens can make informed decisions, if they want to. 

In economic policymaking, the system of national accounts is a prime expression of this logic. Launched after WWII and continually improved since, national accounts are a standardised system of statistics that measure a country’s total economic activity over a given period. They record production, income, expenditure, but also wealth or debt, across all sectors of the economy, including the government sector. 

In the last five years the European System of Accounts (ESA) has been adapting to the new reality linked to the expanding role of the EU as borrower. Before that, the EU’s economic and financial footprint was not separately visible in ESA. All transactions with and from the EU were recorded in a residual corner, the so-called ‘rest of the world’. While this blind spot was justifiable as long as the EU’s debt issuance was very limited, there is now a growing need to bring the EU’s economic and financial impact, in particular its debt into view. 

How much debt has the EU issued?

The EU has been issuing debt on behalf of its member states for decades notably to help non-EU countries or non-euro area member states address external financing difficulties. However, the amounts involved were modest if not negligible. The Global Financial Crisis, followed by the Covid pandemic, changed this radically. Faced with dislocations of unprecedented scale, the EU decided to launch a number of financial support and expenditure programmes – such as SURE, the NextGenerationEU (NGEU) initiative and, more recently, SAFE – to be funded with ‘externally assigned resources’ taking the form of debt issued on behalf of its member states.

To put things into perspective, in 2025 the stock of debt issued by the EU came close the combined level of Belgian and Dutch sovereign debt, thus, turning the EU into a prominent borrower on international financial markets. In absolute terms, the EU’s debt issuance on behalf of its member states increased fivefold between 2020 and 2025. As a share of all EU member states’ economic output, it went from 2.9% of GDP in 2020 to 5.4% in 2025. 

Transparency: A comprehensive measure of EU debt

EU debt is an expression that is widely used in the public domain in different contexts and by a broad range of commentators, including public-finances experts. Unless explicitly specified, it simply refers to the sum of sovereign gross debt across all EU member states as recorded in national accounts statistics. As long as debt issued by the EU was negligible, this number was a sufficiently close approximation of the total amount of liabilities all member states are bound to service. 

However, as debt issued by the EU on behalf of its member states increased significantly, this conventional measure of EU debt no longer offers the full picture. What matters is how the EU uses or allocates the funds. If they are passed on to member states in the form of loans (as is the case under SURE and partly under the NGEU), they will increase national debt accordingly. Conversely, if they are passed on to non-member states or in the form of grants, the conventional measure of EU debt no longer captures the total amount of sovereign debt in the EU. 

Shortly after the EU adopted the NGEU initiative, Eurostat launched efforts to remedy the treatment of the EU in national accounts by bringing it out of the obscure corner of the ‘rest of the world’. In plain words, the EU has been given its own space in the system of national accounts. This followed conclusions of the Council of the European Union and was in line with suggestions from the European Fiscal Board. 

Table 1 illustrates the magnitudes involved. Column (i) shows the conventional understanding of EU debt, i.e. aggregated national data, which, following a decline after the end of the Covid-pandemic, started to increase again in 2024. The following three columns report outstanding debt issued by the EU on behalf of its member states as well as its breakdown. The portion passed on to member states in the form of loans (column ii) remained broadly constant at around 3 ½ % of GDP, while grants to member states as well as grants and loans to non-EU member states (column iii) increased significantly over the period, now accounting for about a third of total debt issued by the EU. This increase reflects progress with the implementation of the RRF, the dominant component of NGEU, as well as debt-financed support to Ukraine. 

Table 1 Composition of EU debt, % of GDP

Notes: Values below the dotted line are from the Commission 2026 spring forecast.
Sources: Column (i) European Commission ; column (ii) – (iv) Eurostat; column (v) EFB calculations

The encompassing stock of sovereign debt in the EU is reported in column (v). Still very close to the conventional measure of EU debt in 2021 when NGEU was about to be launched, it is now almost 2% of GDP higher for the reasons mentioned above.  

Financing: Debt issued by the EU is no free lunch

Like any other borrower, the EU is bound to meet its financial commitments. This includes servicing debt issued on behalf of its member states. Between 2022 and 2025 the EU’s interest expenditure, as provided by Eurostat, increased by more than threefold to €17.9 billion. This reflects both more borrowing as well as rising yields on sovereign bonds. 

EU debt passed on to member or non-member states in the form of loans can be characterised as assets of the EU. While this is technically correct, it is not entirely clear how marketable EU loans to member states would be, especially compared to loan contracts between private entities. In any case, from a macroeconomic perspective, the resources needed to service debt issued by the EU ultimately come from the member states, either through new contributions to the EU budget or by cutting other EU expenditure.

The mid-term revision of the EU’s current Multiannual Financial Framework (MFF) agreed early 2024 was a clear case in point. ⁴ The revision created a new special instrument to mobilise member states’ resources to address higher-than-initially-projected debt-servicing costs, and to avert cuts in EU expenditure programmes. Hence, from this point of view, revealing the full extent of EU debt is about more than transparency. It also helps counter the possible misconception that debt issued by the EU is like a free lunch for national governments.

As the current MFF comes to an end, negotiations on the next long-term budget (2028-2034) are in full swing. A central question in the ongoing discussions is how to finance the EU’s larger financing needs, including higher debt servicing costs. Aside from member states GNI-based contributions, the EU budget is funded through other so-called ‘own resources’, which are revenues to which the EU is directly entitled to. 

The introduction of the NGEU came with the clear understanding of EU legislators that the EU budget would require additional resources to fulfil its financial obligations.⁵ To date, no major progress on expanding the EU’s own resources has been made with the exception of a tax on non-recyclable plastics, which made up 3% of the EU’s revenues in 2025. The Commission has since proposed five additional revenue streams, which it estimates would generate €44 billion annually, equivalent to roughly 20% of the EU’s total revenues in 2025. This would cover the annual interest expenditure of NGEU borrowing, which is estimated to peak between €27 billion and €32 billion in 2030 (Claeys et al. 2023). However, given the difficult discussions on the Union’s own resources, the jury is still out on whether member states will accept this proposal in full.

Conclusions

Transparency fosters trust and accountability. As the EU’s role as a borrower evolved, so did the availability of relevant statistics, strengthening the case for identifying EU institutions separately in national accounts. New data allow us to calculate an all-encompassing debt figure going beyond the conventional, aggregated gross debt of member states. These new data also remind us of the well-known notion that there is ‘no such thing as a free lunch’. The EU as an institution is bound to honour its financial commitments like anyone else, and the resources ultimately come directly from the member states or from new own resources collected from the member states’ economies. 

Source : VOXeu