布魯蓋爾研究所-下一代歐盟借款：第一次評估（英）-2021.11-23正式版

PolicyContribution

Issuen?22/21?|November2021

NextGenerationEUborrowing:afirstassessment

RebeccaChristie,GrégoryClaeysandPaulineWeil

RebeccaChristie

(rebecca.christie@bruegel.org)isaNon-residentFellowatBruegel

GrégoryClaeys(gregory.claeys@)isaSeniorFellowatBruegel

PaulineWeil(pauline.weil@)isaResearchAssistantatBrugel

ThisPolicyContributionwaspreparedfortheEuropeanParliament’sCommitteeonBudgets(BUDG).TheoriginalpaperisavailableontheEuropeanParliament’swebpage(

here

).CopyrightremainswiththeEuropeanParliamentatalltimes.

Executivesummary

TheNextGenerationEU(NGEU)programmeisradicallychangingthewaytheEuropeanUnioninteractswithfinancialmarketsbecauseofitsambitiousandgroundbreakingnewpublicdebtprogramme.TheEuropeanCommissionhasadoptedanew,diversifiedborrowingstrategy,similartothatofothermajorissuers,toraisemoneysafely,reliablyandinacost-effectivemanner.EUdebtthereforehastobeattractivetofinancialmarketsandmustmaintainastrongcreditrating.

TheEUplanstobuildafullbenchmarkyieldcurvebyissuingadiverserangeofdebtsecurities,withmaturitiesrangingfromthreemonthstothirtyyears.TheEUhasalsosetupaprimarydealernetworkofeligiblebankstosupporttheissuanceprogramme,withissuancemainlythroughauctionsandsyndicatedtransactions.Awell-functioningdealernetworkiscrucialtohelptheEUselldebtsmoothly,maintainliquidityandadjustborrowingplanstomarketconditions.Sofar,theEU'sfirstissuanceshaveshownstronginvestorinterest,andtheEUhasachievedgoodratingsandstrongrelativepricingcomparedtoitssovereignandsupranationalpeers.

NGEUborrowingrepresentsauniqueopportunitytolaythegroundworkforaEuropeansafeasset,whichcouldhelpresolvesomelong-standingissueswiththeEuropeanmacroandfinancialarchitecture.Forittosucceed,EUdebtwillneedtoperformatleastasstronglyasothermajoreuro-areaissuersintermsofprimaryissuanceandonsecondarymarkets.TheEuropeanCommissionwillneedtomonitoritsdealernetworktomakesureitiswellpositionedtosupportmarketoperations.Itshouldalsobecarefulthatitsselectionsofbankstoworkwithinfinancialoperationsareconsideredfair,transparentandunbiased.

TheEUwillbecomethelargestgreen-bondissueraspartofNGEU'smandatetoissueuptoathirdofitsdebtinthismarketsegment.Ifsuccessful,thiscouldfurtherservetobolstertheeuro’sinternationalrole.TheEUwillneedtobalanceitscommitmenttonewclimatestandardsagainstcurrentmarketconditions,tomakesurethatNGEUdebtbothsupportsnewclimatefinancerulesandattractssufficientinvestorinterest.

Overall,EU-leveldebtshouldbenefitEUcapitalmarketsandenhancethefinancialarchitectureoftheeuroarea.However,toreapthebenefitsofEUborrowingfully,theprogrammewouldhavetobemadepermanentanditsvolumelargersothatitprovidesabenchmarkyieldcurveandalong-termsafeasset.

Recommendedcitation

Christie,R.,G.ClaeysandP.Weil(2021)‘NextGenerationEUborrowing:afirstassessment’PolicyContribution22/2021,Bruegel

WhatisnewaboutNGEUisnotjusttheincreaseintheEU’sborrowingpower,butalsothenatureoftheexpenditure

1Introduction

TheEuropeanCommissionissuesdebtonfinancialmarketsonbehalfoftheEuropeanUnionandhistoricallyhaslentittoprovideassistancetocountriesexperiencingdifficulties.ThishasallowedrecipientcountriestobenefitfromthelowratesavailabletotheEUasahigh-ly-ratedborrower,particularlyattimeswhenthecountriesthemselveshadlostmarketaccess.TheEUbudgetisusedasaguaranteeforthisdebtintwoofthethreelendingprogrammes:balance-of-payments(BoP)assistancefornon-euroEUmemberstatesandtheEuropeanFinancialStabilityMechanism(EFSM)foreuro-areacountries.Theamountsarelimited(at€110billionintotalcapacity)1astheCommissionhadtobeabletocoverdebtservicingwiththeavailablemarginsundertheown-resourcesceiling,theso-called‘headroom’intheEUbudget,whichalsoactedasaguaranteeagainstdefaultbydebtors.TheCommissionalsoraisedfundsforathirdprogramme,Macro-FinancialAssistance(MFA)fornon-EUcountries.ButMFAdebtisbackedseparatelybytheEUbudget,primarilyviaaGuaranteeFundforExternalActions.

In2020,amidtheCOVID-19crisis,theEUbegantorampupitspublicborrowing.Afirstnewinstrumentwascreatedtoprovideloansofupto€100billiontohelpcountriesfinanceshort-termworkschemesatlowercost:thetemporarySupporttomitigateUnemploymentRisksinanEmergency(SURE).ToaccommodatetheincreasedborrowingwhileprotectingtheEU’sstrongrating,thedebtisguaranteedbynotonlytheexistingheadroom2intheEUbudget(liketheBoPandEFSMinstruments)butalsobyanadditional€25billionindirectirrevocableandcallableguaranteesfrommemberstates.ButevenwithSURE,theEU’scapac-itytoborrowremainedlimited.Volumesstayedsmallandtheseprogrammesalsoallowedonlyback-to-backfinancing–issuanceofdebtonaper-disbursementbasis,andnotbulkborrowing–thuspreventingtheEUfrombenefittingfrommarket-accessflexibilityavailabletoothermajorissuers.

Thepandemichasrequiredastrongerfiscalresponse.InJuly2020,EUcountriesagreedtotemporarilyincreaseEU-levelborrowingagain,thistimeonabiggerscaleandwithanemphasisoninvestmentincommonpriorities,suchasboostingthegreenanddigitaltran-sitions.WithNextGenerationEU(NGEU),memberstatesempoweredtheCommissiontoborrowupto€750billionin2018prices(iearound€806.9billionatcurrentprices)until2026.ThismeansthattheEUwillborrowuptoaround€150billionperyearinthenextfewyears.Tomakethispossible,EUmemberstatesagreedtoincreasetheEU’sdebtguaranteesviaanadded0.6percentofEUgrossnationalincome(GNI)incallableheadroom,andcountriesalsoagreedtoconsiderintroducingnewownEUresourcesinthefuture.Possiblefutureownresourcesincludedigital,climateandfinancial-transactionlevies,althoughallofthesepro-posalswouldrequiresubstantialfurthertechnicalworkandpoliticalcooperation.

WhatisnewaboutNGEUisnotjustthesignificantincreaseintheEU’sborrowingpower,butalsothenatureoftheexpenditures.NGEUborrowingwillbeusedforloansbutalso,forthefirsttime,grants.Indeed,NGEUwillbeuseduptofinanceupto€386billioninloans,and€421billioningrants–thesemaximumamountswillonlybedisbursedifallcountriesrequestthefullloansavailabletothemandcompleteallthemilestones.

Inpractice,thismeansthattheEuropeanCommissionisnow,andforthenextfiveyears,entrustedtoissuedebtinmuchhighervolumesthanitusedto,puttingtheEUinthecompanyofmajorEuropeansovereignissuerssuchasGermany,FranceandItaly.TheEUquicklyassembledadebtmanagementteam,adoptednewpracticesandlaidoutitsborrowingstrategy.IssuancebeganinJune2021.TheEUwillhavetoensuresoundborrowing

Including€50billionfortheBoPand€60billionfortheEFSM(EuropeanParliament,2017).

Asimilarmechanismwasconsideredatthestartoftheeurocrisis,butatthetimewasrejectedasnotbeinglegallyfeasible.Underpandemicconditions,andwiththelessonslearnedfromthefinancialcrisis,themethodwasnowdeemedinlinewithEUpriorities(ESM,2019).

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andreimbursements,tobecompletedby2058,inordertoembracetheopportunitiesofferedbythismilestonefinancingprogramme.Thisin-depthanalysisassessesthefirstdecisionsmadebytheEuropeanCommissioninthatregard,andwillalsooutlinethepotentialrisksandopportunitieslinkedtothisupgradingoftheEUborrowing.

Whatarethemainfeaturesofaborrowingstrategy?

Aborrowingstrategyisacomprehensiveplandesignedtohelpanissuerraisemoneytomeetitsfundingneeds.Theplanthusgovernshowthisentityinteractswithinvestors.Thefeaturesofthefundingneeds,suchasthetypeofexpendituretobefinancedandthecashflow/budg-etaryresourcesthatwillultimatelybeusedtoreimbursethedebt,influencehowtheborrow-ingtakesplaceandsetoutwhatkindofflexibilitymaybeneeded.Togivesomeexamples,sovereignswithstrongautomaticstabilisers–iethathaveabudgetbalancethatautomaticallyfluctuatesinasignificantwaywiththeeconomiccycletotameitasmuchaspossible–needflexibilitytoadjusttheirborrowingplansquicklyincaseofacrisis,whilepublicdevelopmentbanksmightfollowalong-termstrategythatprioritisesconsistentfinancingovertheabilitytomakeshort-termchanges.

Therearevariouswaystotapmarkets,buttheycanbroadlybesplitintotwomainstrategies:

Relativelylowborrowingneedsmeansissuerscantapfinancialmarketsonlywhentheydeemfinancingconditionstobemostadvantageous;

Largeissuers,suchasmajorsovereigns,generallysetupdiversifiedfundingstrategiesdefinedbyregularandpredictableissuances.Theaimofsuchstrategiesistomakedebtsecuritiesattractivetoadiverseinvestorbase.Themainobjectivesaretogetthelowestin-terestrateatagiventimeandtoensurethatfundingneedswillbeeasilymetinthefuture.Avenuesfordiversificationaretwofold:first,offeringdifferenttypesofdebtcontracts,andsecond,usingdifferentissuancemethods.

Sovereignandsupranationaldebtcontractstakemainlytheformoffixed-incomesecu-ritiesthathavefixedperiodicinterestpaymentsandfullrepaymentofthemoneyborrowed

–theprincipal–attheendofthecontract,whenthedebtmatures.Whendesigningsuchsecurities,issuersmustchoosetheirkeyfeatures,suchaswhichcurrencytoborrowin.ForexampletheEuropeanStabilityMechanism(ESM)issuesinbotheurosandindollars,whiletheEUwillissueonlyineuros.Issuerscanfurtherchoosewhethertopayafixedinterestrate,whichisthestandard,orusesomeothermeasure,suchasaninflation-linkedorfloatingrate.Afewissuers,includingFranceandtheUnitedStates,issueinflation-linkedbonds,butthesealternativesmakeuparelativelysmallpartofthemarket.

Thematurity–iethedurationofthecontractthatsetsoutwhentheprincipalwillberepaid–isanotherimportantcharacteristic3.Ifthematurityofafixed-incomesecurityisoveroneyear,thesecurityiscalledabond,andifitisequaltoorbelowoneyear,itiscalledabill.Finally,somereportingcriteriaallowbondstoqualifyas‘green’or‘social’bonds.

Thematurityisdifferentfromthe‘tenor’,whichistheremainingtimeuntilthesecurityreachesmaturityandnotitsoriginalmaturity.

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Toselldebtsecuritiestoinvestors,issuershavedifferentoptions4:

Inaprivateplacementofbonds,theissuersellsbondsdirectlytoinvestorswithoutre-sortingtomandatedbanks.Anotheroptioniscreditlinesfrombanks5.TheEUusedthesemethodsinthepast,particularlywhenitneededtoraisespecificsumsinveryshorttimeperiods(ESM,2019).

Insyndicatedtransactions,theissuerannouncestheupcomingissuanceofbondstoagroupofbanks,whichreceivefeestoputtogetheraso-called‘orderbook’ofinvestorinterest.Thebankssometimesunderwriteorguaranteetheissuance,incasenotenoughinvestorswanttotakepart,forexample.Themainadvantageofsyndicationisthatitgivestheissuersomeclarityaboutinvestors’interestsandpossiblebondpricesbeforetheissu-ance.ThisisoneofthemainwaystheEUhistoricallysolddebt.

Auctionsareusedmainlybylargesovereignissuers.Theissueradvertisesinadvancethedatesofauctions.Investorshavealimitedtimetobidandwhentheauctioncloses,securitiesaredeliveredtobuyers.Securitiescanbeallocatedusingasinglepricemethod,suchasintheUS,whereallbuyerspaythesameamountforsecuritiesatthedesignatedyield,oramultiple-pricemethod,preferredinEurope,whichallocatessecuritiesfirsttoinvestorswillingtopaythehighestprices,thenthenext-highestandsoonuntiltheentireofferinghasbeenhandedout.Bonddealerscanthensellthesecuritiesquicklyintothesecondarymarket,givingthemachancetomakemoneyandofferingtheEUachancetoquicklyestablishtradingflowsandassessliquidity.

Auctionsaretypicallycheaperforissuersthansyndicationsbecausetheydonotinvolvefeespaidtothecoordinatingbanksandallowmanyinvestorstoparticipate.However,auctionscanberisky,particularlyiftheyarenotregularlyused,becausetheydonotinvolvepriceguaranteesorpre-determinedinvestorinterest.Onlyextremelywell-establishedissuerssuchastheUnitedStatesrelysolelyonauctions.Otherlargeissuers,includingGermanyandFrance,usebothauctionsandsyndication(seeTable1).

Re-openingsareopportunitiesforissuerstoraisemoneyandbolstermarketliquiditybyofferingadditionalamountsofsecuritiesalreadyincirculation.Thisoptionissometimescalled‘tapping’anexistingbond,meaningthatasecuritywithanoriginalmaturityoffiveyearscouldbesoldagainsixmonthslater,with4.5yearsremainingtomaturityandthesameyield.Forissuersthatselldebtusingmultiplemethods,anewsecuritymighttypicallybesoldthroughsyndication,whilethere-openingwouldtakeplaceusinganauction,sincetherewouldalreadybeanestablishedreferencemarketprice.

Marketcredibility

Toensurethatsecuritiesattracttheinterestofinvestorsandcanbesoldatlowinterestratesintheprimarymarket,issuershavetoensurethattheirdebtiswell-rated,willberepaidaspromisedandisliquidinsecondarymarkets,soinvestorsareconfidenttheycanresellthesecuritiesquicklyandeasilyifdesired.

Onewaytofacilitatesmoothmarketoperationsistosetupaprimarydealernetwork.Thisisagroupoffinancialinstitutionsundercontractwiththeissuertoassistinpublicfinancingoperations.Theirobligationsinprimarymarketsaretypicallytoparticipateinauctions,tobepartofthesyndicationselectionpoolforchoosingwhichbankscoordinatesyndicated

Theinitialexchangeofadebtcontractbetweenanissuerandinvestorsiscalledtheprimarymarket.Onceasecurityisbought,thebuyerisfreetoresellittootherinvestors.Thetradingofsecuritiesbetweeninvestorsiscalledsecondarymarket.

Theinitialexchangeofadebtcontractbetweenanissuerandinvestorsiscalledtheprimarymarket.Onceasecurityisbought,thebuyerisfreetoresellittootherinvestors.Thetradingofsecuritiesbetweeninvestorsiscalledsecondarymarket.

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issuances,andtoserveas‘market-makers’insecondarymarkets,meaningtheyhavetobuyandsellsecuritiesonaregularbasis.Inpracticethismeansthattheyhavetobid(offertobuy)andask(offertosell)bondsonthesecondarymarket,thusensuringtheliquidityofthebondsonadailybasis.Lastly,primarydealerstypicallyhaveobligationstoreporttotheissuer:theyprovideinsightsonmarketconditionstohelptheissuerconductitsborrowingoperations.

Primarydealersarethemainlinksbetweensovereign,andsimilarissuers,andthemarkets,anditisthusimportanttohaveenoughparticipantsinterestedintherole.Thefirstincentiveforfinancialinstitutionstobecomeaprimarydealerisreputationalgain(Preunkert,2020):beingpartofadealernetworkisperceivedbyfinancialinstitutionsasawaytogainpublicityandincreasetheirowncredibility.Dealersalsogenerallyreceivepreferentialorexclusiveauctionaccess,givingthemalegupinsecondary-markettrading.However,manag-ingtheprimarydealernetworksandtheirincentivescanbeapoliticalexerciseforasuprana-tionalissuersuchastheEU,whichchoosesbanksfrommultiplecountriesandmustconsidergeographicalbalanceandnationalsensitivities.

Majorissuersalsogainmarketcredibilityiftheyareseenasabenchmark,whichistosayareferencepointagainstwhichotherdebtcanbepricedandweighed.Thisrequiresissuingsecuritiesinallcommonmaturitiestoestablishayieldcurveofinterestrates6.Innormalconditions,securitieswithshortermaturitiesofferloweryields,whilelonger-termbondsofferhigherreturns.Differentmarketsegmentsattractdifferentkindsofinvestors.Assetmanagersgenerallyprefertoinvestintheshort-termpartofthecurve,whilethree-andfive-yearbondstendtoattracttheinterestofcentralbanks,insurancecompaniestendtopreferfifteen-yearbonds,andpensionfundsoptforthelong-termbondsofbetweentwentyandthirtyyears.

Tosellallthesebondsonaregularbasisandavoidexcessivepriceswings,largesovereignissuersusuallydonotfollowopportunisticshort-termstrategies.Insteadtheyaimtoberelia-ble,predictableandtransparent.Thisallowsinvestorstoanticipatethattheissuerwillprovideareliablesourceofbenchmarkandpotentiallyrisk-freeassetsfortheyearstocome,andithelpstheissuerminimiseitsoverallborrowingcosts.

WhatarethemainelementsoftheNGEUborrowingstrategypresentedsofar?

TheEuropeanCommissionaimstocoveritsfundingneedsbysecuringsustainablesourcesoffundingatminimumcosts.FundingneedsaretocovertheNGEUrecoveryplan.Theplanistoborrow€750billionin2018pricesfrommid-2021to20267.Amountscouldchangependingthesubmissionandapprovalofallnationalrecoveryandresilience(RRF)plans(EuropeanCommission,2019a),andwillalsodependontheappetiteofcountriesforNGEUloans.TheCommissionhassaiditwillraise€80billionbetweenJune2021andtheendof2021and,fromthenonwards,around€150billionperyearuntil2026.Accordingtothecurrentlegislation,allnetissuancesaretoceaseafter2026.

Whenasecurityreachesmaturity,investorsneedtobepaidbackinfull.Theissuerthenhastwofinancingoptions:itcanpaydownthatamountfullyusingitscashflows(egtax

Theyieldcurveisarepresentationoftherelationshipbetweenmarketremunerationratesandtheremainingtimetomaturityofdebtsecurities.Fromagraphicperspective,thex-axisshowsthedifferentmaturitiesandthey-axisshowstheyield.

Toforecastamountsincurrentpricesduringtheprogramme,theEUappliesa2%annualinflationrate.The2018priceamountsarethushypotheticalbecauseinEUbudgetarypractice,a2%annualrateofinflationisusedtotranslate2018pricesineurostoactualpricesineuros,irrespectiveofactualinflation.TheEuropeanCommissionhascommunicatedthatNGEUamountsto€806.9billionincurrentprices;see

https://ec.europa.eu/info/strategy/

recovery-plan-europe_en

.

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revenuesforsovereigns),oritcanrefinanceitbyissuingnewsecurities,aprocessknownasrollingoverthedebt.Netissuance–grossdebtissuanceminusrolled-overdebt–corre-spondsto‘newdebt’.Undercurrentlegislation,therewillbenonewdebtafter2026.Instead,theEUwillstartgraduallypayingdownitstotaldebt,aprocessofrepaymentthatwillhavetostartnolaterthan2028andbecompletedbytheendof2058(Council,2020).To“ensurethesteadyandpredictablereductionofliabilities”theownresourcesdecision(CouncilDecision2020/2053)outlinesthat“theamountsduebytheUnioninagivenyearfortherepaymentoftheprincipalshouldnotexceed7,5%[sic]ofthemaximumamountof€390000millionforexpenditure”(Art5.2).

Accountability,transparencyandpredictabilityarenecessaryfortheborrowingstrategytobesuccessfulovertime.TheCommissionpublishesanannualborrowingdecisionthatsetsaceilingonthevolumeofborrowingoverthatgivenyear,andsetscriteriaforitsprofile(maturityandceilingfortheamountsperissuance).Thisbroadscopeforannualfundingiscomplementedbyfundingplanspublishedtwiceayear,whichgointomoredetailintermsofthemappingofupcomingissuancesandcertifythatfundingneedsoverthegivensemesterwillbemet.Fundingplansofferpredictabilityontargetauctiondates,targetamountstobefinancedbybonds,andexpectationsofthenumberandvolumeofsyndicatedtransactions.

SeverallegalcommitmentshavebeenputinplacetoensuretheEU’sabilitytoserviceitspaymentobligations,andtoconvinceinvestorsthattheEUwillserviceitsdebtinatimelymanneruntil2058:

OntheguaranteeofNGEUdebt:ofthetotalbudgetofNGEU,€390billionisearmarkedforgrantsandguarantees,and€360billionisearmarkedforloans(in2018prices).Pay-mentobligationsforthegrantelementsofNGEUaretobecoveredbyEUownresources,whileloanswillberepaidultimatelybytheirmember-statebeneficiaries.AlthoughboththeamountofborrowingthatwillultimatelytakeplaceandthevalueofEUcountries’GNIsinthefutureremainuncertain,theincreaseinthe‘headroom’by0.6percentofGNIisconsideredenoughtoconvincemarketsthatmemberstateswillprovideenoughtorepayEUborrowing.Theexactmethodologyfordecidingthisnumberhasnotbeenmadepublic,butsinceitisacceptabletotheEUandtothecredit-ratingcompanies,itappearstobesufficient.

Onthetimelyreimbursementofpaymentobligations:inanswertoaEuropeanParlia-mentquestion(EuropeanParliament,2020),theCommissionhasestimatedtheinterestratecostsfortheperiod2021-2027at€12.9billionoverthesevenyears.AlthoughthisamountisshoulderedbytheEUbudgetandfactoredintotheMultiannualFinancingFramework(MFF)2021-2027,inpracticeitsexactvalueremainsuncertain.Thedebt–repaymentofinterestandprincipal–willbeservicedbytheEUbudget,iewithfundsfromexistingandpossiblenewownresources.TheCommissionhasalsoprovidedguidelinesonsafeguardingthesustainabilityoftheborrowingpositionovertimeandtheprofileofoutstandingdebt.Aceilingamountofdebtperissuancewassetat€20billion,asacompromisebetweentheimperativetoissueinlargevolumestoensureliquidityinsecondarymarketsandtolimitthepotentiallydestabilisingeffectofanexcessivenumberofbondscomingtomaturityatthesametime(eitherforfutureEUfinancesorbecauseitwouldincreaseroll-overrisk)(EuropeanCommission,2021a).For2021,upperlimitsof€125billioninlong-termfunding,and€60billioninshort-termfundingplansareinplace(EuropeanCommission,2021a).Sofar,theJune2021fundingplanhasannouncedlong-termborrowingequivalentto€80billionfortherestof2021,complementedwithtens

ofbillionsinshort-termborrowingtotheextentneededtomeetfinancingrequirements(EuropeanCommission,2021b).

BeforeNGEU,theEUhadtotimeitsborrowingoperationsalongsideitsdisbursements.TheCommissionissueddebtandloanedtheproceedsdirectlytobeneficiariesonthesametermstheywereborrowedat;debtandloanshadthesamedurationandinterestrates,thus,

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theCommissionneithersubsidisedtheloansnorriskedhavingtomeetpaymentcommit-mentsbeforeloanswerereimbursed.Giventhesimplicityandsmallvolumeofitsoperations,theEU’spresenceinfinancialmarketswassmallanditdidn’tneedtobuildapredictableandreliablestrategy,norcoulditadjustthetimingofitsborrowingoperationsevenifmarketconditionswouldotherwisehavewarrantedanadjustment.

ForNGEU,theEUnowusesaborrowingstrategythatisdiversifiedintermsoftypesofsecuritiesandwaystotapthemarkets.Borrowingisnotdirectlyconnectedtospecificpay-outs.Indeed,giventhelargenumberofbeneficiaries(27countriesplustheEUitself)andprojectsfinancedbyNGEU,themobilisationoffundsonaper-disbursementbasiswouldhavebeenunnecessarilyburdensomefromanadministrativepointofview.Moreover,thespecificstructureofNGEU,withapre-agreedvolumeoffundingandamoreorlesspre-agreedallocationtobeneficiaries,providesvisibilityoverfundingneeds.Nomatterwhathappensincomingyears,theCommissionshouldissueNGEUdebtbetween€100billionand€150billionannuallyinthefivecomingyears,dependingonhowmanycountriesrequestloans.Theselargeamountsrequirelargedebtissuancesonaregularbasis.

HowdoestheCommissiondiversifythetypesofsecuritiesissuedtofinanceNGEU?

TheCommissionhasnochoiceofborrowingcurrency.Itislegallyspecifiedthatborrow-ingoperationsshouldbeineuro(Council,2020).

Theborrowingdecisionfor2021forecastsissuancesofallcommonlong-termmaturitiesupto30years:namely3Y,5Y,7Y,10Y,15Y,20Y,25Yand30Ybonds.

TheEUwillbeabletodiversifyitsissuancebecauseofitscommitmenttoissueabout30percent(roughly€250billion)ofitstotalNGEUissuanceas‘green’bonds,inlinewithsustainablefinancemarketpractices.AllSUREbondswereissuedas‘social’bonds.ThosequalifyrespectivelyundertheGreenBondPrinciplesandSocialBondPrinciplesestab-lishedbytheInternationalCapitalMarketAssociation(ICMA)intermsofthetransparen-cyanddisclosurecriterianeededtomeetthosestandards.

TheEUwilluseshort-termbillstomanagecashfloworhandletemporaryliquidityshocks.MarketsliketoprovidefinancinginshorterinstallmentswhiletheEUusesthemoneyoverthelongterm,andalsotheEUneedsawaytomakesureithasenoughcashonhandforpaymentsortowaitouttemporarymarketconditions,suchasasuddenandtemporaryspikeinlong-termbondyields.Short-termbillsaregenerallyconsideredtoberisk-freeandhighly-liquidassets–theshortmaturitysecuritiesofwell-ratedsovereigns,suchastheUnitedStates,canbecomparedtocashholdings–sobeingaregularpresenceinthebillmarketalsostrengthenstheeuro.

AsiscommonforEuropeansovereignissuers,theEUattractsbuy-and-holdinvestors.Buy-and-holdmeansthatinvestorsbuyasecurityasalong-terminvestmenttobekeptuntilmaturity,whileothers(sometimescalled‘fast-money’investors,marketmakersorshort-terminvestors)buytotradeandprofitfromthesalesthroughpricevariations.Theadvantageofbuy-and-holdinvestorsisthattheyallowforarelativeanchoringofbondprices,whichisconsideredimportantfor