Europe can already borrow together. The real test is whether it can build a benchmark
The numbers have changed the debate. Spain’s proposal points toward annual common issuance of as much as €850 billion and an eventual stock near €5 trillion, enough to turn EU debt from a policy instrument into a market-structure question.
Those of us who worked through the ERM turmoil, Maastricht, the Global Financial Crisis, and the subsequent euro sovereign debt crisis have watched that line move, usually under pressure. Monetary integration advanced considerably further than fiscal integration. National governments remained responsible for their own debts, while the treaties established guardrails intended to prevent monetary financing and the assumption of another member state’s liabilities.
That architecture has not disappeared. The environment around it has.
Covid created NextGenerationEU. Russia’s invasion of Ukraine changed Europe’s security assumptions. Defence expenditure is rising sharply, infrastructure requirements are increasing, and geopolitical fragmentation has made financial sovereignty part of a wider strategic discussion.
The interesting question is therefore no longer whether Europe can borrow together.
It already does.
From emergency instrument to regular issuer
The scale is becoming difficult to describe as experimental.
European sovereign issuance reached €1.22 trillion during the first quarter of 2026, the highest first-quarter total on record. The European Commission accounted for €52 billion of bond issuance and €18 billion of bills during those three months alone.
For 2026 as a whole, the Commission now plans €180 billion of EU-Bond issuance. It operates a unified funding approach, issuing single-branded EU-Bonds rather than securities individually tied to each underlying program. The curve stretches from three to 30 years and is supported by both auctions and syndications.
The infrastructure increasingly resembles that of a sovereign debt management office.
The EU Primary Dealer Network had 36 institutions as of July. A permanent repo facility allows dealers to source eligible EU-Bonds from the Commission through Eurex, with the Bundesbank acting as general clearing member. New EU securities settle through the EU Issuance Service into TARGET2-Securities.
This matters because the debate is sometimes framed as though a European safe asset would have to be built from scratch.
Much of the plumbing already exists.
A bond is not automatically a safe asset
This is where the fixed-income practitioner needs to enter the discussion.
Issuing a highly rated bond is relatively straightforward. Creating an asset that investors use as a benchmark, reserve instrument, hedge, and source of collateral is considerably more difficult.
The ECB defines a safe asset in terms that traders would recognize: negligible default risk, high liquidity, stable value, and broad investor trust. Its latest work also identifies Europe’s problem. The euro remains the world’s second international currency, but the supply of highly rated euro-denominated assets is fragmented across sovereign issuers. Joint debt issued by the Commission, ESM, and EFSF amounted to about €1.1 trillion at the end of April 2026. That is substantial, but still relatively small for an asset expected to perform a global benchmark function.
The shortcomings are not principally about credit quality. EU-Bonds are rated AAA by most major agencies and AA+ by S&P.
They are about market structure.
ECB research has found that EU bonds remain less liquid than the highest-quality euro-area sovereigns. They are still generally treated more like supranational securities than government benchmarks, including in pricing conventions and bond-index classification. Free float remains more limited, while there is no comparable derivatives market through which investors can hedge or express relative-value positions efficiently.
This is an important distinction.
Europe already has a sophisticated supranational market. EIB, NIB, ESM, EFSF, and EU bonds all provide highly rated euro assets. They do not, however, represent the same credit architecture, and aggregating them does not create a single safe asset.
Luxembourg Stock Exchange has approached that fragmentation from a different angle. Its newly launched European Safe Asset Gateway brings together more than 370 eligible European public-sector bonds, representing around €3.6 trillion outstanding, in a single transparent access point. It does not create a new safe asset or fundamentally alter the liquidity profile of the underlying securities. Rather, it makes an existing pool of high-quality assets easier to identify, compare, and access, including in retail-sized denominations through LuxSE members.
“For Europe’s savings to play a greater role in financing Europe’s priorities, investors need easier access to a broad range of diversified and trusted investment opportunities. LuxSE’s European Safe Assets Gateway addresses this need by creating a single, transparent, and accessible entry point to a large pool of European safe assets, benefitting both retail investors and issuers. Beyond improving market access, ESAG contributes to the Savings and Investments Union’s broader objective of fostering a stronger investment culture in Europe, enabling retail investors to make more informed decisions and channel savings, via our capital markets, toward productive uses across the European economy.”
Arnaud Delestienne, Chief Commercial Officer, Luxembourg Stock Exchange
Spain changes the question
Spain’s proposal this summer deserves attention because it approaches the scale problem differently.
Madrid has proposed a European Sovereign Facility under which the Commission would centralize part of participating countries’ borrowing programs. Participation would be voluntary and conditional upon compliance with EU fiscal rules.
Crucially, the proposal is not designed simply to place another layer of debt on top of national borrowing. Part of national issuance would instead be transferred to the common facility.
If all EU members, together with the ESM and EFSF, participated, Spain estimates annual issuance could reach €850 billion and produce an outstanding stock of around €5 trillion within five years. Even participation by the five largest euro-area issuers could generate annual issuance of roughly €540 billion to €550 billion. The proposed structure would be supported by loans to the participating states and the EU budget.
Those are numbers at which market structure begins to change.
Christine Lagarde has consequently called the proposal worthy of serious debate, saying in July that it was “pretty obvious” Europe needed an asset regarded by markets as safe and liquid and capable of competing internationally. Philip Lane has made essentially the same argument from a market perspective: the existing stock of common bonds remains too small to generate the liquidity, repo markets, and derivatives infrastructure associated with a genuine safe asset.
Scale, however, is only the first condition.
EU bonds are liquid, but not yet on the same level as OATs or BTPs. Building a genuine European benchmark would require both deeper market infrastructure and a clearer fiscal foundation behind the issuer. The practical questions around dealer structures, repo, settlement, and collateral can be addressed. The harder question is political. Covid demonstrated that when Europe decides something is necessary, structures that previously looked difficult can be created surprisingly quickly.
Senior official at a European debt management office
Maastricht has not gone away
Common issuance is ultimately about who stands behind the liability.
NextGenerationEU was deliberately constructed as an exceptional instrument. Borrowing is limited in amount and duration, proceeds are tied to defined purposes, and repayment runs until 2058 through the EU budget framework. Germany’s Federal Constitutional Court allowed the arrangement to stand in 2022, but its reasoning is important. It emphasized precisely those limits: purpose, amount, duration, and national control over EU own resources. The court also stated that borrowing used for general financing of the EU budget would be a different matter.
This makes any permanent safe asset partly a constitutional design problem.
A standing European borrower would need durable fiscal backing, agreed governance, a credible repayment mechanism, and sufficient political control to satisfy national parliaments. Whether that could ultimately be accomplished entirely within the present treaties would depend heavily on how the instrument was designed.
Agreement among member states remains unresolved.
Germany remains opposed to further common EU borrowing. Chancellor Friedrich Merz repeated that position again this month during negotiations over the 2028 to 2034 EU budget. The Netherlands and several other northern member states have taken similar positions.
There is an interesting tension here. Germany itself is expanding borrowing materially to finance defence and infrastructure. Its finance minister has argued explicitly that greater borrowing is necessary for national security. Berlin’s objection to EU debt therefore cannot simply be described as opposition to borrowing. The more fundamental issue is control over expenditure and responsibility for repayment.
That distinction will determine how far the discussion can move.
The Bund problem
There is another aspect that receives less political attention but matters to the market.
Germany does not simply issue one of Europe’s strongest credits. The Bund is the euro area’s principal benchmark and one of its most important sources of collateral.
That position has economic value.
The Finanzagentur actively manages the Bund market. Since 2025 it has retained around 25% of individual auctions, subject to variation, giving it securities that can subsequently be sold or deployed through repo to manage liquidity and scarcity.
Recent ECB research demonstrates why this matters. Repo interventions by the Finanzagentur can materially reduce shortages in individual securities and are more effective at addressing specialness than outright bond transactions. The same research also shows that collateral supply alone cannot guarantee smooth pricing when hedge-fund demand, dealer constraints, and market segmentation become dominant.
None of this proves that Germany opposes EU debt in order to preserve Bund specialness. That would go beyond the evidence.
It does demonstrate that replacing part of national issuance with EU issuance would have consequences well beyond government borrowing costs. It could change the benchmark structure of the euro government bond market, collateral economics, futures hedging, relative-value trading, and ultimately the role of the Bund itself.
That deserves to be part of the discussion.
What would the market require?
A successful syndication does not make a safe asset.
Neither does an AAA rating.
The first requirement is permanence. Investors need confidence that the curve will still exist after NGEU has been repaid and today’s political programs have changed.
The second is concentration. Large, regularly reopened benchmark lines are more useful than numerous smaller securities, regardless of the aggregate amount outstanding.
The third is financing liquidity and collateral mobility. The Commission has made important progress through its repo facility, but a multi-trillion-euro benchmark market would require considerably deeper repo activity across maturities and through changing market conditions.
Derivatives and index treatment matter for similar reasons. A benchmark has to be usable as a hedging and pricing instrument, not merely as an asset to own.
Electronic price formation will matter as well. The European Commission already recognizes MTS EU and BrokerTec EU as interdealer venues and incentivizes primary dealers to provide firm electronic quotes. EU-Bond secondary-market turnover has risen sharply as the market has developed, reaching €1.53 trillion in the second half of 2025, compared with €833 billion a year earlier. Turnover relative to issuance volume increased to 218%, from 144% in H2 2024. National sovereign markets provide an instructive comparison: primary dealers are often subject to explicit secondary-market liquidity obligations, while the EU framework still relies more heavily on incentives. If EU issuance eventually reaches several trillion euros, the relationship between primary-dealer privileges, electronic quoting, and secondary-market obligations may need to become correspondingly more formal.
The market may ultimately decide what constitutes a benchmark, but it needs the tools to trade and manage that benchmark first. EU bonds still lack some of the infrastructure that surrounds the major sovereign markets, most notably a liquid futures contract. Until investors and dealers can hedge, finance, and trade the curve with comparable efficiency, EU bonds will struggle to achieve full benchmark status.
Senior SSA and covered bond banker at a major European systemic bank
Technology is therefore not the central obstacle, but it is part of the answer. Electronic quoting, resilient connectivity, transparent pricing, repo access, settlement through T2S, and reliable post-trade data all determine whether political issuance becomes functioning market infrastructure.
Some of that infrastructure is already moving ahead of the political debate. ICMA’s recent work on smart contracts and DLT-based fixed income identifies repo and collateral as promising areas for further automation, from intraday financing and collateral eligibility to substitution, margining, and reporting. The more important point, however, is not the technology itself. Scaling these processes still depends on common data standards, legal certainty, interoperable infrastructure, and settlement assets that can move reliably across platforms. A European benchmark would ultimately have to function across that architecture, not simply be issued into it.
The market gets the final vote
Europe has already crossed one important threshold.
EU-level borrowing is no longer an obscure crisis mechanism. The Commission is a significant issuer with a funding calendar, a yield curve, bills, auctions, syndications, primary dealers, a repo facility, and institutional-grade settlement infrastructure.
Defence may accelerate that development. SAFE alone provides up to €150 billion of EU-funded loans for joint defence procurement, financed through EU-Bonds. The EIB has simultaneously expanded its defence mandate, while Canada and several European states are attempting to establish a separate Defence, Security and Resilience Bank. Europe is clearly searching for ways to finance strategic public goods on a greater scale.
The unresolved question is whether these initiatives remain a collection of programs or eventually contribute to something structurally larger.
Europe can create another bond.
It can create another funding program.
It can even create another institution.
Creating a safe asset is harder.
That requires governments to make the issuer permanent enough, markets to make the securities liquid enough, and investors to decide that the distinction between an EU program bond and a European benchmark no longer matters.
A safe asset is not created by decree. It becomes one when the market starts using it.
©Markets Media Europe 2026
