A newly released study from the Institute for Economic Research (IW) is raising serious concerns about the European Commission’s evolving plans for the EU’s long-term budget and crisis response mechanisms. The report criticizes proposals that critics are alleging amount to a backdoor introduction of Eurobonds, potentially undermining commitments to the temporary nature of the EU’s unprecedented post-pandemic debt accumulation.
The “NextGenerationEU” recovery fund, established in 2020 to mitigate the economic fallout of the COVID-19 pandemic, accelerate the green transition and foster digitalization, marked the first time the EU borrowed on a significant scale. While initially hailed as a historic moment, assurances were given that the initiative would be a one-off exercise.
However, the Commission’s proposed framework for the EU’s multiannual financial framework starting in 2028 includes a controversial “Catalyst” fund. This 150 billion Euro pot would enable member states to access credit for strategically important projects, particularly in energy and defense. Complementing this is a proposed “Crisis Response Mechanism” totaling 395 billion Euros, ostensibly designed to bolster Europe’s resilience to unpredictable events like pandemics and future conflicts.
Björn Kauder, an IW economist and co-author of the study, argues that the sheer size and accessibility of the Crisis Response Mechanism is particularly concerning. “With 395 billion Euros readily available, the temptation to utilize these funds will be considerable” he stated. Kauder warns that any further borrowing on this scale would significantly damage the EU’s credibility and generate substantial new costs associated with interest payments and debt repayment.
The critique highlights a widening gap between the initial promise of a temporary, exceptional measure and a potential paradigm shift towards a more permanent system of EU-level debt. Some analysts suggest these proposals reflect a growing appetite within the Commission for greater financial integration and a willingness to circumvent established fiscal boundaries, potentially triggering resistance from member states traditionally averse to shared debt obligations. The IW study signals an escalating debate over the future of EU financial policy and the long-term implications of its response to ongoing global crises.