The German debt clock needs to be adjusted and add EU debt, researchers say. EPA-EFE/FILIP SINGER


‘Opaque’ EU debt mountain growing, German study warns

“EU debt is politically attractive. Economically, however, it creates the wrong incentives, especially for highly indebted Member States,” researchers say


The European Union is adding mountains of debt on top of national debt, out of sight of general perception, according to the Leibniz Centre for European Economic Research (ZEW) in Mannheim, Germany.

Total European debt is creating a disparity between official figures and the actual debt of Member States, the ZEW said in a report on April 8.

For Germany alone, EU debt makes up around 10 per cent of the country’s total, or €262 billion, which is not directly visible on the nation’s books.

“EU debt is politically attractive. Economically, however, it creates the wrong incentives, especially for highly indebted Member States,” said Friedrich Heinemann, head of ZEW’s Corporate Taxation and Public Finance Research Unit.

“There is an urgent need for EU debt to be counted towards the national debt of the Member States. Doing so would remedy the current lack of fiscal transparency,” he said.

In 2020, the EU introduced a new tool alongside debt-financed financial instruments such as the European Stability Mechanism and macro-financial support.

As Covid hit the bloc, the EU created the Next Generation EU (NGEU), an economic recovery package of loans and grants, costing €750 billion in total.

The plan borrowed money to pay for budgetary expenditures and Member State subsidies.

Beneficiaries are not required to pay back these grants. Instead, they are to be covered by the EU budget.

The EU took on debt to support Member States with loans for short-term work programmes under the SURE (Support reducing Unemployment Risks in Emergency) programme.

“For the first time, the EU is incurring debt without an equivalent amount of credit claims,” the ZEW researchers noted.

“The EU debts allocated to these must be financed from the EU budget between 2028 and 2058. Since the budget is funded by contributions from Member States, they must ultimately bear the financial burden. The distribution of burdens is based on national contribution shares to the EU budget.”

After the funds have been allocated, Germany will be responsible for repaying a portion of around €109 billion in grants and initiatives included in the coronavirus recovery plan.

The country will also take on obligations worth €134 billion until all of the NGEU loans are paid back by 2058. Moreover, Germany contributes an additional €18 billion in loans from the EU to non-EU nations.

When fully covered in accordance with the plan, Germany’s indirect payback liabilities total €262 billion. That is equivalent to about 6 per cent of the country’s GDP, which further limits its fiscal options, according to Heinemann.

Germany is by far the biggest contributor to the European budget, as earlier reported.

The ZEW report noted that the main focus lies on the “fiscal opacity” associated with these instruments and that, in November 2023, the German Federal Constitutional Court ruled that debt operations for special funds outside of the main budget were unconstitutional.

“One problem with these off-budget accounts was the lack of transparency in the federal budget,” the ZEW report said.

“The concealed burdens of EU indebtedness for Germany and the federal budget represent a similarly significant problem in comparable magnitude.

“The correction of current statistical rules is desirable, moving towards comprehensive attribution of European sovereign debts to the Member States,” the report said.

‘This would significantly enhance transparency.”