Recommanded citation:
Estrella Blaya L. 2022. “The future of common borrowing. A legal analysis“, Policy paper, Paris: Jacques Delors Institute, 21st October.

This policy paper reflects the conclusions of the author in her final thesis of the LLM program in EU law at the College of Europe. She would like to thank Professor Dominik Hanf (her thesis supervisor), Mr Julien Tribout (academic assistant at the College of Europe) and the officials of the EU institutions that have shared their time and insights with her. Thanks to Fundación La Caixa, for making possible the pursuit of this degree and to the Institute Jacques Delors, for considering this paper worth of the award to the best thesis on a subject relating to European integration. Special thanks to Mr Andreas Eisl for his time, confidence in this work, detailed reading and very valuable comments.

Introduction

While common borrowing has been part of the EU policy toolbox since the times of the European Coal and Steel Community, it has only recently regained some public prominence. First, the pandemic brought about a truly novel feature in borrowing operations: the possibility to finance common EU expenditure. Later, the war in Ukraine has led the EU to engage in common borrowing to provide the country with macro-financial assistance.

The legal design of these operations is to be admired, particularly given the previous –and widespread– belief that the EU could not engage in borrowing to finance its own expenditure. Nevertheless, the current legal understanding of common borrowing does not solve all the challenges that lie ahead. For instance, the rules that guide the level of financial caution in the EU are slowing down the disbursement of aid to a country in dire need of it. Further, the possibility of resorting again to borrowing for spending is now more limited after the NGEU, given the introduction of an explicit prohibition on borrowing to finance operational expenditure in the 2020 amendment of the Own Resources Decision.

This policy paper tackles the future challenges of common borrowing from a legal perspective. In particular, it deals first with the level of caution that the EU should take when engaging in these operations and, secondly, with the future of borrowing for spending.

In so doing, it will discuss the legal nature of the requirements on balanced budget and fiscal discipline, examine their historical evolution and compare their application to debt borrowing in the EU with that of US States. In the hope of providing more clarity to future borrowing operations, it also identifies all the applicable rules and principles and tries to systematise them according to the stage of the operation to which they apply (issuance, authorisation to borrow and use of proceeds). Moreover, it tackles the particularities of borrowing for spending, including the consequences of its prohibition in the last amendment of the Own Resources Decision. When applicable, the paper provides alternative interpretations, in the hope that they can open up new possibilities for the use of common borrowing and even speed up the process of providing financial assistance to Ukraine.

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