The EU is sleepwalking into a debt trap

It’s been less than three years since the EU made the unprecedented decision to issue €750 billion of its own debt to help finance the EU’s post-pandemic recovery. Despite this supposedly being a one-time policy, the idea of issuing new debt is now rearing its head again – this time to fund the EU’s industrial policies.

The European Commission is pressing ahead with a ‘European Sovereignty Fund’, as a way of responding to the Biden administration’s Chips Act and Inflation Reduction Act, which created subsidies for electric vehicles. By doing so the Commission hopes to prevent member states from introducing their own national industrial policies that could fragment and distort Europe’s common market. 

‘We should consider the possibility to finance the Fund through common debt, like we successfully did with Next Generation EU,’ the EC president, Ursula von der Leyen, said in her State of the European Union address in September 2022.