The EU’s new bond isn’t as solid as it seems

Its rescue fund will bail out the poorer states. It will fuel a rapid economic recovery. And perhaps most of all, it will finally turn the European Union into a fiscal union, raising its own money, and distributing it based on which region needs its most. The EU’s new €750 billion (£680 billion) rescue fund has been hailed as a huge step forward for the Union. Perhaps it will be. There is a problem, however. Some analysts are starting to argue the new shiny new EU bonds should be rated as junk – or something close to it.

On the surface, you might think an EU bond should be completely solid. After all, this is a £14.5 trillion economy, the largest single bloc in the world, with the world’s second-largest currency, the euro. It is only borrowing a fraction of GDP. In a world awash with debt, it should be able to raise the money, and lots more if it is needed, right? Well, here’s the problem.