Following the approval of the Own Resources Decision by all EU Member States, the Commission can now start raising resources to finance Europe’s recovery through NextGenerationEU. To that end, the European Commission has today announced its estimates to issue around €80 billion of long-term bonds in 2021, to be topped up by tens of billions of short-term EU-Bills to cover the remaining financing requirements. The exact amount of both EU-Bonds and EU-Bills will depend on the precise funding needs, and the Commission will revise today’s assessment in the autumn. In this way, the Commission will be able to fund, over the second half of the year, all planned grants and loans to Member States under the Recovery and Resilience Facility, as well as cover the needs of the EU policies that receive NextGenerationEU funding.
This funding plan is based on an initial estimate of the needs of Member States in terms of loans and grants. The Commission will update the funding plan in September, when it has a more precise overview of the funding needs of the EU Member States for the last months of the year.
The Commission has today also adopted the Annual Borrowing Decision for 2021. This decision includes the maximum amounts that the Commission is authorised to borrow by the end of the year.
The Commission will now finalise preparations for the first NextGenerationEU issuance due later in June. The first EU-Bills will be issued in September when the EU auction platform becomes operational.
Johannes Hahn, Commissioner in charge of Budget and Administration, said: “Today, we are making yet another step forward in the preparations for the first borrowing operation to finance our collective recovery via NextGenerationEU. By issuing some €80 billion of long-term bonds and using additional short-term bills this year, we will manage to cover Member States’ most urgent needs and set them on the path towards a sustainable recovery and a green, digital and resilient Europe”
To finance NextGenerationEU, the European Commission, on behalf of the EU, will borrow on the capital markets – up to €750 billion in 2018 prices, or up to some €800 billion in current prices. This would translate into borrowing volumes of on average roughly €150 billion per year between mid-2021 and 2026, which will make the EU one of the largest issuers in euro.
Start of the borrowing
The first bond issuance will take place via a syndication and be organised with the institutions included in the Commission’s Primary Dealer Network as announced on 31 May. Further syndicated transactions are foreseen to take place before the end of July.
The Commission also intends to start issuing EU-Bonds and EU-Bills through auction procedures as of September 2021. Once the auction system is in place, the Commission will regularly organise syndications and auctions for the bonds. It will also organise regular auctions for EU-Bills. Further details regarding the auction dates, as well as on the structure of the EU-Bill programme, will be published prior to the start of auctioning, later this year.
Today’s announcement is in line with the diversified funding strategy for the NextGenerationEU borrowing as presented on 14 April. It builds on the previous steps undertaken by the Commission to ensure the successful execution of the borrowing operations. Earlier in May, the Commission announced the provider of its auctioning platform. The Commission also adopted the first list of members of its Primary Dealer Network. The 39 banks on the list will support the successful placement of NextGenerationEU bonds with investors on the most advantageous terms possible for EU Member States and their citizens.
The Commission will be able to go to the market to finance the recovery plan as of June thanks to the speedy approval of the Own Resources Decision in the course of just five months.
The decision to fund NextGenerationEU through capital market finance is expected to have long-term benefits both for the EU budget and the EU Member States.
Thanks to the EU’s high credit rating, the Commission will be able to borrow on advantageous conditions. The Commission will then pass the benefit on to the EU Member States directly when providing them loans or to the Union budget in the form of low interest rate payments on borrowings to finance recovery spending.
Given the volumes, frequency and complexity of the borrowing operations ahead, the Commission will follow the best practices used by large and frequent issuers, and implement a diversified funding strategy.
This is different from the back-to-back approach that the Commission has used so far to borrow from the markets, including in the framework of the SURE programme. Over the past 40 years, the European Commission has run several lending programmes to support EU Member States and third countries. All of these lending operations were financed on a back-to-back basis, mainly through syndicated bond issuances.
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