The European Commission is signaling a willingness to deploy joint debt issuance as a crisis response tool in the coming years, a move that could reshape fiscal discipline across the bloc—and carry direct consequences for Portugal's budget, borrowing costs, and share of any future repayment burden.
Why This Matters
• Joint debt is no longer exceptional: The EU has already issued over €900 billion in common bonds since 2020 and is planning another €90 billion in the first half of this year alone.
• Interest costs are rising fast: The European Court of Auditors projects that servicing EU debt will cost member states over €30 billion during the next budget cycle—more than double the initial estimate.
• Portugal will pay its share: Despite not being the primary beneficiary, Portuguese taxpayers will contribute to interest payments on EU-wide borrowing as part of the bloc's shared fiscal architecture.
The Mechanism Behind the Debt Strategy
Speaking after an informal meeting of EU Economy and Finance Ministers (Ecofin) in Nicosia, European Commissioner Valdis Dombrovskis confirmed that the European Union already has a "structured solution" in place to issue joint debt if a new crisis emerges. The framework has been used three times since 2020: to finance the Next Generation EU recovery fund, to provide aid to Ukraine, and to fund the SAFE program for joint procurement of defense equipment.
"We probably don't know exactly what kind of crisis we will face," Dombrovskis said, but he underscored that debt issuance "has a price" and "is not free"—member states must later cover the interest on borrowed capital. The Commission has embedded this financing option into its proposal for the 2028–2034 Multiannual Financial Framework (MFF), effectively institutionalizing crisis borrowing as a semi-permanent feature of EU fiscal policy.
The political divide over this approach is sharp. Spain and Italy are vocal supporters of continued joint issuance to fund what they call "common European goods"—defense, energy infrastructure, and innovation. But Germany and the Netherlands remain firmly opposed, arguing that shared debt undermines fiscal discipline and shifts repayment responsibility away from the countries that benefit most.
What This Means for Portugal
Portugal stands in a complex middle ground. While the country has benefited significantly from Next Generation EU funds—receiving billions in grants and loans for green transition and digital infrastructure—it is also a contributor to the broader EU budget. Any expansion of joint debt issuance will incrementally increase Portugal's share of the bloc's interest payments, even if new borrowing is not directly allocated to Lisbon.
The International Monetary Fund (IMF) has projected that without policy changes, average public debt in European countries could reach 130% of GDP by 2040—double current levels. For Portugal, which has worked to reduce its debt-to-GDP ratio from crisis-era highs, this trajectory poses a risk: higher EU-wide borrowing could push up sovereign bond yields across the periphery, making it more expensive for Lisbon to refinance its own national debt.
The IMF analysis, titled "How Can Europe Pay for Things It Can't Afford?", suggests combining structural reforms with fiscal adjustments to cover an estimated 5% of GDP increase in public spending by 2040. The report explicitly recommends joint debt issuance for defense, energy, and innovation—three areas where Portugal has significant exposure and investment needs.
The Fiscal Reality: Debt Is Piling Up
The European Court of Auditors has published figures showing that EU debt will exceed €900 billion in 2027, nearly ten times the level before the pandemic recovery fund was created. Interest costs alone are projected to surpass €30 billion during the next MFF, more than twice the initial budget forecast.
In 2026, the European Commission plans to issue €90 billion in bonds during the first half of the year, with potential adjustments depending on disbursements for a new €90 billion loan package to Ukraine, financed through EU borrowing over 2026 and 2027. The cumulative debt load is approaching €1 trillion, driven by overlapping programs and emergency interventions.
For Portuguese households and businesses, this matters because higher EU debt service obligations translate into upward pressure on national contributions to the EU budget. While the Commission has proposed five new "own resources"—independent revenue streams such as carbon levies and digital service taxes—to cover repayments, these measures remain under negotiation and may not materialize in full.
Economic Headwinds and the Case for More Borrowing
The backdrop to this debate is a deteriorating economic outlook. The European Commission has revised its growth forecast for the EU down to 1.1% in 2026 (previously 1.4%), and for the eurozone to 0.9% (previously 1.2%). Inflation is expected to reach 3.1% in the EU and 3% in the eurozone this year, driven by a new energy shock linked to the conflict in the Middle East and the effective closure of the Strait of Hormuz, which has disrupted oil and gas transit.
This is the third major economic shock for Europe in six years, following the pandemic and the 2022 energy crisis triggered by the war in Ukraine. The European Central Bank (ECB) is expected to raise interest rates at its June 11 meeting in response to rising oil prices and above-target inflation, which will further increase the cost of servicing both national and EU-level debt.
Finance ministers at the Ecofin meeting agreed that fiscal space "is not unlimited" and that public investment alone "will not be sufficient" to meet targets for defense, green transition, energy security, and competitiveness. Makis Keravnos, the Cypriot Finance Minister, summarized the consensus: "There was broad agreement that ensuring fiscal sustainability remains a fundamental objective of EU economic and budgetary policy coordination, despite the significant investment needs pressuring our public finances."
The solution, according to the ministers, lies in "better coordination, smarter policies, and greater mobilization of private capital." But the question remains: if private capital is insufficient and fiscal space is constrained, will joint debt become the default option?
The German and Dutch Objections
Germany and the Netherlands have articulated a clear set of objections to expanded joint borrowing. Dutch Finance Minister Eelco Heinen has stated that "more debt is not a long-term solution to increase security and boost economies" because it weakens economic fundamentals. The Netherlands, which maintains one of the lowest public debt ratios in the eurozone, values prudent fiscal management and opposes structural debt increases.
German Finance Minister Jörg Kukies has expressed skepticism about "eurobonds," noting that they amount to "taking on debt to distribute among countries for national use." He has also cited potential legal issues under German constitutional law, which enshrines strict limits on deficit spending. Both countries argue that joint debt erodes individual state responsibility for fiscal discipline, a view rooted in the ordoliberal tradition that has long guided German economic policy.
Former Bundesbank President Axel Weber has warned that joint debt issuance could lead to a "moral hazard" problem, where member states feel less accountable for their own public finances. This is a particularly sensitive issue in Portugal, where fiscal reforms and austerity measures were imposed during the eurozone debt crisis as a condition for bailout funds.
The Next Seven Years: What's on the Table
The European Commission's proposal for the 2028–2034 MFF includes a total budget of €2 trillion, with significant portions earmarked for defense, energy, and innovation. The European Competitiveness Fund alone will receive €409 billion, focusing on clean technologies, digitalization, health, defense, and bioeconomy. The Horizon Europe research program will be reinforced with €175 billion.
Defense spending is set to multiply fivefold compared to current levels. In 2024, EU member states spent a record €343 billion on defense, equivalent to 1.9% of GDP, with projections reaching 2.1% of GDP in 2025. The SAFE program offers very long-term loans for defense investment, though repayment and interest obligations remain national.
Energy policy is being reframed as both an economic and geopolitical priority. The AccelerateEU strategy aims to redesign Europe's energy system, with the Global Europe instrument allocating €200 billion to support third countries in adopting clean energy, including 30% for climate and environmental initiatives.
The Commission has also proposed a new Crisis Response Mechanism with potential borrowing capacity of up to €395 billion, a clear signal that joint debt will be a standing feature of EU fiscal architecture, not a one-time pandemic response.
The Takeaway for Residents and Investors
For those living and investing in Portugal, the trajectory of EU debt issuance carries both opportunity and risk. On one hand, continued access to low-cost joint borrowing could fund infrastructure, energy transition, and innovation projects that benefit the Portuguese economy. On the other, the expanding debt load increases the long-term fiscal burden on all member states, including Portugal, and could constrain future budgetary flexibility.
The political battle between fiscal hawks (Germany, the Netherlands) and fiscal doves (Spain, Italy) is far from resolved. The outcome will determine whether the EU moves toward a more integrated fiscal union—or whether national budget discipline reasserts itself as the guiding principle. For Portugal, the stakes are high: the country must balance its own fiscal sustainability with its reliance on EU funding streams that increasingly depend on shared debt.
As the 2028–2034 MFF negotiations advance, Portuguese policymakers will need to weigh the benefits of joint investment programs against the costs of a growing collective debt burden. The question is not whether the EU will borrow again in a crisis—it already has the mechanism in place. The question is how much, and who will ultimately pay the bill.
