Forever in your debt

Spanish PM Pedro Sánchez wants shared debt to be a permanent feature of EU financing, writes columnist Mark Nayler

Mark Nayler

Malaga

Friday, 14 February 2025, 12:39

Imagine that you are part of a cooperative with 26 other people whose financial situations are very different. Some, like you, are cautious and comfortably-off, and some are wealthy. Five or six members are living on credit, yet always defaulting on repayments. Several have gambling addictions, while others are greedy or reckless. One is a drunken sailor.

In a rare moment of (relative) sobriety, the sailor presents the group with what he thinks is a great idea: a bank is prepared to loan you all, as a group, ten million euros. The money will be held in a shared account to which you all have access.

There's just one catch: when the repayments kick in, all 27 of you will be liable for installments of ten grand a month, regardless of how much you have personally spent, or how you've spent it. If any members miss their payments, they will be distributed amongst the cooperative, thereby increasing the monthly installments of other individuals (yourself included). Would you agree to such a scheme?

Pedro Sánchez has just proposed something very similar to the EU Commission, as it begins to plan the 2028-34 budget. The Spanish government wants a "common loan-based mechanism financed by joint borrowing" (according to a document seen by Politico), in order to double the EU's budget to two trillion euros. A limited joint borrowing scheme was activated in 2021 to help member states deal with the pandemic - or rather, to repair the damage caused by their attempts to contain it; but it's set to expire next year. Sánchez wants shared debt to be a permanent feature of EU financing.

Italy and France are keen on the idea, but Germany, the Netherlands and the Scandinavian nations are sceptical. Danish MEP Anders Vistisen, a member of the Danish People's Party and chief whip of Patriots for Europe, of which Vox is part, accused Sánchez of having a "spend-like-a-drunken-sailor mentality" and described his proposal as "absolute madness".

Proponents of joint debt argue that the EU could do great things with more money. You could say the same thing to someone trying to dissuade you from agreeing to the huge loan in the situation imagined above. "But just think of all the schools and hospitals we could build or invest in," you might say. You'd be absolutely right - provided all members of the cooperative were in the same financial position. But they're not.

That's the problem with joint-debt schemes. In our imagined cooperative, the reckless, greedy or penurious members will spend their shares of the loan (which will be greater than yours) on personal affairs rather than collective projects - to pay off a guy threatening to break their legs, say, or to buy that expensive car they've had their eye on. Who knows what the drunken sailor would get up to. Whatever it is, though, you'd end up paying.

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