Brussels Finds a Way to Issue ‘Eurobonds’ Without State Guarantee – But Challenges Remain

The heart of the Fed’s recent announcement, which kept dollar interest rates unchanged, was the phrase: ‘Uncertainty around economic prospects has increased.’ In further remarks to journalists, Fed Chairman Jerome Powell added that the economic impacts of Trump’s tariff policies remain unknown. Amid these conditions, EU leadership initiated a risky discussion on March 21, 2025, about financing a massive military rearmament plan for the EU, as its economy faces slowdown or stagnation due to Trump’s tariffs. This involves planning for colossal spending akin to pandemic response costs, despite member states’ deficit budgets and monetary/fiscal policies discouraging further debt funding. With wealthy economies rejecting mutualized debt issuance (Eurobonds), Brussels proposes an alternative by tapping into popular savings and securitization, issuing Eurobonds without state guarantees. This idea, discussed in recent publications, involves converting small savings and pension reserves into weapons under the guise of improving deposit returns. It also aims to open pathways to a unified capital market bypassing rich nations’ objections to common debt. Initial capital would come from a small portion of low-interest deposits, with pilot amounts capped at €500 billion. While this plan could eventually cover all durations required for a deep market, significant legal and financial adjustments across member states are needed. Political instability in the Eurozone complicates swift parliamentary decisions. However, the Commission foresees mechanisms to bypass these hurdles, allowing agreements to start with initial consenting countries, similar to the Eurozone model. Germany seems prepared, with the incoming Chancellor favoring a multi-speed EU restructuring based on the Schuman Plan. Still, such a scheme requires radical changes in ownership, control, and representation structures, leaving observers awaiting further ‘ideas’ from the Commission.