Submitted by Thomas Kolbe
The European Union is funded by contributions from its member states. At least, that’s what the founding treaties say. In practice, however, the EU has long been taking other paths.
At the core of Europe’s financial architecture lies a clear separation of responsibility and liability: Article 125 of the Treaty on the Functioning of the European Union (TFEU), the so-called “No-Bailout Clause.” It states, unequivocally, that neither the Union nor individual member states may assume the debts of other states. The purpose of this provision is to prevent free-rider effects (moral hazard) at the expense of other member states: each state is responsible for its own obligations.
Still, the clause does not exclude political support, as long as it does not mean assuming the existing debts of other states. A notable example of this practice were the bailout programs for Greece during the sovereign debt crisis one and a half decades ago.
Article 310 TFEU further regulates the EU budget: revenues and expenditures must be balanced every year, and the budget may only be financed through own resources such as member contributions, tariffs, or approved revenues. Independent loans by the EU Commission exceeding the approved framework are prohibited.
Together, these rules form the legal backbone of EU financial policy: no automatic liability, no autonomous EU debt, and only fully covered spending.
This design was deliberately chosen to prevent the emergence of a supra-state in Brussels and to defend the national scope of action of member states against an expanding Brussels bureaucracy.
Theory vs. Practice
That’s the theory. In practice, the EU has steadily increased its presence as a borrower in the bond market. It began in 1976 with the first European Community bond to support Italy and Ireland during the oil crisis. In the 1980s and 1990s, further issues followed for France, Greece, and Portugal—always aimed at demonstrating collective solidarity and easing fiscal tensions.
The 2008/2010 financial crisis marked a decisive turning point: with the European Financial Stabilisation Mechanism (EFSM) and, in 2012, the European Stability Mechanism (ESM), the EU began deliberately supporting over-indebted member states via bond issuance. In 2010, the European Central Bank announced it would purchase euro sovereign bonds on the open market to prevent the collapse of the monetary union—always in close coordination with EU institutions.
The COVID years saw a new dimension in 2020: for the first time, the EU issued Social Bonds under the “SURE” fund. At the same time, the “Next Generation EU” program started, providing around €800 billion in crisis aid. Since 2025, the Union has increasingly relied on so-called “sustainable bonds” (Green Bonds) and plans to issue short-term treasury bills for improved liquidity management.
The EU and ECB now operate in tandem, integrating ever-new financing instruments into the capital markets. The signal to the market is clear: we are ready to meet growing demand for euro bonds. And as collateral, not only the European taxpayer but also the ECB’s virtually unlimited liquidity is on standby. What could possibly go wrong?
Market Demand
For the second half of 2025, the European Commission plans to issue up to €70 billion in EU bonds across six auctions with maturities ranging from three to thirty years. Already in March 2025, the Commission achieved the world’s largest bond issuance increase, totaling $30.62 billion; three placements alone amounted to €13.7 billion.
Demand is plentiful, thanks to dual backing from member states and the ECB: an October 2024 issuance of a seven-year bond was oversubscribed 17 times. Green bonds are especially in focus: up to €250 billion are planned under NextGenerationEU, with €48.91 billion already issued.
Yields on these bonds currently trade about 40 basis points above German Bunds, making them attractive for investors.
Quo Vadis EU?
The European Union is undeniably moving toward a form of autonomous statehood. Its rigid ideological directives and the apodictic tone adopted by Commission representatives toward member states recently culminated in the Commission unilaterally negotiating the EU-US trade agreement.
Regardless of the agreement’s outcome, this sends a clear signal: decision-making power and political competence are shifting markedly from national capitals to Brussels, where a centralized bureaucracy increasingly calls the shots.
A return to national autonomy and a Commission limited to core functions appears out of the question. This is reflected in Commission President Ursula von der Leyen’s EU budget proposal for 2028–2034, projected at around €2 trillion—a 40% increase over the previous period.
Brussels’ fiscal megalomania has a single goal: enabling the EU to finance its activities independently, exploiting the fiscal constraints of member states. The outstanding €650 billion, formally to be raised by member states, hangs like a Damocles sword over ongoing negotiations—a constant pressure allowing the Commission to effectively enforce its financing plans through the bond market.
Apart from Hungary and the Czech Republic, there is broad agreement that Brussels’ financing will increasingly come from the bond market—no national budget could handle the extra levies. The Commission’s plans are therefore tacitly approved.
ECB as Lender of Last Resort
Everything points to a co-financing model that makes the EU increasingly independent of national budgets. Institutional constraints—such as individual member states’ say—are effectively bypassed, as is the Commission’s original prohibition on borrowing. Step by step, the Union is transforming from a rule-bound confederation into a centrally managed financial actor, increasingly deciding over its own resources and priorities.
Should debt ever spiral out of control, as has become common practice in the EU, the European Central Bank would be ready as a lender of last resort. This will work as long as the capital markets retain confidence in the EU’s creditworthiness, particularly Germany’s payment ability. If market faith collapses, the ECB would be forced to intervene in a way that would dwarf the 2010 debt crisis. The euro would then be history. The EU is skating on thin ice.
About the author: Thomas Kolbe, a German graduate economist, has worked for over 25 years as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.
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