Bundesbank Urges EU Debt Transparency Amid Pandemic Borrowing

European Union debt should start showing up in national accounts so that the unprecedented joint borrowing agreed during the coronavirus pandemic doesn’t obscure government finances, Germany’s Bundesbank said.

The 27-nation bloc could end up with more than a trillion euros ($1.22 trillion) in joint liabilities in the coming years, which doesn’t have to be added to national debt burdens even though much of the money is meant to be paid back through member states’ contributions to the EU budget, the Bundesbank said.

Existing metrics “don’t display the European debt and deficits and therefore fall short,” it said in its monthly report on Monday. “This bears the risk that these liabilities could slip out of sight. It could increase the incentive to further transfer borrowing to the European level.”

The EU agreed on a 750 billion-euro recovery fund to fuel a recovery from the deepest recession on record -- and in doing so set the stage for much deeper integration in the bloc. It also implemented a 100 billion-euro program to help member states fund unemployment measures.

The Bundesbank said those debts and deficits at the EU level should be added to individual accounts of member states, for example based on gross national income.

National governments have already spent massively to keep companies and households afloat during national restrictions. The European Commission last month estimated that the euro area’s debt level will rise above 100% of economic output, up from 86% before the outbreak. Italy’s debt burden is projected to rise to around 160%.

Concerns about the sustainability of the debt have been kept in check by the European Central Bank, which has committed to buying up 1.85 trillion euros in bonds. This has allowed many governments across the region to finance themselves at sub-zero rates.

©2020 Bloomberg L.P.

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