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Denmark and Finland are opposing plans for the EU to issue joint debt for purposes beyond defence, weakening Brussels’ plans for more common issuance to respond to crises.
Danish premier Mette Frederiksen said on Tuesday in Strasbourg: “We are now being more flexible and pragmatic in the discussions about the next budget. But for me it’s linked with the re-arming of Europe and not any other questions.”
The new mechanism, drafted by the European Commission, would form part of plans for the bloc’s common budget after 2028.
A Finnish official, who asked not to be named, said: “Finland is sceptical of [recovery fund]-style instruments,” referring to the debt-fuelled €800bn pandemic recovery scheme.
“I don’t see the need to introduce such at this stage as a preparation — if and when there’s a crisis the commission is able to quickly prepare what is deemed necessary,” the official added.
The commission has readied proposals to issue an “extraordinary crisis response mechanism” that would give Brussels powers to tap the markets and disburse funds as loans or grants to member countries “as the case may be and depending on the circumstances”, according to a draft seen by the Financial Times.
The joint debt plan, which would create a permanent channel for the issuance of EU-denominated bonds, would need to be approved by late 2027.
Once in place, debt issuance would only need majority backing from EU countries and consent from the European parliament, a much lower threshold.
But the mechanism is likely to be opposed by so-called frugal countries Germany, Sweden and the Netherlands — and also by Denmark and Finland, both of which broke with their traditionally hawkish stance on debt to drop their opposition to joint borrowing to fund Europe’s rearmament effort.
The strength of opposition means the full proposal to authorise joint debt issuance to be disbursed as transfers to EU countries may be unable to proceed. Brussels will present its final budget proposals, including the crisis mechanism, on July 16.
Frederiksen has pushed defence to the top of her domestic as well as the European agenda, helped by Denmark’s role as rotating presidency of the EU Council for the next six months.
“For me the number one priority is re-arming Europe,” she said. But beyond this priority, Copenhagen is more sceptical of further joint funding, she said.
The proposal for more joint debt is part of Brussels’ efforts to design the EU’s next long-term budget to cope with a much longer list of spending demands.
Primarily financed from national contributions, the common budget is extending to cover priorities like defence and economic competitiveness, while also finding room to repay pandemic-era recovery funds.
