The coronavirus eradicated decades of fiscal prudence and capital markets orthodoxy in a matter of days. In doing so, it has bound the financial industry to its sovereign governments and supranational entities more closely than ever before.
Perhaps nothing better exemplifies this new reality than the launch of the EU’s extraordinary new borrowing programme, due at the end of this month. More than €30 billion of new bonds will likely be issued before the end of 2020 – more than the EU has ever issued in any single year before. Next year, it will borrow more than twice that amount, possibly much more.
Rebuilding economies
As we discuss in this issue, the EU must now persuade the debt markets to absorb more than €750 billion over the next five years, as it seeks to rebuild economies shattered by Covid-19 lockdowns.
When the virus first took hold in Italy in March, the response was such that many thought it could eventually lead to the breakup of the EU. Just months later, the leaders of France and Germany stood together, calling for joint debt issuance on an unimaginable scale.