Year XXXIX, Number 1, July 2026

Stefano Rossi 

Member of the national executive of the UEF-Italy and of UEF federal committee. Lawyer.

Ettore Dorrucci

Former Head of European Central Bank's Fiscal Policies Division. He represented the ECB at the EU's Economic and Financial Committee and the Euro Working Group.

For more than seventy years, Europe has repeatedly made use of supranational borrowing, issuing debt backed - directly or indirectly - by the guarantees of its Member States. From the first bonds issued by the European Coal and Steel Community in the 1950s, through decades of lending by the European Investment Bank, to the landmark experience of NextGenerationEU, and, more recently, instruments such as SAFE or the financing of Ukraine, common debt has been a recurring feature of European integration.

And yet, despite its long history, joint debt issuance has never become a permanent, structural component of the European policy framework. It has remained exceptional, temporary, and tightly constrained. This is not accidental. Rather, it reflects what may be described as a deeply embedded "Brussels consensus" on the limits of collective fiscal action in the European Union.

Understanding this consensus - and questioning its adequacy in today's radically changed context - is essential for anyone committed to advancing the federalist cause in Europe.

The Logic and Limits of the Brussels Consensus

Across very different historical phases, legal bases, and political circumstances, European initiatives in joint debt issuance have displayed a remarkably consistent set of features.

First, common borrowing has always aimed at specific and ad-hoc objectives, such as response to shocks and crises or support to particular sectors. It has never been conceived as a standing fiscal instrument serving general macroeconomic or strategic purposes.

Second, each scheme has been explicitly temporary. Even when its scale has been unprecedented – as in the case of NGEU – joint borrowing has been framed as strictly time-bound, carefully avoiding any interpretation that might suggest the creation of a permanent fiscal capacity at the European level.

Third, European borrowing has followed a "flow" logic. Funds raised on the market have been used to finance new expenditure or lending, not to refinance or replace existing national public debts (stock approach). The idea of pooling or mutualising part of the stock of sovereign debt has remained a red line.

Fourth, liabilities have never been fully mutualised. Guarantees have always been proportional to national contributions, not joint and several. No Member State has formally committed to being responsible for the debts of others beyond a predefined quota.

Fifth, issuance has been managed by existing institutions such as the European Commission or, outside the EU framework, the European Stability Mechanism. Europe still lacks a common Treasury endowed with autonomous taxing powers and a permanent central fiscal capacity.

Sixth, European joint borrowing has been designed to exclude any form of permanent fiscal transfers among Member States. The specter of a "transfer union" has loomed large in political debates and has consistently shaped the design of common instruments.

Together, these elements define a framework that has allowed European common debt to exist, but only within strict boundaries.

Political Union First? The Traditional Objection

Why has Europe never crossed these boundaries?

The prevailing answer has been overtly political. Moving toward permanent and fully mutualised common debt, it is argued, would require a transformation of the Union from a confederation of states into a genuine federation. As long as taxing powers and democratic accountability remain national, so the argument goes, a permanent European fiscal capacity would lack legitimacy.

This position has found supporters across much of the political spectrum. Anti-federalists have pointed to risks of moral hazard and loss of sovereignty. Federalists themselves have often argued that debt mutualisation cannot precede political union without undermining democratic control. The "horse" of political union, in this view, must come before the "cart" of common borrowing.

This reasoning is also reflected in EU primary law. Articles 310 and 312 of the Treaty on the Functioning of the European Union prohibit the EU budget from running deficits as a general rule, while allowing borrowing only on an exceptional basis and against earmarked revenues.

As a result, repeated attempts to cross the Rubicon of the Brussels consensus, such as proposals for a permanent macroeconomic stabilisation capacity or for a European safe asset replacing part of national debts, have failed to gather sufficient political support.

A Changed World, a Changed Rationale

Today, however, this reasoning is undergoing a fundamental reassessment.

Europe has entered a new historical phase. Major economies are increasingly competing to attract global savings and channel them into productive domestic investment. At the same time, a more conflictual and "Darwinian" geopolitical environment has made strategic autonomy – not only economic efficiency – a central policy objective.

In this context, the rationale for joint borrowing has shifted. The core issue is no longer crisis management, but the long-term financing of European Public Goods (EPGs): defence and security, clean energy and climate transition, digital infrastructure, advanced technologies, and industrial capacities essential for Europe's sovereignty and resilience.

These are areas where market failures are pervasive, returns are uncertain or long-term, and national approaches are inefficient or suboptimal. No single Member State, acting alone, can credibly provide these goods at the scale required.

At the same time, political realities cannot be ignored. There is currently no willingness among Member States to establish a European federal state endowed with full fiscal sovereignty. Insisting on an all-or-nothing federal leap risks condemning Europe to paralysis.

It is precisely here that a more pragmatic, federalist-inspired approach becomes necessary.

Coalitions of the Willing and Pragmatic Federalism

An alternative path has begun to gain traction: the idea that a coalition of willing Member States could initiate permanent and strategic common borrowing, without waiting for unanimous agreement or full political union.

Such an approach would deliberately depart from two key pillars of the Brussels consensus. Joint borrowing would no longer be strictly temporary, nor limited to ad hoc objectives. Instead, it would be used as a stable tool to finance long-term investment in EPGs.

Participation would be voluntary and open-ended. Any Member State could choose to join at a later stage, making this model inclusive. In this sense, the approach echoes the spirit of the Schuman Declaration of 1950, which explicitly envisaged integration progressing through concrete achievements and variable geometry.

Willing countries could pool resources to finance large-scale, innovative projects that exceed national capabilities. The economic case is strong. Fiscal multipliers are highest when spending targets goods produced in Europe, incorporates substantial research and development, is debt-financed, and is front-loaded.

Legal Pathways: Inside or Outside the Treaties?

Two main institutional routes are available.

The first is enhanced cooperation under the EU Treaties, which allows at least nine Member States to proceed together within the EU legal framework. This avenue has recently been used, for instance, to support lending to Ukraine.

The second is the creation of ad-hoc intergovernmental arrangements outside the EU framework, similar to Schengen or the European Stability Mechanism.

While enhanced cooperation has the advantage of institutional continuity and can more easily rely on the existing market infrastructure, its legal and political constraints are significant. In practice, it makes a genuine break with the Brussels consensus difficult, if not impossible.

Intergovernmental arrangements, by contrast, offer greater flexibility. They allow willing states to move faster, define tailored governance structures, and gradually deepen commitments. For this reason, they appear better suited to initiating a "next generation" of joint borrowing in Europe.

Crucially, common debt issuance should not be viewed in isolation. It must be part of a broader strategy that includes coordinated R&D, joint procurement, and coherent fiscal and industrial policies, designed to crowd in private investment rather than substitute for it.

From Flows to Stocks: Towards a European Safe Asset?

Even so, financing EPGs on a flow basis would not be enough to unlock the full potential of common debt. Europe still lacks a genuine safe asset comparable to U.S. Treasuries - an asset that could underpin capital market integration, strengthen the international role of the euro, and enhance Europe's strategic autonomy.

Over time, a coalition of the willing could move beyond a flow approach, and also replace part of their national sovereign bonds with a common European asset. This would imply a stock approach and stronger forms of risk mutualisation.

Recent convergence in sovereign yields among euro area issuers - which has proved surprisingly resilient to the latest shocks - sets more favourable market conditions than those prevailing in the fifteen years after the Great Financial Crisis. Some observers interpret this phenomenon as the gradual emergence of a de facto European benchmark - not a legal mutualisation of debt, but a collectively priced confidence premium reflecting an increased willingness of investors to treat euro-denominated sovereign debt as a single asset class, supported by the ECB's commitment to prevent disorderly market fragmentation.

Discipline, mutual self-interest and solidarity would have to advance together.

At the same time, a pragmatic roadmap towards a European safe asset - which starts from EPG financing and from there gradually builds trust across participating countries - may prove more realistic than financial engineering solutions that are politically too front-loaded. Europe cannot ask its Member States to cross some of their hardest red lines right from the start. Historically, European integration has never proceeded that way. Economic and Monetary Union itself did not begin with Stage 3.

Federalism as Process, Not Blueprint

For European federalists, the key lesson is clear. Fiscal integration cannot be reduced to a binary choice between the status quo and a fully-fledged federal state. Europe has always advanced through incremental, imperfect solutions driven by concrete necessity.

Common debt, if initially designed around the financing of strategic investment in EPGs and anchored in credible commitments, can become a powerful engine of integration, even in the absence of complete political union. It can create facts on the ground, build trust, and gradually reshape expectations among governments, citizens, and markets alike.

The tensions between fiscal discipline, solidarity, and political feasibility are not contradictions to be resolved once and for all. They are structural features of the European project. Managing them pragmatically is the true task of federalism today.

In this sense, moving beyond the Brussels consensus is not about abandoning principles. It is about adapting them to a world in which Europe's unity, sovereignty, and capacity to act are at stake.

The contents of this article are derived from E. Dorrucci, S. Rossi, "Towards a next generation of joint borrowing in Europe", Perspectives on federalism, February 2026.