Spain Says Germany Can Find a Way to Make Joint EU Borrowing Work

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(Bloomberg) -- The European Union will be able to find a way to raise more joint debt that is acceptable to Germany’s constitutional court — if there is sufficient political will, according to Spain’s economy minister.

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Carlos Cuerpo said the EU has piled up so many investment plans — from the energy transition to its digital strategy and defense — that member states won’t be able to finance them from national budgets and so they have to start discussions about more joint debt issuance.

“For us it’s a no-brainer,” Cuerpo said in an interview on the sidelines of the International Monetary Fund’s spring meeting in Washington. “We are piling up new investment needs and we need to respond.”

Russian advances on the battlefield in Ukraine have revived the idea of so called eurobonds to help finance the vast increase in defense spending required to pose a credible deterrent to the Kremlin.

But the discussions have so far run into opposition from the bloc’s traditional budget hawks, led by German Finance Minister Christian Lindner. He insisted last week that EU countries should focus on getting their finances in order rather than looking to the EU to fund additional programs.

One big obstacle for any new borrowing program to navigate is the German constitutional court, which has been leaning toward a stricter interpretation of the legal limits to government borrowing. Last year the court in Karlsruhe struck down a special budget vehicle that had been designed to get around the country’s borrowing restrictions.

That decision threw the governing coalition’s plans into disarray and left Chancellor Olaf Scholz wary of any kind of budget innovations that might be scrutinized by the judges.

Cuerpo, who helped to agree new fiscal rules for euro-area countries in negotiations with Lindner earlier this year, said he’s confident that if politicians can agree on expanding joint debt issuance at the EU level, then they will be able to find a structure that the German court can accept.

“If there’s will there will be a legal way, not only for Germany but for many others who have their own constitutional specificities,” he said. “We will be working with Germany but also with the rest of the EU member states. It is a common endeavor.”

(Updates with additional comment from minister in final paragraph)

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