What will it cost the European Union to pay its economic recovery debt?

As part of its NextGenerationEU (NGEU) post-COVID-19 recovery and economic greening plan, the European Union intends to borrow about €421 billion (in current prices) before the end of 2026 to fund “non-repayable support” to EU countries. This debt and the interest on it must be repaid before 2058 from the EU budget. Here, we estimate what these costs could amount to 1 .

The costs will depend mainly on the future trajectory of interest rates paid by the EU. Predicting interest rates for such a long time horizon is challenging but market expectations (based on interest rate swaps) provide a good baseline. For instance, market expectations are that 10-year rates will remain relatively stable until 2030, before slowly falling and stabilising at a lower level in the long run. Investors anticipate the 10-year euro swap rate, which closely mirrors EU yields (with a small spread, typically around 10 basis points on 10-year rates), declining towards 1.8 percent by 2058 (Figure 1, Panel A).

 Συνέχεια  εδώ

Πηγή:bruegel.org