Due to increasing interest rates, the EU’s debt expenses are predicted to quadruple in 2024, which raises questions about the bloc’s capacity to respond to financial shocks. To fund NextGenerationEU grants, which are a component of the €800 billion Covid-19 recovery strategy agreed upon by member states in 2020, the EU has borrowed extensively.
However, beginning July 2022, interest rates have increased by 3.75 percentage points as a result of growing inflation, which is associated with Russia’s invasion of Ukraine and has resulted in unexpected financing expenditures.
Debt Servicing Costs
Before the review of the bloc’s longer-term budget from 2021 to 2027, known as its multiannual financial framework (MFF), the €189.3 billion draught budget for 2024 is anticipated to be released. MEPs cautioned the commission to modify its long-term finance plans to allow more flexibility during a discussion between Hahn and lawmakers.
They emphasized that working together to modify the MFF is essential to prevent it from turning into a ticking time bomb and that hoping is not a strategy. Nicolae Tefănuţă, the budget spokesman for the Green Party, claimed that interest costs exceeded the €3.7 billion total spent on Erasmus, the EU’s well-known student exchange program.
- EU’s debt expenses quadruple in 2024, questioning financial resilience amid rising interest rates.
- EU commission to modify 2024 draught budget for flexibility.
- Renew Group suggests raising union budget through carbon fees, EU Council rejects cuts.
The increase in interest rates allows the commission to raise additional revenues from member states, find new sources of revenue, or reduce spending.
However, member states would vehemently contest any reductions in financing for agriculture or cohesion, which account for the majority of the EU budget.
There is only one viable answer, according to Valérie Hayer, a spokesman for the centrist Renew Group: raise the union’s budget by generating its funds, including through suggestions for carbon fees. The European Council of member countries expects the commission to reject their requests to cut the budget because they lack justification.