The International Monetary Fund argued the European Union should delay billions in repayments for Covid-era debt to help free up money for defence or infrastructure spending.
“We see this as a good option in the context of ramping up spending on what we call European public goods,” Oya Celasun, deputy director of the IMF’s European Department, told reporters in Brussels on Tuesday.
The issue has become hotly debated in the EU as officials look for creative ways to simultaneously fund a military buildup, an industrial revival and a green transition as energy costs spiral. French President Emmanuel Macron has urged the bloc to push back planned repayments on more than €800 billion in pandemic recovery debt. But traditionally frugal countries like Germany are wary of letting the debt linger.
Celasun said the EU could pair the delay with “additional revenue sources” to enhance the bloc’s budget.
The European Commission, the EU’s executive arm, is exploring the possibility of rolling over the Covid debt, Bloomberg previously reported. Repayments are currently set to begin in 2028, and will be around €25 billion, according to the commission.
EU leaders agreed to jointly borrow the money in 2020, taking the unprecedented step to help stabilise and revive the bloc’s pandemic-battered economy.
But while Covid has faded, governments are now facing fresh fiscal strain over the ongoing war in Ukraine and the US-Israeli war in Iran, which has sent fuel prices soaring.
Rolling over the Covid debt would help create fiscal space to enable Europe to still invest in Europe-wide priorities, Celasun said, like modernised energy grids or military might.
