Could Europe’s Joint Debt Become a Viable Alternative to U.S. Treasuries?

For many years, U.S. Treasury securities have stood as the cornerstone of the global financial system, attracting investors, governments, and central banks who trust in the unwavering creditworthiness of the U.S. government.

However, recent disruptions stemming from U.S. economic policy shifts and concerns over the Federal Reserve's autonomy have sparked doubts about the reliability of American assets. Investors seeking to diversify away from U.S. Treasuries and the dollar find themselves with very limited alternatives.

Despite the growing uncertainty linked to U.S. policies, few nations offer the level of economic, political, and legal stability that the United States provides. The European Union, comparable to the U.S. in economic size and wealth, remains fragmented in its financial markets, with its 27 member states issuing bonds independently.

In response, the concept of “Eurobonds” has been proposed—a collective European debt instrument advocated by economists Olivier Blanchard and Ángel Ubide, aiming to create a unified financial asset for the bloc.

Although the idea of EU-issued joint debt has faced significant opposition, particularly from fiscally conservative countries such as Germany, progress was made in 2020 when the European Union introduced a plan to issue up to 750 billion euros in shared debt to support pandemic recovery efforts. Nonetheless, this initiative was designed as a temporary measure.

Blanchard and Ubide’s proposal envisions the regular issuance of Eurobonds to develop a liquid market and bolster Europe’s financial infrastructure. The idea is gaining momentum, with the European Central Bank’s chief economist recently acknowledging its potential benefits.