The European Commission has released preliminary details of how it will borrow up to €800 billion for the NextGenerationEU (NGEU) recovery facility through a diversified programme of medium- and long-term bond syndications and bill auctions through a yet-to-be-chosen electronic platform.
It will use a network of primary dealers. The European Union will soon be sending out full terms and conditions to prospective members of this group.
A first taste is that they will each have to commit to buy at least 0.05% of auctions, which may be used for bonds as well as bills.
NextGenerationEU is a game changer for European capital markets
This is not particularly onerous, and the sweetener is that the EC will select underwriters for syndicated bond offerings from among its primary dealers.
Johannes Hahn, Commissioner for Budget and Administration, states: “NextGenerationEU is a game changer for European capital markets.”
Is it? Well, yes and no.
The first thing the EU will borrow is the playbook of Europe’s largest sovereign debt managers. It will also coordinate its borrowing with them, in an effort to de-risk the process of raising large amounts at the lowest possible cost.
Alvise
