A NEW CHANCE FOR COMMON EU BORROWING? SPAIN’S “5×5 RULE”

Quick Takes

• Spain's "5×5 rule" proposes gradually replacing part of national sovereign debt issuance with joint EU borrowing.
• The plan could create up to €5 trillion of EU debt within five years, potentially saving participating countries up to €25bn annually in interest costs.
• Supporters argue the proposal would strengthen EU capital markets, improve the international role of EU debt, and finance strategic priorities more efficiently.
• While political and technical challenges remain, UniCredit believes the proposal has shifted the debate from debt mutualisation towards efficiency and market integration.

A new chance for common EU borrowing? Spain’s “5×5 rule”

As negotiations on the next EU budget gather pace, Spain has reopened the debate on common borrowing. The proposal frames expanded EU debt issuance as a tool for efficiency and market integration, with the aim of securing political backing by 2028.

COST SAVINGS FROM REDUCING FRAGMENTATION IN EU DEBT ISSUANCE

SPAIN’S ESF: ESTIMATED ADDITIONAL EU ISSUANCE AND ASSOCIATED INTEREST SAVINGS (EUR BN) 8000

Source: European Commission, Spanish Ministry of Economy, The Investment Institute by UniCredit Note: European Sovereign Facility (ESF).

THE CONTEXT

A year after the European Commission (EC) unveiled its proposal for the 2028-34 Multiannual Financial Framework (MFF), discussions on how to finance common European priorities are intensifying. While a final agreement remains some way off, negotiations among EU leaders are underway and are expected to continue under the Irish presidency of the Council of the European Union in 2H26. The aim is to reach a political agreement by year-end, allowing the necessary legislative acts to be adopted in 2027 and ensuring that the new MFF enters into force in January 2028. Against this backdrop, proposals for renewed EU common borrowing have resurfaced and, this time, appear to be gaining genuine political traction. A notable example is the initiative recently presented by Spanish Deputy Prime Minister and Finance Minister Carlos Cuerpo at the Eurogroup, also referred to as the “5x5 rule”.

THE DATA

The Spanish proposal starts from a simple premise: Europe’s sovereign debt market remains excessively fragmented. Building on recent contributions to the debate on a European safe asset (Blanchard and Ubide, 2025, 2026), it envisages a European Sovereign Facility (ESF) that would aim to gradually replace part of national debt issuance with EU borrowing, without necessarily creating additional debt or fiscal transfers. The EC would issue debt on behalf of participating countries equivalent to a third of annual redemptions plus the fiscal deficit allowed under EU fiscal rules, a key condition of the scheme. As our chart shows, with full participation, jointly issued debt could reach up to EUR 5tn within five years (around 26% of EU GDP), starting with issuance of up to EUR 850bn in one year. According to the proposal, a market of this size could transform investor perceptions of EU debt: as the market expands and liquidity deepens, borrowing costs could converge toward German levels, generating interest savings for participating countries. Therefore, based on their estimates, EUR 5tn of issuance over a five-year period could lower interest payments by up to EUR 25bn per year in the long run. Hence the “5×5 rule”. These numbers are comparable to the interest costs currently projected in the EU’s new budget proposal for servicing NGEU debt. Participation would be voluntary. Failing unanimous support, Spain envisages a “coalition of the willing”. To ensure broad participation, the scheme includes incentive and compensation mechanisms so that no country would be worse off by joining. According to the proposal, guarantees would rely first on the EU budget and, second, on claims against participating countries. As Cuerpo argues, debt pooling should be viewed not as an act of solidarity or a system of transfers, but as an exercise in efficiency and collective self-interest that would allow Europe to stop paying a premium for its own fragmentation.

OUR VIEW

By shifting part of sovereign debt issuance to the European level, the Spanish initiative aims to move the politically charged debate on debt mutualisation and risk-sharing that has dominated discussions in recent years a step forward. For Cuerpo, the potential benefits could reach far beyond lower borrowing costs, including progress toward a deeper and more integrated capital market, an enhanced international role for EU debt and increased capacity to finance the EU’s strategic priorities and European public goods (EPGs). This is both the economic rationale and the political appeal of the proposal. Timing is also crucial. According to Cuerpo, negotiations on the next MFF offer a unique political window of opportunity to advance the debate, with Spain proposing to launch the new framework alongside the next EU budget cycle in 2028. The aim is to secure agreement on the principle first and to address the technical details at a later stage. In this context, ECB President Christine Lagarde’s endorsement is noteworthy. She welcomed the initiative for encouraging a discussion based on economic merits rather than “over-my-dead-body” positions. Ultimately, the design of any common borrowing framework will be a political choice, and a difficult one, given the important questions raised by the proposed mechanism. While a larger and more liquid EU sovereign bond market may be a necessary condition for EU debt to attain full safe-asset status, it might not be sufficient on its own. Moreover, some degree of additional budgetary headroom and lighter fiscal integration, at least sufficient to guarantee a dedicated revenue stream for debt servicing, may ultimately be required, as argued by the IMF and Bruegel. Yet the challenges should not become an excuse to avoid efforts to address divergent incentives. Whether or not the Spanish proposal is ultimately adopted, it is already helping to reframe the debate on common borrowing around efficiency, market integration and strategic autonomy. As negotiations on the next MFF gather momentum, the question should no longer be whether the discussion should take place, but rather how far Europe is willing to take it.

TODAY’S DATA RELEASES

Source: Bloomberg, The Investment Institute by UniCredit

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