Why Germany Must Rethink Eurobonds: A New Era for Europe’s Currency

Challenging the Dollar’s Global Reign

Michael Hüther wants Europe to borrow together.

As chef of the Institute of the German Economy (IW), Hüther has broken a longstanding German taboo, calling for renewed discussions on issuing joint European bonds. In the Handelsblatt, he argues that the bloc must build a large market of common European bonds if it ever hopes to build out the euro into a true global reserve currency and fund critical infrastructure projects. It is a sharp departure from Germany’s historical rejection of shared debt instruments, a defensive stance rooted in the eurozone crisis.

The Liquidity Gap Against US Treasuries

Europe currently lacks a unified, highly liquid asset comparable to US Treasury securities that global central banks and financial institutions can use safely as reserves. European Central Bank President Christine Lagarde and ECB Director Philip Lane have both pointed to this structural vulnerability.

While the United States benefits from a massive, unified market, Europe’s debt landscape remains fractured among national issues like German Bunds, French OATs, and Italian BTPs.

To bypass political resistance, Hüther proposes restricting joint bonds strictly to predefined investments. These would include defense, digital infrastructure, electricity grids, and cross-border infrastructure—rather than underwriting the existing national debts of heavily indebted member states like Italy or France.

Berlin’s Hardline Stance on Fiscal Discipline

Despite these proposals, German political leaders and economic experts remain staunchly opposed to shared borrowing.

Their primary fear is the removal of necessary financial discipline from member states. Ifo President Clemens Fuest argues that requiring higher interest rates on national debt forces countries like Italy to pursue more cautious economic policies. That vital market pressure, critics warn, would disappear under joint euro-bonds.

Skeptics also look inward. Domestically, Germany’s own 500-billion-euro special fund largely substituted existing budgetary allocations rather than generating strictly additional investments. For opponents, it serves as a cautionary tale illustrating the persistent risk that ring-fenced funds can be circumvented.

A Strategic Window Amid American Volatility

Yet the firewall is already cracking in practice.

Despite Berlin’s official policy stance, the European Union already issues substantial joint debt on international capital markets. The bloc has previously raised hundreds of billions for its post-pandemic recovery fund, and the European Commission now plans to place roughly 180 billion euros in additional EU bonds in 2026.

Meanwhile, geopolitical realities are shifting beneath policymakers’ feet. Bundesbank President Joachim Nagel notes that the global dominance of the US dollar faces growing questions due to high American debt loads and political volatility.

For Hüther, this creates a strategic window. He contends that Berlin must shift the national debate away from whether Germany will finance southern European deficits—and focus instead on the level of joint financial power Europe requires to secure its economic independence.