Greek central bank chief presses Berlin on eurobonds as ECB backs joint debt

Yannis Stournaras has been arguing for joint European debt since before the concept acquired its current urgency. The 69-year-old governor of the Bank of Greece, who served as his country's finance minister during the depths of the sovereign crisis, now finds himself with an unexpected alliance: the European Central Bank's Governing Council, including the Bundesbank, has formally endorsed the creation of a common, highly liquid, euro-denominated safe asset. The remaining obstacle is political, and it sits in Berlin.

A shifted consensus in Frankfurt

For more than a decade, Stournaras and his Italian counterpart were often the only voices on the Governing Council calling for eurobonds. Their stance was routinely dismissed as special pleading from the periphery, countries that stood to gain most from shared borrowing costs. That dynamic has inverted. At an informal summit earlier this month, the full council, Germany's central bank included, issued a collective call for EU leaders to act. Stournaras describes the moment as a wake-up call for European policymakers, driven by a confluence of external pressures: U.S. trade tariffs, Russia's war in Ukraine, and Chinese restrictions on critical raw material exports.

The ECB's endorsement is not merely symbolic. A common safe asset would address a structural deficiency in the euro area's financial architecture. Unlike the United States, where Treasury bills provide a deep, liquid benchmark for global investors, the euro area fragments its sovereign issuance across nineteen national markets. That fragmentation limits the euro's appeal as a reserve currency and, as Stournaras puts it, drives Europe's current account surplus abroad because global portfolio managers lack sufficient euro-denominated safe assets to absorb it.

The numbers that changed the argument

The most tangible evidence of convergence is the collapse in sovereign spreads. Ten-year Greek and Italian bonds now trade less than one percentage point above German Bunds. A decade ago, those spreads widened to several hundred basis points during the crisis, reflecting genuine default risk and imposing punitive borrowing costs on the periphery. The compression means the implicit subsidy from German creditworthiness to southern borrowers, the core political objection to mutualised debt, has shrunk dramatically. Stournaras argues this removes much of the moral hazard that once underpinned northern resistance.

He also points to the improved fiscal performance of the former crisis countries. Greece, Italy, Spain and Portugal have posted primary surpluses and reduced debt-to-GDP ratios in recent years, aided by the ECB's asset purchases and the NextGenerationEU recovery instrument. The narrative of profligate south versus disciplined north no longer maps onto current data, even if it persists in political rhetoric.

Three pillars for common issuance

Stournaras is precise about what joint debt should finance. He identifies three categories: defence, the green transition, and innovation. Each meets the test of being a genuine European public good, cross-border in nature, subject to underinvestment at national level, and critical to the union's strategic autonomy. Defence spending has acquired new urgency since the Russian invasion of Ukraine and the shift in U.S. security guarantees. The green transition requires continent-wide grid interconnection and industrial decarbonisation that no single member state can deliver alone. Innovation policy, from semiconductors to artificial intelligence, suffers from fragmented national programmes that fail to reach critical mass.

The governor declines to specify a headline figure for new issuance, but insists on meaningful volumes across maturities. Short-term paper would serve as a parking place for institutional cash, deepening the money market. Long-term bonds would establish a benchmark yield curve for private infrastructure projects with decades-long payback periods. Without that curve, European companies face higher financing costs than their U.S. counterparts, eroding competitiveness.

The recovery fund precedent

Stournaras repeatedly cites the €800 billion NextGenerationEU programme as proof that conditional, time-bound common borrowing works. The recovery fund linked disbursements to nationally agreed reform and investment plans, monitored by the European Commission. That architecture, he argues, contained moral hazard while giving markets confidence in the credit. The fund's bonds have traded tightly, demonstrating investor appetite for high-quality euro-area paper.

Critics note the precedent is imperfect. Italy's Superbonus, a 110% tax credit for building renovations introduced under Giuseppe Conte's government, was partly financed through recovery fund allocations. The scheme's cost overruns forced Giorgia Meloni's administration into sharp corrective measures, including a phased reduction of the credit and tighter eligibility. The episode shows that conditionality does not eliminate political temptation, but Stournaras contends the framework forced a correction that might otherwise have been delayed.

Berlin's calculated resistance

Friedrich Merz's flat rejection at last week's EU summit reflects a domestic political calculation as much as economic doctrine. The Chancellor leads a coalition that campaigned on fiscal discipline and opposition to debt mutualisation. His Christian Democratic Union faces pressure from its Bavarian sister party, the CSU, and from the Free Democrats, both of which treat any move toward joint liability as a red line. Merz has also signalled a preference for national defence spending increases, financed through domestic borrowing or budget reallocation, rather than a European vehicle.

Stournaras acknowledges the difficulty. "I do worry," he said of the German pushback. "But I'd like to convince them." His strategy rests on reframing the issue: not as a transfer union, but as a competitiveness imperative. If the euro area cannot match the depth of the U.S. Treasury market, capital will continue to flow westward, the euro will remain a second-tier reserve currency, and European firms will pay a persistent risk premium. That argument may resonate with German industry, which depends on export competitiveness and cheap financing.

Monetary policy backdrop

The debate over fiscal architecture is unfolding against a relatively benign monetary backdrop. Stournaras describes the euro area economy as "in a good place," with inflation projected to converge to the ECB's 2% target over the medium term and activity proving resilient. He judges risks to growth and inflation as broadly two-sided, but sees a slightly higher probability that the Governing Council's next move will be a rate cut rather than a hike. "Unless the sky falls on our head, don't expect sexy news from Frankfurt this year," he added, signalling a steady hand on policy while the political fight over fiscal instruments plays out.