There is a worrying tendency to view funds collectively borrowed by the European Union as “virtual money”, rather than a debt national governments would eventually have to cover, the union’s top auditor has said.
Tony Murphy, president of the European Court of Auditors (ECA), the bloc’s spending watchdog, said the increasing levels of debt carried by EU institutions were a concern. The union’s borrowing is projected to hit €1 trillion by 2027.
“In terms of common debt, this concept that it’s sort of virtual money and it’s not real, I mean it’s real debts, which have to be paid back,” Murphy said.
Governments are heading into bitter negotiations about the size and focus of the EU’s next seven-year budget. Capitals are divided over how much money should be put towards defence, Common Agricultural Policy subsidies for farmers, “cohesion” funding for infrastructure projects in poorer regions and a competitiveness fund to boost Europe’s lagging economy.
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A draft €2 trillion budget proposal has been criticised as too expansive by a coalition of frugal governments, who want to scale its size back substantially. A larger group of 17 states are resisting attempts to slash funding set aside for agriculture subsidies and development projects.
The Irish Government holds the rotating EU presidency and, on Saturday, will table a compromise budget to bridge some of the gaps between the opposing camps. European leaders want to land a deal by the end of this year.
Speaking on Wednesday, Murphy said repayments to cover past borrowing would take up 8 per cent of the proposed €2 trillion budget.
“We’re not policymakers or legislators ... What we’re doing is trying to inform people that this, you know, just that they’re aware of the level of debt. What we’re trying to point out is that this is real money and it’s a real debt and it has to be paid back,” he said.
Murphy, who is originally from Cabra, north Dublin, has led the ECA since 2022. He was re-elected for a second three-year term late last year.
The Luxembourg-based watchdog audits how EU funds are spent and the quality of controls in place to make sure money is put to proper use.
Rolling over the bloc’s debts would only kick “the can down the road” and the money had to be repaid at some point, Murphy said.
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Governments previously borrowed money as an EU bloc to finance a massive package of grants and loans to help their economies bounce back during the Covid-19 pandemic. Germany, the Netherlands and other fiscally conservative states have traditionally opposed taking on debt at EU-level, often referred to as common borrowing.
More recently, the EU borrowed €90 billion last December to finance a loan to Ukraine, to plug a hole in its stretched wartime budget.
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The loan was approved on the basis that Kyiv would repay the money when Russia made reparations for the destruction caused by its invasion, or from Russian financial assets frozen inside the EU by economic sanctions.
Murphy said the European Commission was already making accounting provisions to cover an eventuality where the €90 billion wasn’t repaid.
Ireland’s contribution to the joint EU budget, calculated on the basis of gross national income, was likely to face a “quite significant increase”, he said.
“I’m sure the Irish have their own figures calculated as to what this will actually mean for them in terms of their contribution.”
