Editor’s note: This column is part of CEPR’s “Europe 2050: Geometries of peace, power, and prosperity” initiative, which adopts a long-term perspective to explore what Europe should aspire to become by 2050.

As Europe confronts a more fragmented and dangerous geopolitical environment, its search for strategic autonomy increasingly raises a financial question: can a monetary union without a common safe asset remain fit for purpose?

To be sure, the search for a European safe asset has generated no shortage of proposals. Over the past fifteen years, economists and policymakers have explored a wide spectrum of solutions: Eurobonds, Blue-Red Bonds, securitisation of national bonds into senior and junior tranches (ESBies), leveraged funds built around the European Stability Mechanism, and proposals centred on fiscal union.

Yet the debate remains stuck. Even under today’s geopolitical conditions – and absent a major shock creating a European ‘Hamiltonian moment’ – it is difficult to see how a coalition of sufficient scale could be assembled upfront around any of the existing proposals, let alone agreement at the level of the whole euro area/EU.

The core political-economy constraint is that these proposals require, from the outset, a degree of mutual trust that European countries have not yet achieved.

Europe’s safe-asset problem is, therefore, not only a design problem. It is a sequencing problem. The current safe asset debate is economically sophisticated, but politically too front-loaded. Europe cannot ask member states to cross some of their hardest red lines right from the start. Historically, European integration has never proceeded that way. Economic and Monetary Union itself did not begin with Stage 3.

Against this backdrop, we sketch a political-economy roadmap toward a European safe asset.

A shift in the political economy of common debt

If Europe cannot jump directly to a European safe asset, the question becomes: can it get there gradually, but also over a reasonable time horizon?

We argue that in today’s new context it can.

A key insight is that Europe’s debate on common debt is no longer taking place under the same political conditions that prevailed during the sovereign debt crisis or the pandemic. For the first time, a new alignment of incentives is emerging (Demertzis 2026). Two shifts matter.

First, the rationale for common borrowing is moving from solidarity to mutual self-interest. This is particularly evident in defence and strategic autonomy.

Even for countries with large national spending plans, security ceases to be purely national once threats can cross allies’ borders. A national missile shield stops being national the moment a missile can fly over neighbouring countries.

Second, the rationale is moving from transfers to fiscal efficiency. Many European public goods (EPGs) – integrated missile and drone defence, satellites, cyber infrastructure, transnational energy grids, secure cloud systems, joint research platforms, etc. – exhibit strong economies of scale.

Producing them through 27 parallel national efforts is not only strategically inefficient; it is fiscally inefficient. Europe is increasingly paying a fragmentation tax. Even for countries that enjoy lower national borrowing costs, joint procurement and financing of EPGs may be fiscally cheaper overall. Economies of scale, interoperability, and lower duplication costs can more than offset any funding premium on common debt.

This shift fundamentally changes the political economy of common debt.

The recent defence-financing initiative launched by the US, the Netherlands, and Finland illustrates this shift. Participating countries plan to capitalise a new institution that would support bond issuance for joint procurement and defence investment (HM Treasury 2026). While this does not lead to a European safe asset, it signals that coalition-based strategic financing is becoming politically viable.

Moving beyond the ‘Brussels Consensus’

If a new pathway can be opened, what needs to change, and how?

In recent work (Dorrucci and Rossi 2026), we identify what we call the ‘Brussels Consensus’. Due to well-known institutional, legal and political reasons, the issuance of European common debt has remained within six clear boundaries for more than seventy years – from the European Coal and Steel Community in the 1950s to NextGenerationEU and Ukraine-related borrowing today.

This defines the status quo (t0 in our roadmap), as illustrated in Figure 1.

Figure 1 The ‘Brussels consensus’: Limits of joint borrowing today 

Notes: The chart illustrates t0 (the status quo) in a pragmatic roadmap toward a European safe asset.

Today as in the past, the issuance of common debt in Europe complies with six limits: (1) ad-hoc policy objectives, often in response to shocks and crises (i.e., issuance does not serve strategic/lasting goals); (2) temporary; (3) financing of new expenditure only (“flow” approach), with no replacement of legacy national debts (stock approach); (4) limited risk mutualisation (e.g., no joint guarantees); (5) issued by institutions such as the Commission or the ESM, not by a common Treasury with a permanent central fiscal capacity; (6) consistent with the principle of no permanent transfer union.

A key implication of our framework is that, to build a genuine European safe asset, Europe does not need to cross all six boundaries in Figure 1; crossing the first four would already be sufficient to create one. Only beyond that point does the standard argument become valid; the cart of a European safe asset cannot come before the horse of a full political, fiscal and transfer union. That is the truly long-run horizon: the perspective of a future European Federation.

Moreover, any credible roadmap must reconcile two equally important realities:

• A genuine safe asset ultimately requires a stock approach. A pure flow approach would take too long.
• The Rubicon toward a European safe asset cannot be crossed in one leap; it should be crossed step by step.

Reconciling these realities leads to a roadmap that starts from what is politically feasible today, and from there builds a conditional path towards a European safe asset, without losing sight of the long-term perspective.

Step 1: Permanent financing of European public goods

The first step is building on the current momentum by crossing the first two boundaries of the Brussels consensus. Instead of ad-hoc and temporary borrowing, Europe would move to permanent financing of strategic investment in EPGs (Figure 2).

Figure 2 Step 1: Permanent financing of European public goods 

While this would not directly produce a European safe asset, it would create the institutional, fiscal, and market conditions under which one could eventually emerge.

We argue that the most politically realistic avenue would be an open coalition of willing states operating through a new intergovernmental arrangement. It would establish a dedicated special purpose vehicle (SPV) outside existing EU budgetary constraints, not as a substitute for existing institutions, but as a pragmatic solution where unanimity is unattainable. The SPV would issue Strategic Investment Bonds.

Three design features are critical for Step 1:

• Permanent and rolling issuance. Strategic innovation is a continuous and dynamic process. Defence systems, cyber capabilities, strategic infrastructure, and industrial platforms require constant renewal. Issuance should therefore become permanent and rolling. This would gradually build scale, liquidity, and market presence.
• Several — not joint — guarantees. This would limit country exposures, reduce distributional conflicts, and lower the political threshold for participation. The objective in Step 1 is not yet mutualisation. It is credible cooperation.
• Ring-fenced debt service. To address moral hazard concerns, debt service would be backed by earmarked revenue streams — for example predefined contributions linked to VAT or GNI — enforced automatically rather than politically. This would provide fiscal credibility without requiring a federal treasury.

Within a few years, such a framework could create a predictable issuance programme, build an investor base, and test governance mechanisms in practice.

Step 1 would therefore serve a dual purpose:

• addressing Europe’s structural under-provision of public goods; and
• building trust ex post rather than requiring it ex ante.

Step 2: European Safe Bonds

Only once Step 1 is established does Step 2 become politically realistic.

Step 2 consists in also crossing the third and fourth boundaries of the Brussels Consensus. Joint borrowing would move from a pure flow approach toward a stock-and-flow approach, and include stronger forms of risk mutualisation (Figure 3).

Figure 3 Step 2: Stock-and-flow approach, more risk mutualisation

The SPV would begin issuing European Safe Bonds, gradually replacing part of national sovereign debt along lines similar to Blanchard and Ubide (2025, 2026).

A genuine European safe asset requires three additional elements:

• Stronger fiscal backing/discipline. At this stage, safety must increasingly rest on robust fiscal foundations. Financial engineering can create highly rated assets. Only fiscal backing can create a safe asset at scale. Step 1’s limited revenue streams would, therefore, gradually evolve toward broader common fiscal resources. This would be coupled with stronger fiscal enforcement mechanisms than in the recently reformed Stability and Growth Pact, including automatic budgetary adjustment mechanisms in the event of significant fiscal deviations by the participating countries.
• Gradual risk mutualisation. A legitimate concern is that joint liabilities may expose (especially small) states to excessive risks. But this concern actually strengthens the case for sequencing. Risk sharing could begin with capped guarantees, prefunded reserves and, possibly, junior loss-absorbing buffers within the SPV. Joint guarantees would serve only as a final backstop once governance, reserves, and market credibility are firmly established.
• Market consolidation. By this stage, the instrument would offer not only investment-grade quality, but also a track record, predictable issuance, liquidity, investor familiarity, and ECB collateral eligibility.

Germany as the critical test case

A natural objection is that today Germany opposes not only the mutualisation of legacy debt, but also permanent common borrowing for strategic purposes.

This objection cannot be ignored. Germany may not be indispensable to initiate Step 1, nor for the arithmetic of a European safe asset. A coalition of large euro area sovereigns could in principle achieve sufficient scale. But Germany remains disproportionately important for credibility. A coalition without Germany would face higher funding costs, weaker market acceptance, and greater political fragility.

The relevant question is, therefore, not whether Germany says no today, but under what conditions it might say yes tomorrow.

Three conditions matter.

First, moral hazard concerns must be taken seriously. Well-designed common debt must preserve incentives through automatic enforcement, clearly defined revenue backing, and sound fiscal governance.

Second, Germany must be persuaded that Europe faces structural underprovision of non-excludable public goods. Security in Germany is only as strong as Europe’s weakest border. Likewise, German Bunds remain safe, but they are not scalable enough to anchor the euro.

Third, German domestic politics are evolving. The reform of Germany’s debt brake (March 2025) reflects growing recognition that strategic investment cannot be subordinated to fiscal dogmas. That logic may eventually extend to the European level, if coupled with proper safeguards to preserve fiscal sustainability. Moreover, prominent German academics, entrepreneurs and policymakers have recently opened to joint procurement and financing of defence-related EPGs, as well as the creation of a European safe asset (e.g. Schularick et al. 2026, Nagel 2026). 

The long-run perspective

We believe that eventually crossing the last two boundaries of the Brussels Consensus, which would likely materialise through a future constitutional transition, would considerably strengthen the long-term sustainability and credibility of European common debt (Figure 4).

But today, the absence of a European Federation should not prevent gradual progress where political conditions already allow it.

Figure 4 Long run: Full political, fiscal and transfer union

A third way

Europe’s safe asset debate is often framed as a binary choice between financial engineering now and fiscal union first. But a third way exists: feasible sequencing.

A step-by-step approach will not be costless. Early issuance will remain relatively expensive. Markets will initially be small and illiquid. But a feasible second-best may be preferable to waiting indefinitely for a first-best political settlement that may never arrive.

Europe not only needs a safe asset. It first needs a politically credible path toward one, and pragmatic federalism (Draghi 2025) is the only way forward.

Authors’ note: We thank for valuable comments the participants in the workshop of the European Systemic Risk Board “A European Safe Asset and Financial Stability”, held at the European Central Bank on 22 April 2026. The views expressed are those of the authors and do not necessarily reflect those of the institutions they have been/are affiliated with.

References

Blanchard, O and Á Ubide (2025), “Now is the time for Eurobonds: A specific proposal”, Peterson Institute for International Economics, 30 May.

Blanchard, O and Á Ubide (2026), “Eurobonds: Despite objections, they are more needed than ever”, Peterson Institute for International Economics, 7 May.

Brunnermeier, M K, S Langfield, M Pagano, R Reis, S Van Nieuwerburgh and D Vayanos (2017), “ESBies: safety in the tranches”, Economic Policy 32(90): 175-219.

De Grauwe, P (2012), “The Governance of a Fragile Eurozone”, Walter Adolf Jöhr Lacture, University of St. Gallen, School of Economics and Political Science, Institute of Economics (FGN-HSG).

Delpla, J and J von Weizsäcker (2010), “The Blue Bond proposal”, Bruegel Policy Brief, May (republished on 26 August 2025).

Demertzis, M (2026), “Eurobonds are not (just) about solidarity”, LinkedIn, 31 March. For a more advanced version, see “Euro-Bonds – von der Solidarität zur Stärke”, Handelsblatt, 14 April.

Dorrucci, E and S Rossi (2026), “Towards a next generation of joint borrowing in Europe”, Perspectives on Federalism 17(2).

Draghi, M (2025), “The Pragmatic Federalism Doctrine”, remarks at the Princess of Asturias Award for International Cooperation ceremony, 24 October.

HM Treasury (2026), “Joint Statement from Finland, the Netherlands and the United Kingdom on Joint Defence Financing and Procurement”, 17 March.

Janse, K A and R Beetsma (2026), “Momentum Builds for Strong and Deep European Safe Assets”, Intereconomics: Review of European Economic Policy 61(1): 9-16.

Messori, M (2025), “European Debt and Safe Assets: How to Build a Simple Framework”, IEP@BU Working Paper Series, July.

Nagel, J (2026), Interview with Politico Europe, 12 February.

Schularick, M, N Lange, R Obermann and T Enders (2026), “Achieving European Defence Autonomy: A Roadmap for Overcoming Critical Dependencies” (“Sparta 2.0 paper”), Kiel Institut, May.