Markets Quietly Welcome EU Shift to Joint Borrowing for Ukraine Loan: An Analysis of the Implications
Introduction
On December 19, 2025, the European Union (EU) made a significant decision to fund lending to Ukraine through joint borrowing, marking a crucial shift in the bloc’s approach to financing its member states. The decision, which was welcomed by investors, has far-reaching implications for the EU’s debt markets, its relationship with Russia, and its ability to respond to future economic shocks. This paper provides an in-depth analysis of the EU’s decision to borrow cash to lend 90 billion euros to Ukraine, exploring the motivations behind this move, its impact on the EU’s debt markets, and the potential consequences for the eurozone.
The EU’s Decision: A Shift towards Joint Borrowing
The EU’s decision to borrow jointly to finance Ukraine’s defense against Russia is a significant departure from its initial proposal to use frozen Russian assets to fund the loan. The latter plan, which was opposed by Belgium, had raised concerns among investors and policymakers about the potential impact on the EU’s international standing and the euro. By opting for joint borrowing, the EU has chosen a more conventional and less contentious approach to financing its member states.
The decision to borrow jointly is seen as a pragmatic solution that avoids the complexities and risks associated with using frozen Russian assets. As Carsten Brzeski, head of global macro at ING, noted, “The chosen solution is the better way in terms of burden sharing.” By borrowing jointly, the EU can spread the risk of lending to Ukraine across its member states, reducing the burden on individual countries and promoting a more equitable sharing of the costs.
Implications for the EU’s Debt Markets
The EU’s decision to borrow jointly to finance Ukraine’s defense has significant implications for its debt markets. The new borrowing will add to the EU’s existing joint debt, which stands at over 700 billion euros following the COVID-19 pandemic. This increased borrowing will contribute to the perception that the EU is becoming a more permanent borrower, a development that investors generally support.
As Chris Jeffery, head of macro strategy at Legal & General, noted, “I think it’s very important, from a signaling perspective, that they continue to move in that direction.” The EU’s willingness to borrow jointly in response to future shocks will reassure markets that the bloc is committed to using all available tools to support its member states.
However, the increased borrowing also raises concerns about debt sustainability, particularly in the near term. As Royal London Asset Management’s head of rates and cash Craig Inches noted, “I don’t know if it’s the best solution from the markets perspective, to pile some more supply onto markets when they already have concerns about debt sustainability.” The eurozone bond yields rose on Friday, reflecting these concerns.
Conclusion
The EU’s decision to borrow jointly to finance Ukraine’s defense marks a significant shift in the bloc’s approach to financing its member states. While the decision has been welcomed by investors, it also raises concerns about debt sustainability and the potential impact on the EU’s debt markets. As the EU continues to navigate the complexities of the Ukraine crisis, its ability to respond to future economic shocks will depend on its willingness to use all available tools, including joint borrowing.
In the longer term, the EU’s decision to borrow jointly is likely to contribute to the development of a more integrated and resilient debt market, one that is better equipped to support the bloc’s member states in times of crisis. As the EU continues to evolve and adapt to changing economic circumstances, its ability to borrow jointly will remain a crucial component of its toolkit, allowing it to respond effectively to future challenges and promote economic stability and growth.
Recommendations
Based on the analysis presented in this paper, the following recommendations are made:
Continued use of joint borrowing: The EU should continue to use joint borrowing as a tool to support its member states, particularly in times of crisis.
Debt sustainability: The EU should prioritize debt sustainability, ensuring that its borrowing is managed in a way that minimizes the risk of debt distress and promotes economic stability.
Market signaling: The EU should continue to signal its commitment to using joint borrowing to support its member states, reassuring markets that the bloc is willing to use all available tools to promote economic stability and growth.
Further integration: The EU should continue to promote further integration of its debt markets, developing a more resilient and integrated market that can support the bloc’s member states in times of crisis.
By following these recommendations, the EU can promote economic stability and growth, while also ensuring that its debt markets are resilient and able to support the bloc’s member states in times of crisis.