As fiscal policymaking in the United States appears increasingly erratic and risky, more investors are turning toward a relatively stable European Union to buy government debt.
Demand for so-called eurobonds is at a record high, with a 16% increase from non-EU investors for certain euro-denominated joint debt since 2022, according to data provided by the European Stability Mechanism. At the same time, global investors have been selling off U.S. Treasuries, as investors look to diversify their holdings away from the U.S., long the gold standard in government bonds.
Policymakers at the European Central Bank are using the moment to call for ambitious new proposals to increase the size of the EU's joint debt market, such as by converting portions of member state debt into EU-issued debt.
“In bond markets, slowness and predictability are very valuable right now,” said Ken Egan, the director of European sovereign credit at bond rating agency KBRA in Dublin. “The policy process can look slow from the outside, but slow, rules-based and institutionally anchored is not a bad combination when investors are nervous about the global backdrop…there’s clearly stronger demand for EU-debt.”
This article is part of the The Parliament's special policy report "Unlocking investment for EU competitiveness."
However, bond analysts, academics and policymakers broadly said that it was still too soon to consider the most ambitious proposals to drastically expand EU-issued debt, with many calling for more incremental measures. Often called eurobonds, pan-European government bonds issued by the European Commission, European Investment Bank, European Stability Mechanism and other organizations are backed by the combined guarantees of all or some of the bloc’s member states, allowing many countries to borrow at more favorable rates than they could alone. For its part, the ECB supports European joint debt by studying its impacts and purchasing it from other organizations.
U.S. uncertainty bolsters EU bond market
Foreign demand for euro-denominated assets has increased dramatically. The ESM recorded its largest-ever orderbook in 2025, reflecting higher interest in EU-issued debt since Donald Trump's return to the White House in January of that year.
Kalin Anev Janse, chief financial officer at the ESM, said he had recently returned from trips to Canada and the U.S. where demand for EU government assets outpaced available supply, as investors seek to diversify their holdings away from U.S. Treasuries.
“Investors see Europe as a geopolitical safe haven,” he said. “Europe is economically still relatively strong, the rule of law is very important, so Europe is very investable. There really is a ‘Buy Europe’ momentum.”
Trump’s attacks on the independence of the Federal Reserve, the war in Iran and other mounting geopolitical tensions have contributed to investor unease, resulting in a sell-off of over $100 billion in U.S. Treasuries since the U.S. president’s inauguration in January 2025. The ever-increasing U.S. deficit has also led some rating agencies to downgrade U.S. debt this year to AA from a triple-A rating.
From an investor perspective, the EU’s strong institutional and regulatory framework has made the AAA-rated EU-issued joint debt increasingly attractive to investors.
But a drop in demand for American debt doesn't mean the U.S. dollar — the world’s reserve currency — is becoming less coveted. The American economy continues to grow as a share of the world economy, the U.S. stock market is booming and nearly all currency transactions are still conducted with the dollar on one side of the ledger, according to KBRA. As of 2025, the dollar still made up 57% of global financial reserves, data from the International Monetary Fund shows.
Even with demand increasing, the pan-European bond market lags far behind that of the U.S. The total amount of EU-issued joint debt available is only €1.4 trillion, according to the ESM, while U.S. Treasury assets are worth nearly €26.3 trillion.
Proposal to expand EU joint debt
Throughout 2025, European officials, including ECB President Christine Lagarde, argued that increasing the size of the pan-European debt market would be important for strengthening the euro and Europe’s global economic position.
In January, ECB board member Phillip R. Lane floated the idea of converting member state debt into joint EU debt — the so-called Blanchard-Ubide proposal named after economists Olivier Blanchard and Ángel Ubide. The proposal has been widely discussed by policymakers as a route to quickly strengthening Europe's debt market.
“I think that it is, indeed, a golden opportunity for Europe, thus the need to move now,” Blanchard told The Parliament. He said that his proposal was motivated by a desire to “have a deep and liquid market” amid “worry about the course of U.S. fiscal policy.”
However, the ambitions of the ECB and economists like Blanchard notwithstanding, there are still many political obstacles to turning such ambitious ideas into reality.
Fiscal hawks like Germany and other wealthier northern European states that already borrow at lower rates have long opposed more joint debt. An increase in EU-issued debt would instead benefit highly indebted countries that are borrowing at higher rates, such as France, Greece and Italy.
Instead, policymakers and academics suggested that there are a number of more incremental steps that Europe could take to increase the supply of EU-issued debt. For example, more routine issuance of joint debt, such as the EU’s €90 billion loan to Ukraine, could increase supply without drastic policy changes.
Geoeconomic pressures could also encourage more joint borrowing. José Juan Ruiz, the chairman of the Elcano Royal Institute, noted that former ECB chief Mario Draghi’s competitiveness report from September 2024 had identified the need for €800 billion in new European investments to keep pace with the U.S. and China. But without more joint European borrowing, the report explained, member states would not have the fiscal space to sustain such needed investments.
“What to me is very clear is that if there has been any time in our recent history to have a strong European safe asset, it’s now,” said Ruiz. “We have the need to finance European public goods, and the demand for a strong European safe asset compared to the dollar is growing.”
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