COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on a new funding strategy to finance NextGenerationEU
Date: 2021-04-14
Institutions: Directorate-General for Budget, European Commission
Subjects: EU Member State, EU aid, EU financial instrument, EU strategy, bond, climate change, coronavirus disease, economic recovery, epidemic, issue of securities

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 14.4.2021  COM(2021) 250 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on a new funding strategy to finance NextGenerationEU            
 
 
INTRODUCTION: 

The recovery instrument NextGenerationEU (NGEU) aims to repair the immediate economic 
and  social  damage  brought  about  by  the  coronavirus  pandemic,  and  make  Europe  greener, 
more  digital,  more  resilient  and  better  fit  for  the  current  and  forthcoming  challenges.  It 
represents  a  powerful  and  innovative  response  to  mitigate  the  economic  damage  caused  by 
the  pandemic  while  helping  the  EU  economy  to  pivot  to  a  new  green  and  digital  growth 
model. The NextGenerationEU will inject up to EUR 806 billion – 5% of EU GDP – into the 
EU economy in the form of expenditures and loans. The Commission will, on behalf of the 
EU, borrow the initial amounts through funding operations on international capital markets in 
the years 2021-2026. The financing raised by the EU will be repaid by Member States either 
directly (for loans) or through the EU budget  (for the  non-repayable support) by December 
2058 at the latest.1 

The  Commission  will  need  to  execute  financing  operations  up  to  EUR  150-200  billion  per 
year over the period to end 2026. This amount is comparable with the funding needs of the 
largest  Member  States.  This  communication  presents  a  sophisticated  and  well-organised 
funding  strategy  to  ensure  that  these  large  amounts  are  available  precisely  when  needed.  It 
calls for an overhaul of how the Commission raises funds through bond issuance. 

The legal and institutional preparations for NextGenerationEU are underway. Member States 
are completing the approval of the Own Resources Decision (ORD)2, which is necessary to 
allow  the  EU  to  borrow  on  the  markets.  Work  is  advancing  well  on  implementation  of  the 
Union policies and national recovery plans to be financed by NGEU. 

By June 2021, the Commission will be ready to begin mobilising the funds so that they are 
available  to  finance  NextGenerationEU  expenditures  as  soon  as  the  ORD  has  entered  into 
force. 

This  Communication  is  adopted  under  Article  5(3)  of  Council  Decision  2020/2053  that 
requires the Commission to establish the necessary arrangements for the administration of the 
borrowing operations and to regularly and comprehensively inform the European Parliament 
and the Council about all aspects of its debt management strategy. 

Alongside  this  Communication,  the  Commission  has  today  adopted  a  Decision  on  the 
governance  arrangements  and  risk  management  systems  for  NGEU  and  a  Commission 
Decision on the Primary Dealer network. 

1.  WHY IS A NEW FUNDING APPROACH NEEDED? 

A  new  approach  is  needed  because  the  financing  methods  traditionally  employed  by  the 
Commission  were  designed  for  smaller  financing  needs.  This  funding  strategy  ensures  that 
much  larger  volumes  needed  in  the  future  will  be  available  for  Member  States  or  Union 
policies  when  they  are  scheduled  to  be  released.  To  comply  with  the  principle  of  sound 
financial  management  (TFEU,  art.  317),  the  implementation  of  NextGenerationEU  must 
guarantee that the Union can meet payment pledges in a timely manner and is not forced to 
raise capital in adverse market conditions, generating unnecessary costs. 

1 Should new own resources be available before 1 January 2028, these will be used to start the repayments on 
the expenditures component earlier on. 
2  Council  Decision  (EU,  Euratom)  2020/2053  of  14  December  2020  on  the  system  of  own  resources  of  the 
European Union. 

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The EU is a longstanding and highly rated actor on international capital markets.3 EU bonds 
enjoy  the  trust  of  international  investors  because  they  benefit  from  several  layers  of  credit 
protection. Since last October, the EU has stepped up its bond issuance activities raising EUR 
75  billion  to  finance  SURE  loans  to  19  Member  States  on  advantageous  terms.  These 
operations were executed as back-to-back financing. In this model, the EU borrows on behalf 
of the beneficiary Member States at favourable prices (by virtue of its high credit standing). 
The  EU  then  passes  the  loans  on  to  the  Member  States  on  the  same  terms  and  conditions. 
This  approach  was  appropriate  for  past  financing  needs  and  helped  establish  the  EU  as  a 
highly  respected  issuer  in  the  capital  markets.  All  this  borrowing  was  done  exclusively 
through syndicated transactions relying on a specially constituted group of banks to place the 
bonds with investors on the best available terms. 

NGEU requires a more demanding approach to finance its operations on the capital markets 
because: 
1.  The  amounts  to  be  raised  will  be  much  greater:  a  maximum  of  EUR  806  billion4  may 

need to be raised between now and end 2026. 

2.  All  27 Member States  are entitled to  receive a cumulative EUR 407.5 billion  in  grants5 
and up to EUR 386 billion in loans. A further EUR 12.5 billion will be allocated to EU 
programmes on a competitive basis.6 

With a “back-to-back” approach, the number of issuances would be significant, resulting 
in high transaction costs. 

3.  The  disbursement  schedule  is  complex  and  has  a  degree  of  uncertainty.  In  particular  as 
regards  the  Recovery  and  Resilience  Facility  (RRF),  which  represents  90%  of  the  total 
NextGenerationEU  funds,  payments  are  structured  bi-annually  to  each  Member  State 
upon  the  achievement  of  agreed  milestones  and  targets  tied  to  the  implementation  of 
reforms and investment. 

4.  The  maximum  possible  repayment  of  borrowed  amounts  to  pay  for  EU  policies  in  any 
given  year  is  fixed  by  the  ORD  and  these  repayments  depend  on  future  payment 
appropriations in the EU Budget. The precise annual budgetary envelopes are unknown to 
date, necessitating some flexibility in the borrowing policy. 

This calls for a highly efficient and agile funding apparatus that can raise significant amounts 
on a sustained basis, and that is capable of reacting swiftly in case of unexpected changes in a 
congested disbursement  schedule or to  changing  market  conditions.  The  maturity profile of 
the bonds issued must be aligned with the ability of the Union budget to repay investors when 
the bonds mature. 

3 The EU has been issuing bonds to finance financial assistance since the 1970s. The current financial assistance 
programmes financed by the Commission include Macro-Financial Assistance programmes for neighbourhood 
and  developing  countries,  European  Financial  Stability  Mechanism  (EFSM),  and  the  Balance  of  Payments 
mechanism. The EU has a total of 54bn € in outstanding loans under these 3 programmes. Issuance activity in 
recent years has ranged from 500m € in 2019 to 30bn € in 2011. 
4 All amounts in this Communication are expressed in current prices since this reflects the actual volumes that 
the  Commission  will  be  borrowing  over  a  six  year  period.  These  amounts  are  equivalent  to  the  volumes  laid 
down in the Own Resources Decision which are expressed in 2018 prices. 
5  This  amount  covers  national  envelopes  under  the  Recovery  and  Resilience  Facility  -  RRF,  Recovery 
Assistance  for  Cohesion  and  the  Territories  of  Europe  (React-EU),  European  Agricultural  Fund  for  Rural 
Development and the Just Transition Fund. 
6 Horizon Europe, InvestEU Fund, Union Civil Protection Mechanism – rescEU. 

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To meet these challenges, the Commission will implement a “diversified funding strategy”7, 
which combines a wide range of funding instruments and funding techniques, and relies on 
open and transparent communication to the market participants. This funding strategy will be 
modelled  on  the  practices  of  large  Member  State  issuers  to  adapt  the  volume,  timing  and 
maturity  of  funding  transactions  to  the  market  environment.  It  will  also  provide  the 
Commission with more flexibility in aligning the needs to repay borrowings with the means 
available under future budgets after 2028. Therefore, a diversified funding strategy will allow 
the Commission to fund the NextGenerationEU, with lower execution risk and at lower cost 
for the Member States and European taxpayers. Finally, this strategy will also offer benefits 
in  terms  of  the  stability  and  depth  of  European  bond  markets  by  providing  them  with  a 
euro-denominated safe asset covering a broad range of maturities. 

2.  EIGHT SUCCESS FACTORS FOR THE NGEU ISSUANCE PROGRAMME: 

In order to raise up to EUR 150-200 billion per year, the Commission will organize funding 
transactions in a way similar to that employed by large sovereigns. Bonds will be issued and 
regularly tapped across a range of maturities from 3 to around 30 years. In addition, an EU-
Bill  Programme for short-term  paper will be established.8  Auctions will be added as a new 
issuance format to issue the EU-Bills and EU-bonds. 

The success of the issuance activities will be achieved by relying on a deep pool of the best 
qualified EU supervised banks. The Commission will make a sustained effort to develop an 
institutionally and geographically broad investor base. 

Green  bonds  issued  under  NGEU  will  further  expand  the  investor  base  and  strengthen  the 
EU’s  world  leadership  in  green  finance  of  the  euro-denominated  market.  The  diversified 
funding  strategy  will  also  take  into  account  risk  management  constraints  to  ensure  a  sound 
financial management with a predictable redemption profile as per the obligations set by the 
legal  ground  (Own  Resources  Decision).  Refinancing  will  be  used  to  manage  risk  and 
preserve at all times the Union’s credit rating. 

The diversified funding strategy will be built around the following eight pillars: 

2.1. Publication of regular funding plans: 

The NGEU debt  issuance will be undertaken on the basis of an annual  borrowing decision, 
adopted by the Commission. This decision will fix the upper bound for the issuance that will 
fund the payments  to  the EU budget  and loans to Member States, as well as the maximum 
amounts of short-term issuance. This borrowing will be organised on the basis of six-monthly 
funding plans. These funding plans will communicate how the EU will organise the issuance 
during  the  reference  period.  The  NGEU  funding  plans  will  be  based  on  regular  and  timely 
communication of information on upcoming payments to be made. It will also fix other key 
financial  parameters  of  the  borrowing  to  be  undertaken  such  as  the  mix  of  short  and  long-
term  funding  for  the  period,  the  maximum  average  maturity  of  long-term  funding  to  be 
undertaken, and an upper bound on the expected average liquidity to be held as reserves. 

7  A  funding  strategy  or  a  debt  management  strategy  is  “a  rolling,  medium-term  plan  outlining  how  [a  public 
body]  will  meet  the  debt  management  objectives”,  which  are  generally  “to  ensure  that  [the  public  body] 
financing  needs  and  its  payment  obligations  are  met  at  the  lowest  possible  cost”  –  see  “Government  Debt 
Management: Designing Debt Management Strategies”, World Bank (2017). A funding strategy is therefore  an 
element of the debt management process and its purpose is linked to the debt management objectives. 
8 Via a new EU-Bill programme for securities with original maturities below 1 year. 

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By  providing  a  clear  signal  of  the  indicative  maximum  amount  of  borrowing  for  the 
forthcoming  six  months,  the  annual  borrowing  Decision  and  the  NGEU  funding  plan  will 
ensure  the  predictability  of  issuances  for  investors,  while  maintaining  flexibility  and 
providing transparency to markets. Investors need information about the issuance pipeline in 
order  to  prepare  investment  planning  on  their  side  and  ensure  the  successful  absorption  of 
NGEU  issuance  at  lower  cost.  The  NGEU  funding  plan  should  also  serve  as  a  basis  for 
information by the Commission to the European Parliament and the Council9 as well as for 
communication to the markets and to the public. 

2.2. Effective coordination with national and peer issuers: 

Publication  of  NextGenerationEU  funding  plans  will  also  facilitate  concertation  with  peer 
supranational and national debt management offices who also run large issuance programmes 
to meet their funding needs. Good coordination between NGEU issuance, Member States and 
pan-European institutions will be essential to avoid market congestion in particular periods. 
Through  the  SURE  programme,  the  Commission  has  established  effective  communication 
channels with other EU issuers. Predictability of NGEU funding operations, including regular 
dates  for  NGEU  auctions  will  further  enhance  the  established  coordination  between  the 
Commission, Member States and EU supranational issuers.10 

2.3. Strong liquidity management to match inflows and outflows: 

The key yardstick for measuring the success of the NGEU diversified funding strategy will be 
the  avoidance  of  liquidity  shortfalls  –  situations  where  the  Commission  does  not  have  the 
funds  immediately  at  hand  to  make  NextGenerationEU  payments.  This  would  lead  to 
considerable  disruption  for  policy  implementation.  Avoiding  such  situations  calls  for  a 
capacity to manage cash inflows and outflows through secure and purpose-specific dedicated 
prudential cash holdings for payments. Ongoing and rigorous liquidity planning will ensure 
that  the  prudential  cash  holdings  are  sufficient  to  avoid  liquidity  shortfalls  while  avoiding 
unnecessary and expensive cash balances. In order to ensure that these critical cash holdings 
are not subject to any counterparty risk, these prudential cash holdings will be held with the 
European  Central  Bank.  NGEU  prudential  cash  holdings  will  be  kept  to  the  lowest  level 
needed given the amounts of upcoming payments over the short-term. 

2.4. Strong execution capability to carry out individual funding operations: 

The high frequency of transactions and significant funding volumes call for the use of a wider 
range  of  transaction  formats  (syndicated  deals,  auctions,  private  placements  and  additional 
issuance  on  the  basis  of  an  existing  bond  (“taps”))  and  reinforced  capacities  to  run  the 
number and mix of transactions. The Commission will strengthen its execution capacities in 
two important directions: 

a) A pan-European Primary Dealer network: 

The  significant  volumes  that  the  European  Union  will  raise  using  the  diversified  funding 
strategy, will be executed and supported by the establishment of a Primary Dealer Network 
for the European Union (PD network). This network will be modelled on best practices put in 
place  by  sovereign  issuers.  Primary  dealers,  via  a  codified  system  of  obligations  and 
privileges, will support the smooth execution of EU issuances and support the liquidity of the 
EU bonds in the secondary market. 

9 As foreseen in Article 5(3) of Council Decision (EU, Euratom) 2020/2053. 
10 As foreseen in Article 5(3) of Council Decision (EU, Euratom) 2020/2053.  

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Setting-up a PD network with clear criteria for membership will provide transparency on the 
selection  of  counterparties  for  the  EU’s  primary  market  business.  The  rules  to  become  a 
Primary  Dealer  for  the  EU  and  the  relationship  between  the  Commission  and  its  Primary 
Dealer  network  are  framed  in  the  Commission  Decision  establishing  a  Primary  Dealer 
Network adopted alongside this Communication.11 

The  Commission  Decision  on  the  Primary  Dealer  network  establishes  the  key  eligibility 
criteria for admission to the network and the subsequent rights and obligations of participants. 
The eligibility criteria allow a wide group of European supervised banks  to  become part of 
the PD network while ensuring at the same time that primary and secondary markets in EU 
securities receive support from a strong EU Primary Dealer network in the European Union. 
The Commission Decision launches the call for expressions of interest for membership of the 
EU Primary Dealer Network from banks regulated which are already active members of an 
EU sovereign or supranational Primary Dealer network. The Decision also establishes a fair 
and  objective  method  for  determining  which  Primary  Dealers  will  be  considered  for 
participation in syndicated transactions. 

These Primary Dealers  will form  the group from  which the Commission  will constitute the 
syndicates  for  the  first  NextGenerationEU  syndicated  transactions.  This  group  will  also  be 
swiftly connected to the selected auction platform so that they can participate in NGEU bond 
auctions from September onwards. 

b) A state-of-the-art auction platform: 

Auctioning bonds and EU-Bills will be an important part of the NGEU funding strategy and a 
new element of the EU funding activities. Auctions are a cost-effective way of issuing debt 
and  the  only  format  for  issuing  EU-Bills.  While  syndicated  transactions  will  remain  the 
mainstay of the NGEU issuance programme, at least in the initial phases, the capacity to raise 
money quickly and cheaply via auctions will significantly enhance the Commission’s ability 
to service its NGEU payment needs. 

Work  is  underway  to  initiate  the  NGEU  auction  programme  and  EU-bill  issuance  in 
September relying on the services of an auction platform provided by a national central bank 
and  already  used  by  one  of  the  large  European  sovereign  issuers.  The  selected  primary 
dealers will be connected to the selected auction platform over the course of the summer so 
that  they  can  participate  in  auctions  from  September  onwards.  The  Commission  will  then 
establish a regular programme of auctions, alongside its syndicated transactions. 

2.5. Robust governance and risk management systems: 

In view of the unprecedented volumes of the operations and the sophistication of the funding 
strategy that is needed, it is of paramount importance that NGEU operations are subject to a 
robust  and  independent  risk  management  and  compliance  framework.  This  will  ensure  the 
proper oversight of the main business processes and their inherent risks, in ways that uphold 
sound financial management and that protect the Union’s financial interests. 

Alongside  this  Communication,  the  Commission  has  today  adopted  a  Decision  on  the 
governance  arrangements  and  risk  management  systems  for  NGEU.12  This  Decision 
establishes  a  clear  and  robust  governance  and  risk  management  framework  to  structure  the 
core  decision-making  processes  (e.g.  annual  borrowing  decision)  and  implementation 
modalities (funding plan) and capacities (e.g. auctions). It also establishes the principles and 

11 C(2021) 2500. 
12 C(2021) 2502. 

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structures  needed  to  ensure  the  robust  and  independent  oversight  of  all  NGEU  financial 
operations,  based  on  separation  of  roles  and  responsibilities.  In  addition,  this  Decision 
provides  that  the  temporary  NGEU  prudential  cash  holdings  shall  be  held  in  a  dedicated 
account with the ECB as an important safeguard against NGEU liquidity risks. 

A  central  pillar  of  this  risk  management  system  will  be  the  role  of  the  Chief  Risk  Officer 
(CRO). The CRO should be responsible for developing a High Level Risk and Compliance 
Policy,  which  defines  the  risk  management  guidelines  for  the  NGEU  diversified  funding 
strategy,  and  puts  in  place  the  systems  for  monitoring  and  reporting  on  these  risks. 
Information and reporting flows in this framework will be organised to ensure independence, 
transparency  and  accountability.  The  system  will  ensure  the  probity  and  auditability  of  all 
transactions. 

2.6. Fit-for-purpose back-office, payment and accounting solutions: 

The expanded funding operations require the reinforcement of the Commission’s back-office 
and  accounting  functions  to  ensure  the  efficient  execution  and  the  auditability  and 
accountability  of  all  transactions.  This  encompasses  the  systems  for  accounting  for  all 
transactions  and  related  accounting  entries,  fail-safe  handling  of  payments  and  timely 
settlement  and  reconciliation  of  transactions.  The  back-office  function  is  already  being 
upgraded to cover the settlement and administration of all activities in the NGEU programme, 
including  extension  to  new  transaction  formats.  Accounts  and  financial  statements  will  be 
produced  in  accordance  with  rules  and  procedures  established  by  the  Commission’s 
Accounting Officer. The financial statements will be audited and consolidated in the Union’s 
annual budget accounts. The Commission is using tried and tested accounting software to set 
up  all  the  needed  capabilities  so  that  the  details  of  every  transaction  are  fully  and  duly 
accounted for. 

2.7. Well-priced and well-managed loans: 

Up to EUR 386 billion in loans can be granted to Member States under the RRF. These loans 
are provided in a way that ensures they represent a powerful resource for Member States as 
they  finance  their  recovery.  The  NGEU  diversified  funding  strategy  will  allow  the 
Commission to offer long-term loans on attractive terms to beneficiary Member States. The 
interest rate on these loans will be comparatively low as they will be financed by the NGEU 
funding  pool,  which  enjoys  both  a  very  strong  credit  rating  and  a  much  lower  average 
maturity than the loans. Repayment of the principal on these loans can also be spread evenly 
over  time  to  avoid  lumpy  repayment  obligations  for  the  beneficiary  Member  States.  The 
commencement  of  principal  repayment  can  be  deferred  until  Member  States  have  emerged 
fully from the economic crisis and are reaping the returns on NGEU investments and reforms 
(e.g. by 10 years). 

This  approach  to  managing  maturities  and  repayments  will  also  help  the  Commission  to 
manage any underlying risks that these loans may represent for the budget and guarantee in 
such  a  way  that  these  are  kept  within  strict  limits,  in  full  respect  of  sound  financial 
management principles. It will also ensure equal treatment among Member States that request 
a loan as they will receive loans with identical maturities and repayment conditions. 

This approach to determining the price, maturity and repayment schedules for loans will be 
reflected  in  the  Loan  Agreements  that  the  Commission  will  sign  with  each  Member  State 
requesting loans. 

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2.8. Effective communication and investor outreach: 

Clear  and  open  communication  to  investors  is  critical  for  the  success  of  the  EU  borrowing 
operations.  To  that  end,  the  Commission  is  developing  a  comprehensive  investor  relations 
strategy and a series of tools to connect with its investor base. The strategy will enhance the 
direct  outreach  to  investors  and  will  cover  strategic  media  relations  and  social  media 
presence. 

Through  its  issuance  of  “social  bonds”  under  the  SURE  programme,  the  Commission  is 
currently  establishing  itself  as  an  important  issuer  of  Environmental,  Social,  and  Corporate 
Governance  (ESG)  labelled  bond  issuances.  To  play  this  role  more  effectively,  the 
Commission  is  overhauling  its  communication  strategy  and  is  well  advanced  in  the 
implementation of an Investor Relations database. Use of an Investor Relations database will 
help  the  Commission  to  manage  its  relationships  with  important  investors  in  a  more 
structured way. An EU funding newsletter will also  be issued, allowing the Commission to 
communicate  to  the  investor  community  in  a  regular  and  transparent  manner.  The 
Commission  will  also  reach  out  actively  to  important  investors  across  the  globe  through  a 
systematic programme of structured visits (“road shows”). 

3. WHERE DO WE STAND TODAY? 

The  Commission  is  aiming  to  be  ready  to  commence  NGEU  issuance  once  the  ORD 
ratification  process  is  completed.  Preparations  are  well  advanced.  Four  notable  milestones 
have been achieved: 

1.  The underlying account structure has been configured, centred on the NGEU account 
at  the  European  Central  Bank  with  whom  the  Commission  is  at  an  advanced  state  of 
discussion. The payment circuits for routing NGEU proceeds through this account to the 
beneficiaries are being finalised. 

2.  The Commission is establishing the Primary Dealers Network following the adoption 
of  the  parallel  Commission  Decision  on  Primary  Dealer  Network.  The  period  for 
expressions of interest from members of EU sovereign and supranational primary dealer 
groups is now open. The Commission will examine all applications and publish a first list 
of NGEU primary dealers towards the end of May. 

3.  The  Commission  Decision  establishing  the  governance  arrangements  and  risk 
management  structures  to  ensure  the  accountability,  transparency  and  sound  financial 
management of these important activities has been adopted. 

4.  All  the  technical  and  operational  preparations  are  being  implemented  to  ensure 
smooth  execution  of  transactions 
through  established  arrangements  with  public 
institutions for handling of funds and settlement of transactions. 

4.  FURTHER STEPS BEFORE LAUNCH OF FIRST NGEU TRANSACTIONS: 

Prior  to  the  first  NGEU  issuance  by  June,  the  Commission  will  complete  the  following 
important  milestones  on  the  road  towards  full  implementation  of  the  NGEU  issuance 
programme: 

1.  Unveil the auction platform that the Commission will rely on for both  medium- and 
long-term bonds and EU-bills (mid May 2021). 

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2.  Finalise the pricing and maturity policy for RRF loans. This policy will ensure parity 
of  treatment  and  attractive  and  easy-to-manage  repayment  conditions  for  all  Member 
States applying for loans. 

3.  Adopt  the  first  framework  borrowing  decision  and  publish  the  first  semi-annual 
funding plan for NGEU issuances and investor newsletter, providing a clear indication of 
our issuance intentions for the remainder of 2021 (early June 2021). 

Upon  ratification  of  the  ORD  in  line  with  relevant  constitutional  requirements,  which  is 
expected before the summer, at the latest, the Commission will then be able to launch the first 
NGEU syndicated transaction based on our first Funding Plan. 

5.  FURTHER WORK STREAMS TO COMPLETE AND ENHANCE THE NGEU DIVERSIFIED 

FUNDING STRATEGY: 

Work will continue on implementation of the NGEU Diversified Funding Strategy after the 
first issuance. Over the summer, the Commission will work closely with the auction system 
manager so that the auction programme can be launched in September 2021. The inaugural 
auction for the EU  Bill  programme  will be  another major landmark event  in  the life of the 
NGEU issuance programme. 

On the lending side, the Commission will also continue to invest in its capabilities. Initially, 
in the interest of rapid disbursement of funds, the interest rate on loans to Member States may 
change periodically, and to a limited extent, as some of the bonds in the pool that fund the 
loans mature. To offer Member States the option of replacing these initial loans by fixed rate 
loans, the Commission will work quickly to build the capacity to offset maturity mismatches 
between  the  loan  and  the  underlying  funding  instruments.  This  requires  building  the 
operational capacity to hedge interest rate risk (using interest rate swaps) stemming from the 
maturity transformation in such an operation. The capacity to offer fixed interest rates will be 
in place in 2022. 

During  this  deepening  phase,  additional  instruments  could  be  implemented  to  improve  the 
toolbox for managing the liquidity risk and the outstanding debt.13 

6.  NGEU GREEN BOND ISSUANCE: 

In  line  with  its  efforts  to  reorient  capital  flows  to more  sustainable  uses,  as  outlined  in  the 
2018 Action Plan on Financing Sustainable Growth,14 the Commission will fund 30% of the 
NGEU programme through green bond issuance. This could amount to up EUR 250 billion of 
green  bond  issuance,  establishing  the  EU  as  one  of  the  biggest  green  bond  issuers  globally 
and reinforcing the EU’s policy and market leadership in sustainable finance. 

The Commission is currently designing the issuance framework for green bonds under NGEU 
(the “NGEU Green Bond framework”). The NGEU Green Bond framework will build on the 
obligation  for  Member  States  to  ensure  that  37%  of  expenditures  financed  by  the  national 
Recovery  and  Resilience  Plans  is  dedicated  to  investments  and  reforms  addressing  climate 

13  This  could  include  possibility  to  use  (1).  repurchase  agreements  to  raise  money  for  a  limited  period  in 
exchange for securities  which are temporarily lent out; (2). commercial paper, which is an even more flexible 
instrument  than  T-bills  and  can  be  a  useful  complementary  tool  for  small  amounts.  (3).  the  ability  to  run  a 
buyback programme to manage the bond redemption profile. 
14 https://ec.europa.eu/info/publications/sustainable-finance-renewed-strategy_en. 

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change. That expenditure on climate-related investments, by Member States or regional/urban 
authorities,  will  be  clearly  identified,  based  on  a  methodology  established  in  the  Recovery 
and Resilience  Facility  Regulation.  That  methodology has  already been  aligned  as much as 
possible  with  the  taxonomy.  The  identified  expenditure  will  constitute  the  eligible 
expenditure for the purposes of NGEU Green Bond framework. 

The  NGEU  Green  Bond  framework  will  be  based  on  twice-yearly  information  from  the 
Member  States  about  the  expenditures  on  those  investments  and  reforms.  This  information 
will allow the Commission to provide the necessary assurances to investors that the proceeds 
from issuing green bonds have been used for green investments. 

The  NGEU  Green  Bond  framework  will  be  based  on  well-known  and  established  market 
standards while aligning to the upcoming EU Green Bond Standard wherever possible. 

The NGEU Green Bond framework will be published in early summer. On that basis, the first 
NGEU Green Bond issuance could take place already in autumn 2021. 

7.  REPORTING TO EUROPEAN PARLIAMENT AND COUNCIL: 

The NGEU funding strategy  will be implemented on the basis of processes that ensure full 
accountability,  a  high  level  of  transparency  and  deliver  sound  financial  management  of  all 
NGEU  financing  flows.  The  Commission  has  put  in  place  a  strong  governance  and  risk 
management  framework,  centred  on  the  role  of  an  independent  Chief  Risk  Officer 
responsible for overseeing a strong Risk and Compliance policy to ensure the sound financial 
management of NGEU operations. 

The  implementation  of  NGEU  will  be  of  interest  to  the  European  Parliament  and  Council 
given the dimensions of the activities and their importance for the realisation of the economic 
and  social  objectives  of  the  NextGenerationEU.  Therefore,  and  as  outlined  in  the  Own 
Resources Decision and the Inter-Institutional Agreement15, the Commission shall regularly 
and comprehensively inform the European Parliament and the Council about all aspects of its 
debt  management  strategy.  Annual  updates  on  borrowing  and  lending  activities  will  be 
provided  to  the  European  Parliament  and  Council,  in  accordance  with  the  requirements  set 
out in Article 5(3) of the ORD from the third quarter of 2021. 

8.  CONCLUSION: 

NextGenerationEU is  the key to  the  Union’s  speedy  and full recovery from  this crisis.  The 
NGEU diversified funding strategy is a critical component in its successful delivery. It will 
allow  the  Commission  to  operate  efficiently,  and  mobilise  on  the  financial  markets  the 
resources needed to power the Union’s economic recovery. Ultimately, a diversified funding 
strategy  will  allow  the  Commission  to  fund  NextGenerationEU,  with  lower  execution  risk 
and at lower cost for the Member States and European taxpayers. 

Looking  beyond  the  immediate  economic  and  social  crisis,  a  successful  NGEU  issuance 
programme will also strengthen the fabric of the Economic and Monetary Union, enhance the 
role  of  the  euro  in  international  capital  markets  and  confirm  EU  leadership  in  sustainable 

15  Interinstitutional  Agreement  of  16  December  2020  between  the  European  Parliament,  the  Council  of  the 
European  Union  and  the  European  Commission  on  budgetary  discipline,  on  cooperation  in  budgetary  matters 
and  on  sound  financial  management,  as  well  as  on  new  own  resources,  including  a  roadmap  towards  the 
introduction of new own resources, OJ L 433I , 22.12.2020. 

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finance. It can strengthen the international role of the euro by deepening EU capital markets, 
offering  global investors a new highly-rated and liquid  euro-denominated asset, including a 
ground-breaking  EU-bill  programme.  A  high-profile  and  successful  NGEU  Green  Bond 
issuance will assert EU leadership in building deep EU markets for sustainable finance. 

For  all  of  these  reasons,  a  diversified  funding  strategy  represents  the  right  approach  for 
financing  NGEU.  The  Commission  will  be  ready  to  commence  NGEU  funding  operations 
once  the  legal  conditions  to  start  borrowing  are  finalised  with  the  aim  of  issuing  the  first 
NGEU bonds by June. 

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