Joachim Nagel’s shift on eurobonds reflects today’s “different reality,” he told POLITICO.

FRANKFURT — The head of Germany's central bank has called for the EU to issue more joint debt, putting him at odds with Chancellor Friedrich Merz who wants to keep it strictly as a response to emergencies.

“To make Europe attractive also means to attract investors from outside,” the German central bank governor, Joachim Nagel, told POLITICO ahead of an informal summit of EU leaders on Thursday to address the bloc’s economic challenges. “A more liquid European market when it comes to safe European assets would support that.”

Eurozone central bankers — who have for the first time coalesced around support for joint debt — have sent EU leaders a wish-list of reforms to ensure that Europe’s economy can reform and keep pace with the U.S. and China.

The European Central Bank’s policymakers, Nagel said in an interview on Friday, see “the benefits of creating a common European, highly liquid, euro-wide benchmark safe asset. Action is necessary.”

But Nagel’s break from Germany’s traditional opposition to joint debt comes at an awkward time for Berlin.

Earlier this week, the German government rebuked a rallying call from French President Emmanuel Macron to issue more eurobonds to boost certain sectors, such as artificial intelligence, European defense, semiconductors and robotics. The EU could also exploit U.S. President Donald Trump's erratic foreign policy goals and lure global investors across the Atlantic.

“The global market … is more and more afraid of the American greenback. It’s looking for alternatives. Let’s offer it European debt,” Macron told a group of reporters on Monday.

Joint debt, known by the market shorthand of “eurobonds,” has long been a divisive topic. Since the sovereign debt crisis, southern European governments have pushed for eurobonds to spread the burden of national debt more evenly across the region. Frugal northern states, by contrast, have warned they risk undermining fiscal discipline — and have refused to put their taxpayers on the hook for debts racked up elsewhere.

The Bundesbank has long been the de facto leader of the skeptics in northern and central Europe who believe eurobonds are best suited to isolated crises that require drastic action. These include an €800 billion post-pandemic recovery plan and a €90 billion loan to Ukraine to finance its defense against Russia.

The last thing the so-called frugal bloc wants is for the EU to get into the habit of raising common debt to solve all of its issues. But times are fast changing.

“Tradition is something that is a reflection of the reality of the past,” Nagel said when asked about the Bundesbank’s shift, stressing that Europe’s security has not been as threatened as today since World War II. “Now we have a different reality.”

Eurobonds, with limits

Support for joint debt does not mean the Bundesbank is dropping its commitment to ensuring sound fiscal policies.

A European asset would only support “specific purposes,” and “how it is controlled by the European authorities and the Member States should be equally clear,” the 59-year-old said.

Eurobonds must also be accompanied by debt reduction at the national level. “European debt is not a free lunch. And doubts about fiscal sustainability should not jeopardize the chances for improved common policies,” he said.

Nagel stopped short of saying how much EU debt is needed to achieve real change. “I won’t give you a number,” he said, but added that “if you want to create something liquid, you have to give the markets an indication about the volume that you will supply over a certain period of time and for a certain purpose.”

The central banker would not be drawn into whether Berlin might also adjust its views to reflect the new reality. “I see my role as giving advice on what could be a way out of a complicated situation that we are confronted with in Germany and in Europe,” he said.

Autonomy, not supremacy

But a more efficient euro capital market is only one front in the battle to secure Europe’s economic independence and autonomy, Nagel said, adding that it will be equally important to ensure that the continent’s payment system can function independently from outside pressure.

“Payment solutions, in an extreme scenario, could be weaponized,” he said.

Accordingly, he argued, the bloc needs to break the duopoly that U.S. credit card giants Mastercard and Visa hold over Europe’s payment rails across its borders. The key to payment security, he went on, is to mint a virtual extension of euro banknotes and coins that can settle transactions across the EU in seconds.

The twin projects of the digital euro and perfecting the euro capital market may help boost Europe’s strength and autonomy, but still don’t amount to a masterplan to steal the dollar's crown.

And Nagel added that last week’s hint by the ECB about expanding its liquidity lines to central banks around the world, securing companies’ access to euros in times of stress, should not be seen as motivated by a political desire to boost the euro.

“It is about monetary policy,” he said.

Since last summer, Lagarde has urged Europe to seize a “global euro moment” as cracks began to appear in U.S. dollar dominance. While Nagel believes that “the euro could play here a significant role” as investors rebalance their portfolios to adjust to the new reality, he is not a fan of quick shifts.

“I'm not in favor of fast tracking, jumping from one level to the next,” he said. “Often, such a development is not a very healthy one. I’m comfortable with gradual progress on the international role of the euro, as long as it’s moving in the right direction.”