The structural power of finance, the quest for EU safe assets and the prospect of a permanent EU borrowing capacity

The Eurozone crisis demonstrated that the EMU's set-up has deprived member state public debt of its safe asset status. The immediate solution was to have the ECB backstop this debt. But the crisis also triggered a quest for a new class of EU safe assets. The literature has neglected this dimension and its demand side – i.e., investor preferences in terms of an EU safe asset. This paper argues that these preferences have been a decisive factor in EMU development due to the structural power of finance. The paper uses interviews with financiers and public officials, documentary evidence and narrative analysis to trace how investor demand for an EU safe asset has shaped EMU development before, during and following the launch of NGEU in 2020. The paper concludes that investor demand for a permanent EU borrowing capacity is a powerful source of pressure in the direction of greater EU fiscal capacity.