Computing the eu’s sure interest savings using an extended debt sustainability assessment tool

Loans to Member States under the SURE programme were part of the unprecedented European Union (EU) response to the COVID-19 crisis in 2020-2021. Resources were used to finance countries’ public spending on temporary unemployment schemes. The EU raised funds on the capital markets by issuing securities, and channelled them to recipient countries in the form of bilateral loans. The programme was implemented in a period in which countries had full access to capital markets under very favourable financing conditions. Nonetheless, the full envelope of the programme was used up. In this paper we compare government interest payments under the SURE programme with a counterfactual in which governments themselves raised the same amount of funds on the markets. We focus on the cases of Belgium, Spain, Portugal and Italy. We extend a state-of-the-art DSA framework with a rich modelling set-up in which the dynamics of interest payments on loans and securities, maturing debt and new debt issuance, are jointly determined. Two results stand out: (i) under the financial conditions prevailing at the time of the implementation of SURE, interest savings for the four countries analysed are estimated to be significant (between 3% and 12% of the total amount disbursed over the first 10 years), with amounts depending on the current spread between the EU yield curve and the national one and the maturity structure of the national debt; (ii) under counterfactual scenarios of stressed market conditions during the duration of the loans, savings would be even larger. The latter illustrates the key role these instruments may play in episodes of market stress.