Dutch Central Bank Says Shared EU Borrowing Could Make Debt Problems Worse

The Dutch central bank (DNB) has issued a warning that creating or expanding shared European debt instruments (commonly called Eurobonds or "debt bonds") could lead to dangerously higher public debt levels if governments become too reliant on them. DNB president Olaf Sleijpen made these remarks in interviews published over the weekend.

Governments across Europe are facing increased borrowing needs to fund defence spending, green energy transitions, aging populations, and debts left over from previous economic crises. DNB has recently raised concerns about weakening public finances and the impact of rising interest rates on government bonds: issues that form the backdrop for Sleijpen's warning about additional joint borrowing.

The concept of Eurobonds divides policymakers. Supporters argue that bonds issued at the EU level can help finance shared priorities like climate action and defence, strengthen European capital markets, and lower borrowing costs for countries with weaker economies.

Critics, now including Sleijpen, warn that shared bonds create a moral hazard: countries may become less careful about managing their budgets if they expect other EU members to back their borrowing. Sleijpen argues this approach risks creating higher overall debt across Europe rather than better financial control.

The issue splits Dutch politics along familiar lines. Progressive parties D66 and the combined GroenLinks-PvdA alliance have shown openness to EU-level borrowing for strategic investments. Conservative and right-leaning parties including the VVD and JA21 oppose the idea. The centrist CDA has indicated conditional support for specific investment purposes but remains cautious. DNB's fresh warning is likely to reignite these political debates in The Hague.

Budget pressures are mounting: DNB projects that the Dutch government deficit will approach or exceed the EU's 3% limit, leaving little room for new spending commitments even without additional EU-level borrowing schemes.

Markets are sensitive: Dutch financial institutions suffered significant losses on their holdings of European government bonds in early 2025 as interest rates rose, demonstrating how quickly borrowing conditions can change. Adding more EU debt to the market could interact with these dynamics in unpredictable ways.

EU decisions coming: Any move toward permanent or larger joint borrowing programs would require political agreement among all EU member states and would likely come with strict conditions attached. The Netherlands has traditionally pushed for strong safeguards and fiscal discipline in such arrangements.

DNB's message serves as a cautionary note: while shared EU bonds may appear attractive in the short term as a way to fund important priorities, they can drive up overall debt levels and increase financial risks without strong rules to prevent abuse. If the Eurobond debate returns to the EU agenda, expect the Dutch government and parliament to push Brussels hard for clear borrowing limits and strict fiscal discipline requirements.