Almost 13 years ago, the then President of the European Central Bank (ECB) Mario Draghi put an end to the speculation that had flared up during the financial and debt crisis about individual member states leaving or being expelled from the European Monetary Union (EMU) or even about its collapse. In July 2012, he stated that the ECB would do «what ever it takes» to save the euro.

The absence of serious doubts about the continued existence of the single currency does not mean that markets treat all countries the same. For instance, during the government crisis in France last fall, the country was forced to offer comparatively high interest rates or a substantial yield premium relative to German government bonds—considered risk-free—to raise fresh funds in the bond market.

France Is only «Semicore» for Swiss Life

The interest rate is even higher than that currently paid by Greece, a former shaky candidate. As Daniel Rempfler, Head of Portfolio Management for Sovereign and Emerging Market Bonds, confirmed at an event on Tuesday that Swiss Life Asset Managers now considers France to be «semi-core», meaning it is no longer regarded as a core country within the currency union. The republic is drifting towards the periphery, Rempfler noted, and gave little hope of an improvement in the neighboring country any time soon.

The (minority)government there remains in latent danger of collapse. However, France is not Switzerland's only neighbor that is characterized by a high level of political uncertainty.

A Topsy-Turvy World: Italy Stable, Germany and Austria Shaky

In Germany, new elections will be held in February following the end of the «traffic light» coalition, with the formation of a government likely to be difficult, not least because the established parties are using firewalls to restrict their own room for maneuver.

And in Austria, FPÖ leader Herbert Kickl now has a genuine chance of becoming chancellor, as the personal firewall that was erected against him has collapsed. As a reminder, when the FPÖ joined an ÖVP-led government as a junior partner over 25 years ago, various EU member states immediately imposed sanctions on the insubordinate Alpine republic.

Te Common Denominator: It's all About Money

As different as the backgrounds to the current political turmoil in France, Germany and Austria may be, there is one common denominator: it's all about money. Public finances are a major issue in all three countries. While France and Austria have already exhausted or overstretched their fiscal leeway, Germany is discussing a softening of the debt brake with the noble intention of mastering the challenges associated with the «multi-crisis».

Even before EMU was founded, bonds issued by the current member states were an important asset class. Politics has made it more exciting again - although there are also positive trends in this respect. For instance, who would have thought that neighboring Italy, of all countries, would impress with its political stability, as is currently the case under the first female Prime Minister Giorgia Meloni?

A Compendium at the Right Time

The «Euro area sovereign issuance compendium 2025», which was compiled by UBS Global Research at the beginning of 2025, is therefore likely to attract more interest this year than in previous years.

Based on information provided by the national treasuries and financial agencies responsible for issuing government bonds, UBS estimates the funding requirements of Germany, France, Italy, Spain, the Netherlands, Belgium, Austria, Finland, Ireland, Portugal and Greece.

Restrained Funding Requirements

Collectively, the eleven member states will raise a gross amount of €1,281 billion by issuing government bonds in 2025. This is €56 billion less than in 2024. €816 billion (-29 billion) of paper will mature; net borrowing will therefore amount to €465 billion (-27 billion).

UBS has not escaped the discussions about easing the debt brake in Germany. The analysts assume that this could increase the issue volume of German government bonds by a maximum of €30 billion or a good 10 percent in 2025.

Slight Decline in Deficit Ratio

UBS attributes the decline in the need for funds to the fact that the budget deficit as a percentage of gross domestic product should fall from 3.1 to 2.6 percent. Nine of the eleven countries will issue less in gross terms than in the previous year, with the most significant reduction in Italy, which still accounts for 27 percent of gross borrowing, followed by France and Germany (26 percent and 21 percent respectively).

Fiscal support measures taken by the states in the wake of the coronavirus and energy crisis in the years 2020 to 2023 are gradually coming to an end, UBS explains. In addition, the requirements of the recently reformed Stability and Growth Pact are gradually beginning to take effect again this year - the analysts at the big bank therefore seem to believe that the regulations, which have been patched up once again, could still take effect.

Fewer Money Market Instruments, Londer Duration

According to the study, the stock of money market paper (with a maturity of less than one year), which had skyrocketed during the pandemic due to the sudden high demand for funds from public budgets, will continue to decline slightly in 2025, as it did in 2024. Consequently, the average remaining term (duration) of outstanding debt is likely to increase in 2025, as falling interest rates will encourage government debt managers to lock in favorable levels by issuing long-dated bonds.

The ECB also plays a prominent role in UBS's compendium. Since the financial crisis, it has repeatedly purchased government bonds (and other securities) from member states via various programs with fancy acronyms such as PSPP and PEPP and added them to its balance sheet in order to «unconventionally» ease monetary conditions. In doing so, it has withdrawn government bonds from the market, effectively reducing the free float—the proportion of freely tradable bonds.

Quantitative Tightening by the ECB Increases the Net Supply

Over the past two years, the ECB has begun to stop reinvesting maturing government bonds as part of its monetary policy U-turn, thereby shrinking its balance sheet. Quantitative easing has become quantitative tightening. In 2024, this increased the net supply of government bonds by €281 billion. In 2025, government bonds worth the equivalent of €407 billion are to be added in this way.

As a result of quantitative tightening, the market will have to absorb this additional amount. From this perspective, net capital borrowing will reach an all-time high of €872 billion (2024: €773 billion). Assuming no other changes, the substantial supply suggests that buyers could anticipate slightly higher yields.

ECB Will Still Hold a Third of all Government Bonds

However, the ECB will still be the largest holder of government bonds from the eurozone at the end of 2025. Its share will fall from 40 to 34 percent.

In recent years, the European Union (EU) itself (which is not the same as EMU) has also become increasingly prominent as an issuer. According to UBS, the European Commission is planning to issue EU bonds worth €160 billion this year.

Syndications, Issuance and Rating Calendars

The compendium also contains information on the pipeline of green bond — government bonds whose proceeds are allocated to «sustainable» purposes. It provides a list of issues (syndications) from recent years, an issue calendar for each country (detailing amounts by maturity and month), particularly relevant for investors in view of the uncertainities mentioned above – a rating calendar that provides information on which rating agency will review the rating of which member state on which day in 2025.

Switzerland is not a member of the monetary union and is therefore not included in the big bank's study.

Fiscal Pressure and Discussion About a Debt Brake in Switzerland as Well

Despite many differences, there are some parallels: Fiscal pressure has also risen in this country, evident in the discussions surrounding the «debt relief package» presented by the Federal Council in September 2024. Additionally, creative proposals for a more flexible interpretation of the debt brake are circulating, albeit somewhat cautiously.

And anyone who wants to know what the situation is with the supply of Swiss Confederation bonds: The treasury in Bern had already presented the 2025 issuance calendar in December. This assumes a slight increase in the Confederation's bond portfolio.