Increasing defense spending in Europe to pressure public finances: Fitch

By Mucahithan Avcioglu

ISTANBUL (AA) - Defense expenditure boosts in European countries will add challenges to their public finances, according to Fitch Ratings on Tuesday.

"Almost all European sovereigns have increased their defense budgets since the Russian invasion of Ukraine three years ago, but some remain below NATO’s current 2% of GDP guideline," it said.

European Commission President Ursula von der Leyen gave remarks this month that joint spending of EU member states should exceed 3% of GDP, the statement noted, adding that the UK has committed to increase its defense spending to 2.5% of its GDP by 2027.

"This will likely lead to higher fiscal deficits and financing needs given the difficulty in making equivalent expenditure cuts in the face of ageing, higher debt-servicing costs, social spending demands, and political challenges in raising taxes," it added.

In order to prevent the launching of excessive deficit procedures (EDPs), EU authorities will likely support increased defense spending by permitting the use of national escape clauses, or by providing more flexibility to those who are already subject to EDPs.

"The increase in defense spending comes at a time of already-heightened economic uncertainty due to US trade policy.

"Sharply higher expenditure directed to domestic industries would have some positive growth impact, but the extent of this is highly uncertain," the statement said.