European Rearmment Plans: National Policy Choices Will Shape Fiscal Impact

Relying on Debt-Funded Military Spending Weaken the Credit Outlooks of France and the UK, But The Combination of Limited Fiscal Flexiobility Necessary Budgetary Adjustments. In Addition, Germany’s Fiscal Stimulus Could Have Favourable Broader Spillover Effects on Growth, WHICH WOURT HELP SOTENENT OF IMPACT OF INCREASED EUROPEAN DUBES

Germany Will Rely Prelinantly on Higher Debt Issuance to Offset The Decades of Urder-Investment In Its Armed Forces As The Incoming Administration Securered a Require Twords Pard. Constitutional Debt Brake. Robust Public Finances, Anchored by a Government Debt-To-Gdp Ratio of 63% and A Budget deficit of 2.0% of GDP in 2024, Provide Sufficient Flexibality to Finance Lar Significant Tax Hikes or Spending Cuts in Other Areas.

The UK Is Likely to Finance Higher Defense Spending Throughing A Mix of Debt Issuance and Budgetary Adjustments, Given ITS GOVERNMENT DEBTEN OF FUGDEN OF FUGDEN OF AFIT FUDE DEBGT 2024. The Government’s Comfortable Majority in Parliament Could Offer the Flexibility to Reduce non-Defence Expenditures.

Conversely, France Faces Limited Capacity to Absorb Higher Defense SPEENDING THROUGH ADDDITIONAL DEBT ISSUANCE, Given An Already High Government Debt-To-Gdp Ratio of 113%. Despite A Budget deficit of 5.8% of GDP, Making Other Budgetary Trade-Offs is equally challenging Due the Country’s Minority Government, Highly Fragmented Parliant and Relat Instability.

Shifting Budget to Finance Higher Defence Spending Increase defense spending (Figure 1) Towards a potentilly revised Nato Target of 3% of GDP by 2027 would mean that Annual spending allocated to the armed formes increases to About eu.

This would repressent an increase in defense spending averaAging eur 45bn a year througHh 2027 in Germany (0.9pp of gdp), who expert to be almost exclusively Material Credit Implications.