Sovereign Outlook 2026: Rising Geopolitical Tensions and Fiscal Headwinds

*As of 12 December 2025. No rating Outlook currently assigned on Ukraine in selective default. Displayed are Outlooks on long-term issuer ratings in foreign currency. Source: Scope Ratings. Rating Risks Offset the Potential for Stronger Economic Growth, Fiscal Resilience Significant geopolitical and fiscal risks outweigh the potential positive effects from stronger growth and emerging pockets of fiscal resilience within the EU. Among potential tailwinds in Europe, possible gains may be linked to artificial intelligence-driven productivity gains and the implementation of reforms in Europe related to the Next Generation EU funding program.

In addition, many European sovereigns retain considerable funding flexibility, not only in southern euro area countries that are benefiting from fiscal consolidation but also countries like France, despite ongoing difficulties in reducing budget deficits.

Scope’s overall outlook is reflected in recent actions on the long-term ratings of the US – downgraded to AA- in October – and France, affirmed at AA- but with the Outlook revised to Negative, in September, – primarily due to concerns about high budget deficits, rising government debt-to-GDP and a challenging political outlook.

Rating Convergence Trend Since 2019 Set to Continue Another theme is the continued ratings convergence among investment-grade sovereign borrowers. While there is upside among previously lower-rated sovereigns such as Cyprus, Greece, Italy, Portugal and Spain, there is downside on the ratings of Austria, Belgium and Finland in addition to those of France and the US.