Fitch estimates that EU states will only spend 500 billion euros on defense in the coming years, much smaller than the 800 billion hoped by the Commission
Germany’s sudden fiscal “exaggeration” could stimulate the growth of the European economy, but for its debt -filled neighbors, the increase in borrowing costs erodes their already limited capacity to increase their defense spending.
The cost of borrowing in Italy, France and Spain followed the rise by 20 points of the cost of Germany’s borrowing costs, the EU’s largest economy, after making the historic decision to constitute a constitutional debt review in early March that allows it to increase its defensive costs.
Further and more uniform increase in defense spending would require more common lending to the European Union to provide grants, economists and investors support.
Fitch Ratings estimates that EU Member States will only spend about 500 billion euros ($ 541 billion) on defense over the next four to five years, partly due to budgetary restrictions.
It is, however, a much smaller amount than the EU plan to create a margin for costs of up to 800 billion euros, mainly by modifying fiscal rules to allow more national expenditure.
Recent market moves show that “the cost of funding in Europe will be higher and this will mean that the off options for a government four or five years later are more difficult,” said Federico Barriga-Salazar, senior manager of state-owned companies at Fitch.
This will limit expenditure as there is not much disposition to increase taxes or reduce spending from another sector, he said.
By 2028, Fitch “sees” France spending 2.5%of GDP in defense, Italy and Spain remaining below the 2%target, which NATO wants to increase to over 3%, while Germany will reach 3.2%.
Development
The cost of lending to Germany and the countries with similar economic power increased by approximately 40 basis points earlier in March before focusing on US duties.
In France, where fiscal concerns shook markets last year, 10 -year bond yields reached the highest level from the eurozone debt crisis.
Some analysts expect that German lending costs could grow more from a percentage point in the coming years to about 4%, a level not observed since 2008.
As the largest economy of the bloc and its main borrower, a further rise in German yields could continue to be broadcast in their respective countries.
A former European Central Bank economist expects that an increase in German growth by 0.4 percentage points next year will lead to just 0.1 percentage of additional growth in the eurozone beyond the immediate German impact.
However, BNP Paribas is expecting stronger growth, especially if Europe has a total of defense spending on domestic production, said Paul Hollingsworth, head of the Department of Developed Markets.
Borrowing
At present, the risk premiums paid by Italy and France for German debt have largely stabilized.
The largest asset administrator in Europe, Amundi “sees” little room for higher spending outside Germany, said Fund Manager Reine Bitar. But concerns could grow. So far, Italy and Spain have been cautious about additional expenses.
The increase in defense spending to 3% of GDP without compensatory measures could increase Italy’s debt to 145% of GDP by 2029 from approximately 135% last year, Scope Ratings estimated, and expects the debt index will only reach 73% in Germany.
Economies such as Italy and France, which increase the costs more slowly, would limit the overall defense effort given their large share of the European economy.
The EU is ready to grant loans of 150 billion euros in countries that need them, borrowing from the bond market. But Societe Generale does not expect complete absorption, as this money would be counted in national debt sizes and cost savings is not important for large economies beyond that of Italy, as their borrowing costs are only slightly higher than the EU.
On the contrary, further joint lending to provide grants in accordance with the EU recovery fund’s plan by Covid -9 would help increase spending more uniformly, economists say.
Source: Skai
I am Janice Wiggins, and I am an author at News Bulletin 247, and I mostly cover economy news. I have a lot of experience in this field, and I know how to get the information that people need. I am a very reliable source, and I always make sure that my readers can trust me.