The agreement between the European countries of the NATO members of Spend 3.5% of the defense GDP it could, if fully implemented without compensation measures, worsen The situation of public financesadding about 2,000 billion dollars to public debt by 2035. This is what is highlighted by a report by S&P Global Ringswhich calculates the impact of the commitments made at the last summit.
The agency expects, however, that i defense budgets will grow in dysomogeneous waythat many countries will have difficulty achieving the born objective of 3.5% of GDP in the short term and that the consequent increases in debt hardly will cause immediate repercussions on financial markets or consequences on the quality of the sovereign credit. “We foresee a limited impact on the quality of the credit of European government bonds in the short term, since the increases in defense spending will probably be measured and slow,” explains Riccardo Bellesia, analyst of S&P Global Ratings.
The increase in the expected debt
The goal of Defense expenditure of NATO, equal to 3.5% of the GDPif fully implemented without compensation measures, could Add 2,000 billion dollars of debt Authority at European level by 2035. By assuming a linear path to 3.5% of GDP in spending for the defense of the next decade, some countries could see an increase in the debt of over 10 percentage points of GDP.
And hypothesizing then that the further 1.5% of the GDP reserved for infrastructure for the national security it will be largely riallocato with existing expenditure And not financed with debt, it is believed that there will be no need for compensatory measures, it is believed that additional expenses translate into a significant increase in GDP.
DISOMOGENEA defense expenditure growth in the EU
It is believed that the growth of defense expenditure It will be inhomogeneous in Europe: the European countries closest to Russia will spend – and are already doing it – more for the defense, while the countries with low levels of public debt, such as Denmark, the Netherlands, Lithuania and Germany, are ready to absorb greater increases in expenditure. THE most indebted European countrieson the other hand, will find difficult to achieve too modest increases in their expense current. For example, Spain has already declared that it will not achieve the new objectives.
Expected limited impact on credit quality in the short time
The impact of defense expenditure on credit quality, says S&P – will be limited in the short term. The agency provides that targeted increases in expenditure For the defense by countries with a more solid credit profile they may be financed without causing negative reactions on the market, while believing that i widely indebted governments will not jeopardize Their path of tax consolidation or debt stabilization to quickly increase the expense for the defense.
