The claim that Europe’s economic and geopolitical decline is inevitable is exaggerated. However, to reverse the trend, a decisive change in political strategy will be needed. This is the conclusion of the Scope Ratings report prepared by Alvise Lennkh-Yunus and Brian Marly (Sovereign and Public Sector), according to which internal structural reforms will weigh more than external tensions in determining the future credit profile of EU countries.
The EU’s margin for action
Member States, the analysis highlights, still have ample room for action to strengthen growth, reduce technological dependence on the United States and that on Chinese imports of rare earths, as well as reform welfare systems to better manage the fiscal pressures linked to an aging population. Furthermore, the EU can still benefit from a deep completion of the single market: internal barriers equate to average tariffs of 40% for goods and 100% for services, well above the 15% average US tariffs.
US tariffs
The new US tariffs, at the highest in decades, will hit European countries unevenly: the impact is stronger in Slovakia, Poland and Hungary, more contained in Ireland thanks to the exemption on pharmaceutical products. However, the ECB expects an impact on European GDP of between -0.5 and -0.7 percentage points over two years, much lower than the contractions recorded in previous crises. The real priority, according to analysts, should be strengthening the internal market through greater labor mobility, integrated capital, energy cooperation and less regulatory fragmentation — reforms that could generate up to 700 billion euros of additional growth over ten years.
Defense and the next elections
Even the increase in defense spending, driven by the NATO target of 3.5% of GDP, appears sustainable for most countries, thanks to adequate fiscal margins or already advanced spending plans. Looking to the medium term, however, governance and reforms will guide the trajectory of public debt. Countries such as Greece, Cyprus and Portugal could reduce their debt by 50-75 points of GDP by 2030, while Belgium, France, Austria and Finland risk worsening. Electoral choices and political stability, the report concludes, will be decisive for future European sovereign ratings. The political paralysis in France and Poland, with major elections scheduled for 2027, highlights the difficulty of finding domestic and European consensus on revolutionary reforms. The outcome of these elections, in fact, could substantially change the balance of power within the European Council, potentially making the implementation of ambitious structural reforms even more difficult.
