Fitch: Rising defence spending will put pressure on Europe's public finances

Fitch said that after the Russia-Ukraine war that started 3 years ago, almost all European countries increased their defense budgets, but some countries' budgets remained below 2 percent of the Gross Domestic Product (GDP) determined by NATO.

It was recalled in the statement that European Union (EU) Commission President Ursula von der Leyen said this month that the joint expenditures of EU member states should exceed 3 percent of GDP, and that the UK has committed to increase its defense expenditures to 2.5 percent of GDP by 2027.

The statement said that these expenditures in the UK will be financed by cuts from overseas aid and that the target is to increase it to 3% later.

It was stated in the statement that it was unlikely that all European countries would achieve the 3 percent defense spending target even in the medium term, and that an annual 1 point increase in defense spending would be reasonable for many after a 3-4 year period of increase.

This is likely to lead to higher fiscal deficits and financing needs, given the difficulty of making spending cuts in the face of aging, high debt service costs, demands for social spending and political challenges in raising taxes.

The statement, which noted that public finances were an important driver of the region's sovereign ratings, said that borrowing at the European level was expected to be used to finance part of the increase in defense spending.

The statement noted that the increase in defense spending coincided with a period when economic uncertainty was already high due to the US trade policy, and said, "The sharp increase in spending on domestic industries will have some positive impact on growth, but the extent of this is quite uncertain."