Bofa about why European defense expenses are not possible so fast and easy

European defense expenses are likely to come out of sleep for years due to increased geopolitical pressure forcing blocks to rethink their defense budget. But the Bank of America Securities economist warns that increasing the budget to meet new NATO targets will not be “fast and easy” for most EU countries.

“A ramp-up in defense expenditure is not possible so quickly and easily,” said Bofa economists in a recent note, highlighting the simulation that shows that increasing core defense expenditure to the NATO-AGREED target by 3.5% of GDP is likely to clash with the economic reality of widespread public finances, especially in the big countries of southern Europe.

BOFA simulation shows that “encouraging the core defense budget to 3.5% in 2028 can increase government debt ratios between 2.4% and 4.1% above the elementary level” throughout this country and others including Portugal and Greece.

Meeting the 5% threshold presents a greater challenge, with “regarding the implications of debt sustainability, especially for Spain/Italy.”

France and Italy are still “under the excessive deficit procedure of the EU,” While the Spanish fiscal balance “is vulnerable to remembering limited progress in fiscal consolidation.”

Activation of defense funding instruments such as the National Escape Clause (NEC) and security for Europe (AMAN), two steps launched under European European Plans/readiness of the European Commission 2030, have not been translated into an increase in large -scale budget among key players.

France, Italy, and Spain have not fully activated NEC, while Greece and Portugal have simply utilized these steps.

The complexity of this political and economic balance action implies that a significant increase in defense expenditure is impossible to be fast or easy. “In the end, some weight lifts at the EU level will be needed to help ease the load.
Source: Reuters