Achieving NATO‘s proposed 3% of GDP defence spending target will increase national budget deficits and debt in the EU and weaken member states’ credit profiles unless member states cut other spending, raise taxes or agree to joint defence funding, according to Scope Ratings.

Higher defence spending will weaken fiscal numbers even if EU fiscal rules are relaxed.

Germany, however, is among the few member states that are fiscally able to absorb the expected defence spending shock, along with Greece, Poland and Baltic states that already meet the adjusted target or countries with fiscal space, such as Portugal and AAA-rated member states.

Conversely, covering higher defence spending would likely lead to EU excessive deficit procedures for several countries that are already unable to reduce their budget deficits to below 3% in the coming years.

NATO member states in the EU would have to allocate, on average, an additional 0.8% of GDP each year to meet the increase in defence spending to 3% of GDP from NATO’s current target of 2%.

However, the fiscal impact in terms of revenue varies widely between countries.