Latest news with #MarcelFratzscher
Egypt Independent
21-07-2025
- Business
- Egypt Independent
NATO has promised a spending blitz. Can its European members afford it?
London CNN — The North Atlantic Treaty Organization, the defense alliance of 32 countries, is on a spending spree, with plans to funnel billions into their militaries and security systems over the coming decade. But it's a splurge that some European members of NATO, grappling with huge and ballooning debt burdens, can ill-afford. 'It's something unprecedented in peacetime to have such a massive increase in spending on any item – in particular, on defense,' Marcel Fratzscher, president of the German Institute for Economic Research or DIW, told CNN. Last month, NATO members agreed to boost their respective defense spending targets to five percent of gross domestic product by 2035 – more than double the current two percent target and the sort of major increase that US President Donald Trump has been demanding for many years. The pledge came as Europe's NATO members have to contend with an aggressive Russia and an America that has backed away from its long-standing role as the guarantor of the region's security. Governments have three options to meet the new spending target – cut other expenses, raise taxes or borrow more – but analysts told CNN that each is either politically unpalatable or unviable in the long term for heavily indebted European NATO countries. 'Many (European Union) countries face hard fiscal constraints,' analysts at Bruegel, a Brussels-based think tank, wrote earlier this month. 'It is unrealistic to expect countries that have struggled for decades to reach a 2 percent defense spending target to embrace credibly an ill-justified, much higher target.' Hard choices Many NATO countries have failed to meet the previous, two percent target, set in 2014. Most have increased spending in recent years in response to Russia's full-scale invasion of Ukraine in 2022 – so much so that the European Union's executive arm expects its 23 member states belonging to NATO to meet that target this year, based on their combined GDP. But they now need to go further. The new, five percent target includes a commitment by NATO member states to spend the equivalent of 3.5 percent of their annual GDP on so-called 'core' defense requirements, such as weapons, with the remaining 1.5 percent allocated to areas supporting defense like port infrastructure. For some nations, that will mean finding tens of billions of extra dollars a year. Frank Gill, a senior sovereign credit ratings analyst for Europe, the Middle East and Africa at S&P Global Ratings, thinks that meeting the 3.5 percent target alone will require European countries, including the United Kingdom, to borrow huge sums of money. Some nations may also cut or reallocate government spending to reduce the amount they need to borrow, he said, but that could prove difficult. Two older people walk in the garden of a retirement home in Potsdam, Germany, in July 2025. Fabian Sommer/dpa/picture-alliance/AP 'A lot of (European governments) are facing other fiscal pressures… not least aging populations, which are essentially leading to even higher pension spending,' Gill told CNN. 'Politically, (that) is very challenging to cut.' Fratzscher at DIW in Germany agrees. For most NATO countries, he argued, cutting spending is 'utterly impossible.' 'Europe is aging quickly,' he said. 'It's completely illusionary to believe that… governments in Europe could save on public pensions, on healthcare, on care more generally.' The only sustainable way to finance the 'kind of magnitude of extra (defense) spending' now pledged by NATO is to hike taxes, he argued. Yet there exists neither the political will nor the public support to spend 'in such a dramatic way in this direction… and actually accept the consequences.' Crushing debt Simply borrowing more is a similarly tricky option in Europe where a number of governments are already saddled with debts close to, or larger than, the size of their country's entire economy. All else remaining equal, meeting just the 3.5 percent 'core' defense spending target could add roughly $2 trillion to the collective government debt of NATO's European members, including the UK, by 2035, according to a recent analysis by S&P Global Ratings. That compares with combined GDP of $23.1 trillion for the EU – a proxy for European NATO members – and Britain, based on World Bank data for 2024. The extra debt would be particularly hard to swallow for countries such as Italy, France and Belgium. These NATO members had some of the highest public debt-to-GDP ratios at the end of 2024, at 135 percent, 113 percent and 105 percent respectively, according to the EU's statistics office. Countries such as France, where this photo was taken, are grappling with huge government debt burdens. Sameer Al-Doumy/AFP/Getty Images Those are already heavy burdens. On Tuesday, French Prime Minister François Bayrou said the EU's second-largest economy risks a 'crushing by debt.' He warned that, should nothing change, just the interest France pays on its debt will swell to €100 billion ($117 billion) in 2029, becoming the government's largest single expense. He still supports splashing the cash on defense, while reining in other government spending. The EU is trying to make it easier for member states to invest in their security. Brussels has exempted defense expenditure from its strict rules on government spending and pledged to create a €150 billion fund from which countries can borrow, at favorable interest rates, to invest in their defense. However, there is another option for EU NATO members, according to Guntram Wolff, a senior fellow at Bruegel. 'Just not doing it. Not spending more,' he told CNN. Already, Spain has said it will not meet the five percent target, arguing that doing so would compromise its spending on welfare. Last year, the southern European nation spent only 1.28 percent of its GDP on defense, based on NATO estimates. Wolff said the 'best predictor for the increase in defense spending is (a country's) distance to Moscow – much more than any pledges at the NATO summit.'
Yahoo
21-07-2025
- Business
- Yahoo
NATO has promised a spending blitz. Can its European members afford it?
The North Atlantic Treaty Organization, the defense alliance of 32 countries, is on a spending spree, with plans to funnel billions into their militaries and security systems over the coming decade. But it's a splurge that some European members of NATO, grappling with huge and ballooning debt burdens, can ill-afford. 'It's something unprecedented in peacetime to have such a massive increase in spending on any item – in particular, on defense,' Marcel Fratzscher, president of the German Institute for Economic Research or DIW, told CNN. Last month, NATO members agreed to boost their respective defense spending targets to 5% of gross domestic product by 2035 – more than double the current 2% target and the sort of major increase that US President Donald Trump has been demanding for many years. The pledge came as Europe's NATO members have to contend with an aggressive Russia and an America that has backed away from its long-standing role as the guarantor of the region's security. Governments have three options to meet the new spending target – cut other expenses, raise taxes or borrow more – but analysts told CNN that each is either politically unpalatable or unviable in the long term for heavily indebted European NATO countries. 'Many (European Union) countries face hard fiscal constraints,' analysts at Bruegel, a Brussels-based think tank, wrote earlier this month. 'It is unrealistic to expect countries that have struggled for decades to reach a 2% defense spending target to embrace credibly an ill-justified, much higher target.' Hard choices Many NATO countries have failed to meet the previous, 2% target, set in 2014. Most have increased spending in recent years in response to Russia's full-scale invasion of Ukraine in 2022 – so much so that the European Union's executive arm expects its 23 member states belonging to NATO to meet that target this year, based on their combined GDP. But they now need to go further. The new, 5% target includes a commitment by NATO member states to spend the equivalent of 3.5% of their annual GDP on so-called 'core' defense requirements, such as weapons, with the remaining 1.5% allocated to areas supporting defense like port infrastructure. For some nations, that will mean finding tens of billions of extra dollars a year. Frank Gill, a senior sovereign credit ratings analyst for Europe, the Middle East and Africa at S&P Global Ratings, thinks that meeting the 3.5% target alone will require European countries, including the United Kingdom, to borrow huge sums of money. Some nations may also cut or reallocate government spending to reduce the amount they need to borrow, he said, but that could prove difficult. 'A lot of (European governments) are facing other fiscal pressures… not least aging populations, which are essentially leading to even higher pension spending,' Gill told CNN. 'Politically, (that) is very challenging to cut.' Fratzscher at DIW in Germany agrees. For most NATO countries, he argued, cutting spending is 'utterly impossible.' 'Europe is aging quickly,' he said. 'It's completely illusionary to believe that… governments in Europe could save on public pensions, on healthcare, on care more generally.' The only sustainable way to finance the 'kind of magnitude of extra (defense) spending' now pledged by NATO is to hike taxes, he argued. Yet there exists neither the political will nor the public support to spend 'in such a dramatic way in this direction… and actually accept the consequences.' Crushing debt Simply borrowing more is a similarly tricky option in Europe where a number of governments are already saddled with debts close to, or larger than, the size of their country's entire economy. All else remaining equal, meeting just the 3.5% 'core' defense spending target could add roughly $2 trillion to the collective government debt of NATO's European members, including the UK, by 2035, according to a recent analysis by S&P Global Ratings. That compares with combined GDP of $23.1 trillion for the EU – a proxy for European NATO members – and Britain, based on World Bank data for 2024. The extra debt would be particularly hard to swallow for countries such as Italy, France and Belgium. These NATO members had some of the highest public debt-to-GDP ratios at the end of 2024, at 135%, 113% and 105% respectively, according to the EU's statistics office. Those are already heavy burdens. On Tuesday, French Prime Minister François Bayrou said the EU's second-largest economy risks a 'crushing by debt.' He warned that, should nothing change, just the interest France pays on its debt will swell to €100 billion ($117 billion) in 2029, becoming the government's largest single expense. He still supports splashing the cash on defense, while reining in other government spending. The EU is trying to make it easier for member states to invest in their security. Brussels has exempted defense expenditure from its strict rules on government spending and pledged to create a €150 billion fund from which countries can borrow, at favorable interest rates, to invest in their defense. However, there is another option for EU NATO members, according to Guntram Wolff, a senior fellow at Bruegel. 'Just not doing it. Not spending more,' he told CNN. Already, Spain has said it will not meet the 5% target, arguing that doing so would compromise its spending on welfare. Last year, the southern European nation spent only 1.28% of its GDP on defense, based on NATO estimates. Wolff said the 'best predictor for the increase in defense spending is (a country's) distance to Moscow – much more than any pledges at the NATO summit.'
CNN
21-07-2025
- Business
- CNN
Analysis: NATO has promised a spending blitz. Can its European members afford it?
The North Atlantic Treaty Organization, the defense alliance of 32 countries, is on a spending spree, with plans to funnel billions into their militaries and security systems over the coming decade. But it's a splurge that some European members of NATO, grappling with huge and ballooning debt burdens, can ill-afford. 'It's something unprecedented in peacetime to have such a massive increase in spending on any item – in particular, on defense,' Marcel Fratzscher, president of the German Institute for Economic Research or DIW, told CNN. Last month, NATO members agreed to boost their respective defense spending targets to 5% of gross domestic product by 2035 – more than double the current 2% target and the sort of major increase that US President Donald Trump has been demanding for many years. The pledge came as Europe's NATO members have to contend with an aggressive Russia and an America that has backed away from its long-standing role as the guarantor of the region's security. Governments have three options to meet the new spending target – cut other expenses, raise taxes or borrow more – but analysts told CNN that each is either politically unpalatable or unviable in the long term for heavily indebted European NATO countries. 'Many (European Union) countries face hard fiscal constraints,' analysts at Bruegel, a Brussels-based think tank, wrote earlier this month. 'It is unrealistic to expect countries that have struggled for decades to reach a 2% defense spending target to embrace credibly an ill-justified, much higher target.' Many NATO countries have failed to meet the previous, 2% target, set in 2014. Most have increased spending in recent years in response to Russia's full-scale invasion of Ukraine in 2022 – so much so that the European Union's executive arm expects its 23 member states belonging to NATO to meet that target this year, based on their combined GDP. But they now need to go further. The new, 5% target includes a commitment by NATO member states to spend the equivalent of 3.5% of their annual GDP on so-called 'core' defense requirements, such as weapons, with the remaining 1.5% allocated to areas supporting defense like port infrastructure. For some nations, that will mean finding tens of billions of extra dollars a year. Frank Gill, a senior sovereign credit ratings analyst for Europe, the Middle East and Africa at S&P Global Ratings, thinks that meeting the 3.5% target alone will require European countries, including the United Kingdom, to borrow huge sums of money. Some nations may also cut or reallocate government spending to reduce the amount they need to borrow, he said, but that could prove difficult. 'A lot of (European governments) are facing other fiscal pressures… not least aging populations, which are essentially leading to even higher pension spending,' Gill told CNN. 'Politically, (that) is very challenging to cut.' Fratzscher at DIW in Germany agrees. For most NATO countries, he argued, cutting spending is 'utterly impossible.' 'Europe is aging quickly,' he said. 'It's completely illusionary to believe that… governments in Europe could save on public pensions, on healthcare, on care more generally.' The only sustainable way to finance the 'kind of magnitude of extra (defense) spending' now pledged by NATO is to hike taxes, he argued. Yet there exists neither the political will nor the public support to spend 'in such a dramatic way in this direction… and actually accept the consequences.' Simply borrowing more is a similarly tricky option in Europe where a number of governments are already saddled with debts close to, or larger than, the size of their country's entire economy. All else remaining equal, meeting just the 3.5% 'core' defense spending target could add roughly $2 trillion to the collective government debt of NATO's European members, including the UK, by 2035, according to a recent analysis by S&P Global Ratings. That compares with combined GDP of $23.1 trillion for the EU – a proxy for European NATO members – and Britain, based on World Bank data for 2024. The extra debt would be particularly hard to swallow for countries such as Italy, France and Belgium. These NATO members had some of the highest public debt-to-GDP ratios at the end of 2024, at 135%, 113% and 105% respectively, according to the EU's statistics office. Those are already heavy burdens. On Tuesday, French Prime Minister François Bayrou said the EU's second-largest economy risks a 'crushing by debt.' He warned that, should nothing change, just the interest France pays on its debt will swell to €100 billion ($117 billion) in 2029, becoming the government's largest single expense. He still supports splashing the cash on defense, while reining in other government spending. The EU is trying to make it easier for member states to invest in their security. Brussels has exempted defense expenditure from its strict rules on government spending and pledged to create a €150 billion fund from which countries can borrow, at favorable interest rates, to invest in their defense. However, there is another option for EU NATO members, according to Guntram Wolff, a senior fellow at Bruegel. 'Just not doing it. Not spending more,' he told CNN. Already, Spain has said it will not meet the 5% target, arguing that doing so would compromise its spending on welfare. Last year, the southern European nation spent only 1.28% of its GDP on defense, based on NATO estimates. Wolff said the 'best predictor for the increase in defense spending is (a country's) distance to Moscow – much more than any pledges at the NATO summit.'
CNN
21-07-2025
- Business
- CNN
Analysis: NATO has promised a spending blitz. Can its European members afford it?
The North Atlantic Treaty Organization, the defense alliance of 32 countries, is on a spending spree, with plans to funnel billions into their militaries and security systems over the coming decade. But it's a splurge that some European members of NATO, grappling with huge and ballooning debt burdens, can ill-afford. 'It's something unprecedented in peacetime to have such a massive increase in spending on any item – in particular, on defense,' Marcel Fratzscher, president of the German Institute for Economic Research or DIW, told CNN. Last month, NATO members agreed to boost their respective defense spending targets to 5% of gross domestic product by 2035 – more than double the current 2% target and the sort of major increase that US President Donald Trump has been demanding for many years. The pledge came as Europe's NATO members have to contend with an aggressive Russia and an America that has backed away from its long-standing role as the guarantor of the region's security. Governments have three options to meet the new spending target – cut other expenses, raise taxes or borrow more – but analysts told CNN that each is either politically unpalatable or unviable in the long term for heavily indebted European NATO countries. 'Many (European Union) countries face hard fiscal constraints,' analysts at Bruegel, a Brussels-based think tank, wrote earlier this month. 'It is unrealistic to expect countries that have struggled for decades to reach a 2% defense spending target to embrace credibly an ill-justified, much higher target.' Many NATO countries have failed to meet the previous, 2% target, set in 2014. Most have increased spending in recent years in response to Russia's full-scale invasion of Ukraine in 2022 – so much so that the European Union's executive arm expects its 23 member states belonging to NATO to meet that target this year, based on their combined GDP. But they now need to go further. The new, 5% target includes a commitment by NATO member states to spend the equivalent of 3.5% of their annual GDP on so-called 'core' defense requirements, such as weapons, with the remaining 1.5% allocated to areas supporting defense like port infrastructure. For some nations, that will mean finding tens of billions of extra dollars a year. Frank Gill, a senior sovereign credit ratings analyst for Europe, the Middle East and Africa at S&P Global Ratings, thinks that meeting the 3.5% target alone will require European countries, including the United Kingdom, to borrow huge sums of money. Some nations may also cut or reallocate government spending to reduce the amount they need to borrow, he said, but that could prove difficult. 'A lot of (European governments) are facing other fiscal pressures… not least aging populations, which are essentially leading to even higher pension spending,' Gill told CNN. 'Politically, (that) is very challenging to cut.' Fratzscher at DIW in Germany agrees. For most NATO countries, he argued, cutting spending is 'utterly impossible.' 'Europe is aging quickly,' he said. 'It's completely illusionary to believe that… governments in Europe could save on public pensions, on healthcare, on care more generally.' The only sustainable way to finance the 'kind of magnitude of extra (defense) spending' now pledged by NATO is to hike taxes, he argued. Yet there exists neither the political will nor the public support to spend 'in such a dramatic way in this direction… and actually accept the consequences.' Simply borrowing more is a similarly tricky option in Europe where a number of governments are already saddled with debts close to, or larger than, the size of their country's entire economy. All else remaining equal, meeting just the 3.5% 'core' defense spending target could add roughly $2 trillion to the collective government debt of NATO's European members, including the UK, by 2035, according to a recent analysis by S&P Global Ratings. That compares with combined GDP of $23.1 trillion for the EU – a proxy for European NATO members – and Britain, based on World Bank data for 2024. The extra debt would be particularly hard to swallow for countries such as Italy, France and Belgium. These NATO members had some of the highest public debt-to-GDP ratios at the end of 2024, at 135%, 113% and 105% respectively, according to the EU's statistics office. Those are already heavy burdens. On Tuesday, French Prime Minister François Bayrou said the EU's second-largest economy risks a 'crushing by debt.' He warned that, should nothing change, just the interest France pays on its debt will swell to €100 billion ($117 billion) in 2029, becoming the government's largest single expense. He still supports splashing the cash on defense, while reining in other government spending. The EU is trying to make it easier for member states to invest in their security. Brussels has exempted defense expenditure from its strict rules on government spending and pledged to create a €150 billion fund from which countries can borrow, at favorable interest rates, to invest in their defense. However, there is another option for EU NATO members, according to Guntram Wolff, a senior fellow at Bruegel. 'Just not doing it. Not spending more,' he told CNN. Already, Spain has said it will not meet the 5% target, arguing that doing so would compromise its spending on welfare. Last year, the southern European nation spent only 1.28% of its GDP on defense, based on NATO estimates. Wolff said the 'best predictor for the increase in defense spending is (a country's) distance to Moscow – much more than any pledges at the NATO summit.'
Zawya
14-03-2025
- Business
- Zawya
Germany's fiscal expansion would boost GDP from 2026, DIW says
Germany's planned 500-billion-euro infrastructure fund could raise economic output by an average of more than two percentage points per year over the next 10 years, Germany's DIW economic institute said on Friday. German chancellor-in-waiting Friedrich Merz was set to make a last-ditch attempt on Friday to convince the Greens of his plans for a massive increase in state borrowing to bolster defence and infrastructure. DIW, one of Germany's main economic forecasters, cut its forecasts for Europe's largest economy on Friday for this year and next due to political uncertainty and global trade tensions. Next year, gross domestic product will likely increase by 1.1%, down from the DIW's December forecast of 1.2%, the institute said. This forecast does not take into account defence and infrastructure expenditures. If a defence and infrastructure spending ramp-up is included, growth of 2.1% is expected in 2026, DIW said. The institute expects the economy to stagnate this year, revising its previous forecast for 0.2% growth. This is because the fiscal expansion would not have any impact in the current year. One reason for the downward revision is private consumption, which is developing more weakly than expected in Germany despite rising real wages, DIW said. Many people in Germany are holding back on major purchases due to the tense global political situation and job security concerns, it added. The IfW institute revised up its 2026 estimate for Germany, predicting 1.5% growth off the back of the expected boom in public spending. Like the DIW, it also expects a stagnation this year. In 2024, Germany became the only G7 country to post a contraction for two consecutive years. Strengthening public investment and reducing economic uncertainty should be a top priority for the new German government, said DIW president Marcel Fratzscher on Friday in the presentation of the new forecasts. "Although special funds are not the ideal solution, they could offer a pragmatic approach to compensate for Germany's investment weakness and pull the German economy out of the crisis," Fratzscher said. Merz has justified the need to push the constitutional amendments through the outgoing parliament with the recent shift in policy in the United States under President Donald Trump, warning that a hostile Russia and an unreliable U.S. could leave the continent exposed. "The loss of the U.S. as a reliable political partner poses major challenges for the future German government and exacerbates the already difficult situation, especially for export-oriented companies," said Dany-Knedlik.
