'ReArm Europe' plan would lower EU’s rating headroom: Fitch

ISTANBUL

The EU's "ReArm Europe" plan along with increased military expenditures would lead to lower rating headroom, international credit rating agency Fitch Ratings said on Thursday.

“The European Union’s (EU, AAA/Stable) proposed ‘ReArm Europe’ plan would lower the EU’s rating headroom, mainly because of additional debt at the EU level, but would not, in itself, lead to a rating downgrade,” the agency said in a statement.

"While greater national defense expenditure could affect the ratings of ‘AAA’ rated member states over the medium-term, ReArm Europe would also reconfirm the EU’s policy importance, which is a key rating factor," it added.

The "ReArm Europe" plan includes a €150 billion ($163 billion) of EU defense loans to member states and would be funded by an increase in EU borrowing, according to the statement.

"In addition, it proposes offering member states additional ways and incentives to use existing funds under cohesion policy programmes to increase defense expenditures (with no impact on the level of EU debt)," it noted.

Fitch also said that it expects the plan to be approved by the end of March.

Introducing the EU's new defense package and rearmament plan last week, European Commission President Ursula von der Leyen stated that €800 billion in defense spending could be mobilized with the plan in question.

Von der Leyen explained that if EU member states increase their defense spending by 1.5 % of their gross domestic product (GDP), a financial space of approximately €650 billion could be created over a four-year period, and an instrument could be created to provide countries with €150 billion in loans for defense investment.