Rising tariffs, lower growth, higher defence spending, deeper political fragmentation and rising dollar-denominated borrowing costs are set to weaken the European credit outlook unless Europe unites and makes bold reforms in response, says Scope Ratings.

The outlook for European sub-sovereigns in 2025 is broadly balanced. Supportive institutional frameworks and central government backing help offset widening disparities within the EU as weaker regions face growing fiscal pressures, says Scope Ratings.

The new government coalition provides an opportunity to address Belgium’s fiscal challenges, although the trade-offs between budgetary consolidation and the multi-party administration’s socio-economic agenda could slow the pace of reform.

Germany’s next government faces the urgent task of addressing the economy’s structural weaknesses while navigating increasingly protectionist and unpredictable US trade and defence policy. Building political consensus on reform remains a challenge.

Wednesday, February 26th 2025 - 11:00 AM (CET)

Austria’s fiscal-consolidation plan presented to the European Commission should lower the budget deficit to close to 3% of GDP in 2025, although execution risks remain. Sustainable longer-term fiscal consolidation depends on pension and welfare reform.

The Central and Eastern Europe (CEE) sovereign credit outlook is balanced, a rebound in growth broadly offsetting structural pressures amid fiscal and geopolitical challenges. Of 15 rated CEE sovereigns, three have Positive and 12 have Stable Outlooks.

Lithuania is set to outperform Estonia and Latvia fiscally and economically in the short to medium term, driven by structural, cyclical and policy-related factors reflected in latest rating actions on the three Baltic states.

The collapse of the French government will delay near-term fiscal consolidation and far-reaching reforms. France’s institutional safeguards should prevent a budget stalemate, but prolonged political gridlock could be credit negative.

Normalising global economic fundamentals partially offset rising fiscal pressures and geopolitical uncertainty in 2025, ensuring a balanced overall sovereign credit outlook, says Scope Ratings.