MONDAY, 17/02/2025 - Scope Ratings GmbH

EU sovereigns face multiple risks to credit outlook from shifts in US policy

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.

“Decisive action will be needed to counter disruptive US de-globalisation policies,” says Alvise Lennkh-Yunus, head of sovereign and public sector ratings at Scope.

“US president Donald Trump’s renewed push for unilateralist policies spanning trade, finance, fiscal policy, energy and immigration has far-reaching implications for Europe and the creditworthiness of its member states,” Lennkh-Yunus says in new research.

Download the report.

Four principal risks stand out, according to Scope.

First, higher tariffs targeting sectors and/or countries – such as China, Mexico, Vietnam, Germany, Japan and Italy – with which the US has a large trade deficit could disrupt European exports and manufacturing supply chains.

Secondly, European sovereigns may be forced to increase military spending to reduce reliance on US military and security commitments amid the persistent threat from Russia.

On the domestic political front, US support for Europe’s far-right political parties may accelerate instability within Europe, complicating consensus-driven policymaking at the EU level.

“Finally, an appreciating dollar driven by tighter Federal Reserve policies and global risk aversion could exacerbate borrowing costs mostly for emerging markets such as Ukraine, Egypt and Türkiye but also CEE sovereigns such as Hungary,” says Lennkh-Yunus.