How to affect the Greek economy an increase in defense costs

The Greek economy seems to expect complex times, because Summit of the European Union (EU) ended with the first approval of the plan of the commission to increase defense expenses and activate the national reservation on the deficit after the Marathon 10-hour meeting.

Thus, regardless of how the details of the Ursula von der Layen plan are determined at the upcoming European meetings, after the initial “green light” given yesterday, the current data show that the European and Greek debt market faces challenges and significant changes in the near future.

The text of the summit’s decision is welcomed by the commission’s proposal on the coordinated activation of the national reservation on the deficit within the framework of the stability and growth package, as an immediate response, he calls on the commission to investigate additional measures that simultaneously ensure the stability of the debt.

The summit calls on the commission to propose additional sources of financing on the basis of the principles of objectivity, non-discrimination and equal handling with member states when using current distributions within the framework of the relevant financial programs of the EU in connection with the proposal of the commission about the new mechanism of 150 billion euros. The upcoming participation of the European Investment Bank in these plans is also encouraged and the importance of mobilizing private financing for the defense industry is emphasized, with a call to the commission to consider measures in this direction.

Nevertheless, against the background of the European “championship” in the field of weapons, on Thursday (03.03.2025), the yield of Greek 10-year bonds was 3.690%, while only 3.290%ranged only a week ago. If the yield of Greek government bonds has not taken off, then this is due to the fact that Germany itself recorded a record for 36 years to increase the profitability of riots as a result of ads suspension restrictions on debt.

What can mean the preliminary approval of the plan von der lyaine. Although much still remains unclear, for example, what specific conditions can allow the country to include in a reservation about the deficit, even if the activation formula for this reservation will include the case of Greece, the country will get the opportunity to increase expenses without “loading” the process of excessive deficiency. However, it is doubtful that there will be a way to avoid the general accounting of these expenses in public debt, which will affect the credit profile of the Greek economy.

An increase in the cost of borrowing for the economy, however, means less funds for investment and other types of expenses, no matter what it means for growth and prospects. These events occur during the period when Greece fights for obtaining a higher investment rating (first investment rating in the case of Moody's). In the evening, the “verdict” of the Canadian agency DBRS is expected, and a week later Moody's decision will follow.

In addition, in addition to the general economic uncertainty at the international level, one more factor should be taken into account: all previous increase in Greece credit rating were based, according to the statements of the rating agencies themselves, on the climate of political stability that reigned in the country. However, at present, this seems to have been lost in Greece, where only yesterday a discussion began in the parliament of a proposal about distrust.

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