Europe wants to spend more but its own policies are making it harder

Just as Europe prepares to pour money into defence, infrastructure, grids and the green transition, borrowing costs are rising across the bloc.

France will spend around six percent of government revenue servicing old debt, compared with three percent in 2019. German bund yields are now at their highest since 2011.

And borrowing costs are rising just as debt issuance is surging. Germany created a €500bn infrastructure fund last year and suspended its debt brake for defence; its 2026 federal budget alone needs nearly €180bn in borrowing. And bond issuance across Europe is running at a record pace.

And this is happening for reasons that go beyond governments simply borrowing more.

Europe needs to spend while external shocks are pushing up inflation and yields. Meanwhile, European institutions are withdrawing liquidity, while changes to pension systems could reduce demand for long-term bonds.