The research showed many of the EU countries with the biggest shortfalls in NATO’s target for defense spending to hit 2 percent of gross domestic product — including Italy, Spain and Belgium — also have among the highest levels of debt and budget deficits in Europe.
The biggest shortfall by value was in Germany, which last year spent 14 billion euros less than needed to meet the benchmark, according to Ifo. But Berlin has halved this gap in the past decade, adjusted for inflation, and plans to close it completely this year.
The next largest European shortfalls were 11 billion euros in Spain, 10.8 billion euros in Italy and 4.6 billion euros in Belgium. The trio were among six EU countries with debt above 100 percent of their GDP last year. Italy also had one of the bloc’s highest budget deficits at 7.2 percent and its interest costs are set to rise above 9 percent of government revenues this year.
"Countries with high debt levels and high interest costs do not have much room to raise more debt, so the only real way to do it is to cut spending in other areas,” said Marcel Schlepper, an economist at Ifo. "This is not easy, as we saw when Germany tried to cut subsidies on agricultural diesel and the farmers came out in protest.”
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