EU Official: US Policies Bring Unprecedented Uncertainty

On the 14th local time, Valdis Dombrovskis, the European Commissioner for Economy and Financial Services, warned at the annual meeting of the EU Economic and Financial Affairs Council that the Russia-Ukraine conflict and sharp shifts in US policy direction are creating "fundamental, unprecedented uncertainty" for the EU's geopolitical and security environment.

Dombrovskis pointed out that the trade and strategic relationship between the European Union and the United States is undergoing "unpredictable and profound changes," which is exposing Europe to more complex external pressures regarding its security, defense, and economic arrangements.

In terms of security, the EU urgently needs to rebuild its defense capabilities and boost the capacity of its defense industry, but this implies significant investment pressure. In response to the new situation, the EU allowed member states in March of this year to activate the national escape clause of the Stability and Growth Pact, enabling additional defense expenditure equivalent to 1.5% of GDP over the next four years. Currently, 16 member states have applied to use this provision.

However, this flexibility is limited. Dombrovskis stated that, in the short term, defense investments will increase deficits and debt. By 2028, the EU's overall debt-to-GDP ratio is projected to rise by nearly 3 percentage points as a result. By then, member states will still need to make additional adjustments in the next round of fiscal plans to return to a medium-term sustainable path.

He emphasized that while the EU's fiscal framework can provide some buffer, the sustainability of EU finances is under increasing pressure from US policy uncertainty, intensifying geopolitical shocks, and high defense and security expenditures. Member states must prepare as early as possible for stricter budget adjustments in the future.