European government debt levels are higher than before the pandemic, and plans to reduce this debt are slow to take effect. S&P Global Ratings expects that without increased market pressure on borrowers to lower their financing needs, debt ratios will keep rising through 2027 for countries such as Belgium, France, and Italy.

Others, particularly in Southern Europe, with the exception of Italy, are relying on stronger growth to narrow deficits and bring down debt. In the main, fiscal space is scarce, and nearly all G20 members will struggle to raise public spending to offset any future economic emergency.

Gross Borrowing By Sovereigns In Developed Europe Remains Elevated

Borrowing remains high but is stabilizing, as most European governments move to consolidate their budgetary positions. This also reflects the re-activation of European fiscal rules last year.

The 31 developed market sovereigns we rate in Europe are set to issue $1.85 trillion of gross long-term commercial debt during 2025.  This is just slightly below last year's gross borrowing of $1.87 trillion, and remains higher than pre-pandemic levels--equivalent to 1.6x gross commercial borrowing by developed European states in 2019. For governments in the eurozone (a sub-section of the total), gross borrowing is set to exceed €1 trillion this year for the fourth time since 2020, essentially flat to last year's all-time high.

We also project an increase in net commercial long term borrowing among the 20 member governments in the euro area to €353 billion, or about 15% below the 2020 record, but considerably higher than last year's levels. At the same time, as a percentage of GDP, borrowing is--gradually--on the way down. We forecast gross long-term issuance for all European developed sovereigns (euro area plus non-EU issuers including the U.K.) at 7.8% of GDP this year versus 8.2% of GDP in 2024, and 11.3% of GDP in the first year of the pandemic.

As always, borrowing trends between European sovereigns diverge widely.  Our rollover ratios measure a sovereign's refinancing requirements for the calendar year (equivalent to short-term debt at the end of 2024, plus redemptions of medium- and long-term commercial obligations for 2025). This figure is highest for Portugal, Italy, Belgium, France, and Spain, given elevated stocks of debt compared with peers (with general government debt of 136% of GDP in Italy; 111% of GDP in France; 102% of GDP in Belgium; 101% of GDP in Spain; and 95% of GDP in Portugal), as well as a one-off redemption spike in the case of Portugal.

In contrast, both Germany and the U.K. have under 7% of GDP in refinancing to do in 2025, or less than half the refinancing faced by Italy and Portugal. In the case of Germany, this is thanks to its low stock of debt of 62% of GDP. And in the U.K. this reflects the 12-year average maturity of total U.K. debt including bills.

Our estimates of gross borrowing exclude issuance executed for purposes of buybacks (which totaled €54.8 billion in 2024 in the case of France). However, they do include issuance executed for prepayments of debt. Last year, for example, Greece paid down just under €8 billion in floating rate bilateral loans under the Greek Loan Facility (GLF) extended in 2010, which explains nearly all the gross commercial borrowing executed by its Public Debt Management Agency (PDMA) last year. For 2025, the PDMA plans to prepay a further tranche of the GLF, given that its cost of market funding at maturities up to 10 years remains below the cost of servicing the GLF (with a floating rate of interest linked to three-month Euribor plus 50 basis points [bps]).

France's refinancing needs continue to increase. We estimate them at 12.3% of GDP in 2025 versus 11.0% of GDP in 2024. Very small sovereigns are at the other end of the spectrum. Liechtenstein, Andorra, Jersey, Guernsey, Switzerland, and Luxembourg all have less than 2% of GDP in refinancing requirements for 2025. Sweden, Switzerland, and Ireland stand out even more: they alone are scheduled to reduce total commercial debt this year in absolute terms on the back of budgetary surpluses, albeit intra-year decisions to increase public expenditure--for example on defense--could change that.

Net Long-term Issuance Over Twice Pre-Pandemic Levels

We project net long-term commercial borrowing for the European sovereigns covered in this report at 3.1% of GDP.  This is flat versus last year, as fiscal consolidation remains very gradual. While this is about half of the surge in net European sovereign borrowing that took place in the first year of the global pandemic, it remains over twice the 2017-2019 average, driven in particular by large net borrowing requirements for France, Italy (where cash financing requirements remain high), Belgium, and the U.K.

A key factor slowing down budgetary tightening remains the higher cost of debt since G8 central banks ended their asset-purchase programs in early 2022.  The rising cost of new issuance is only very gradually working its way into budgetary outcomes, given long-dated debt profiles. Nevertheless, an increasing number of large sovereign borrowers including Italy, France, and the U.K. are issuing new debt at rates that exceed nominal GDP growth—a key parameter that S&P Global monitors when assessing public finances. This raises questions about whether and how quickly Italy, France, and the U.K. can begin to stabilize their debt levels. In contrast, Germany, Greece, Portugal, and Spain continue to grow faster in nominal terms than their cost of new debt.

Floating rate debt is a rarity among large developed European sovereigns.  The exception is the U.K., where the cost of government debt has been far more volatile compared with European peers, in light of the indemnification by His Majesty's Treasury (HMT) of the Bank of England's (BOE) Asset Purchase Facility subsidiary, which passes through profits and losses on quantitative easing-related gilts holdings from the BOE to HMT. These fiscal transfers, which since 2024 have moved in the direction from HMT to the BOE (i.e. to cover losses), de facto convert one quarter of the U.K.'s debt stock into floating rate obligations funded at the BOE's bank rate. On top of this, the U.K. has the highest stock of inflation-indexed debt, nearly a quarter of total U.K. debt or well above levels of just over 10% in eurozone borrowers such as France. This of course also implies that when inflation is falling, the U.K.'s interest servicing costs immediately adjust lower.

Over the past 12 months, European government yields have diverged considerably, reflecting diverse credit fundamentals, as well as market expectations on future issuance.  In the eurozone, as a rule, spreads over German Bunds have tightened, on the back of market expectations of further monetary easing. The exception has been France, where the absence of a majority government has complicated efforts to credibly consolidate the large budgetary deficit estimated at about 6% of GDP for 2024.

U.K. yields have, on the other hand, continued to back up by 47 bps on a year-over-year basis on the 10-year gilt, reflecting a combination of government spending pressures and sticky inflation.

Despite rising stocks of debt for Europe's largest sovereign issuers, demand remains solid.  Predictions of a reduction in non-resident holdings of French, Italian, and U.K. bonds since the shift of central banks to quantitative tightening policies have not materialized. On the contrary, non-resident holdings across nearly all European bond markets have increased on average, offsetting central bank holding reductions (now that the European Central Bank is no longer reinvesting redemptions of eurozone sovereign bonds purchased under the pandemic emergency purchase program).

There is also significant domestic demand including from resident banks in nearly all European jurisdictions, as private sector savings rates have surged, and private sector credit demand is limited. For this reason, many governments (including Italy and Portugal) have stepped up issuance of debt sales direct to retail.

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Table 1a

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Appendix: Data Sources

Our estimates focus on debt issued by a central government in its own name and exclude local government and social security debt, as well as debt issued by other public bodies and government-guaranteed obligations. In terms of commercial debt instruments, our estimates for long-term borrowing include bonds that have maturities of more than one year, either issued on publicly listed markets or sold as private placements, as well as commercial bank loans.

In addition to commercial debt, some of the estimates we use in this report include official debt. We do not include government debt that central banks may issue for monetary policy purposes in some countries. All reported forecast figures are our own estimates and do not necessarily reflect the issuers' projections. Our estimates are informed by our expectations regarding central government deficits, our assessment of governments' potential extra budgetary funding needs, and our estimates of debt maturities in 2023. Estimates that we express in dollars are subject to exchange-rate variations.

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