Credit FAQ: Assessing Europe's Fiscal Trade-Offs Amid Rearmament Push
Russia’s invasion of Ukraine in 2022 ended Europe’s longstanding reliance on the post-Cold War peace dividend and brought security to the forefront of the continental policy agenda. The conflicts in Russia and Ukraine and more recently the Middle East have strained transatlantic relations and prompted European policymakers to prioritize strategic autonomy.
Consequently, efforts to bolster domestic defense capabilities are gaining momentum. Most nations have committed to reaching NATO’s new defense-spending target of 5% of GDP by 2035. But pressures to increase defense investment compete with other domestic priorities such as pensions, welfare, or migration, sometimes amid political instability and fiscal constraints.
How Pension Funds Can Deepen Capital Markets
- Pension funds play a key role in global capital markets because of their ability to look beyond prevailing market volatility, invest in a wide range of longer-term assets, and provide long-term, stable capital.
- In line with their increasing investments in international markets and alternative asset classes, their importance in global capital markets ecosystem has increased over the years.
- Well-developed funded pension systems can help deepen domestic capital markets, as seen in Chile, Brazil, South Africa, and Malaysia, among others.
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