With the worst omen begins the new week for the European Union (EU), along with Greece, as last week, US President Donald Trump threatened with duties 50% at the expense of the EU, while German Chancellor Friedrich Mertz publicly accepted the 5% target for NATO defense costs.
The negative footprint of the Trump threat For US duties 50% on EU imports (Although there is hope for suspension and a ‘good trade agreement’ after Yesterday’s phone call von der Layen – Trump) It became clear last Friday (23.5.2025), dropping the prices of European, together with Greek, shares.
As for the 5% target for NATO countries – as a percentage of their GDP by 2032 (compared to 2% today), which Merz described during his visit to Lithuania as “reasonable” on Thursday (22.5.2025), Greek Prime Minister Kyriakos Mitsotakis, speaking to CNBC, said that “honestly, it is very, very difficult”.
“Very difficult” for Greece The 5% goal for defense spending
And despite the fact that Greece has officially announced EUR 28 billion equipment for 2025 – 20237. Considering Mitsotakis, “very difficult” target (compared to 5%) can assume – as analysts at newsit.gr – that::
- The new Greek equipment of 28 billion euros on a horizon of 2025 – 2037 is not enough to get Greece’s 5% target by 2032. Consequently, either the equipment costs should be increased by 2037, or, if anything, to run forward by 2037. Most, if not all, the funds to fall by 2032.
- Larger and time denser expenditure for defense would increase pressure on the budget of the same period for higher tax revenue, fewer expenses and possibly greater (and more expensive) public loan. Yes, the Commission has given the green light to activate the escape clause in relation to the expenditure limit for defense in 2025 – 2028 as long as the relevant expenditure leads to an increase of up to 1.5% of GDP, but the higher the divergence from the spending limit (although within the framework of the Command). and therefore of public debt. And at the same time that the primary objective of the financial staff is faster possible (premature) debt repayment. If it is accepted by the NATO meeting in late June 2025, such an increase in the defense spending threshold (from 2% to 5%). This means that a possible greater than the planned increase in future public lending would undermine the entire early debt repayment company, as well as the famous “fiscal space” from the expansion of which the government aspires to increase permanent relief measures.
The US and NATO pressure on higher defense spending -beyond the uncertainty that by their nature the costs are sowing to the economy (as they relate to Greece and the EU involvement in war!) Comes at the same time that the United States has threatened with 50% duties in the EU.
Possible duties of 50% instead of 10% in force from April 2, 2025 on European exports in the US, would lead to a dramatic reduction in sales of European companies on the US market with giant consequences on the European economy.
50% duties will carry a recession
In a post, the Institute of German Economy (IW) on Friday on the subject characteristically stated that:
‘If the 50% duties on EU products were applied by the end of the Trump government, that would cost the German economy of about 200 billion euros by the end of 2028. German GDP would be about 0.1% lower this year and the damage would be significantly higher after that. On average between 2025 and 2028, economic production would be 1.1% lower than in a scenario without duties. If the EU reacts with corresponding retaliation duties, there is a risk of losses of up to 250 billion euros by 2028. “
Since the German economy is the “locomotive” of the European (but also the other European economies will be affected by US duties), it would not be risky to predict that one would see all over the eurozone.
Executives of the Greek Financial Staff and analysts have reported that The impact of Trump duties in the EU will be “mainly indirect” because of Greece’s large export exposure to the EU.
Economic experts point out that for every 1% of European GDP, Greek loses 0.3% – 0.5%. Thus, if German analysts’ provisions for significant and long -term recession in Germany are verified, then the Greek economy (which runs higher than the average European term) would hardly avoid entry into zero or negative growth.
In this case, the “budgetary space” claimed by Greece -not only from the defense of the escape, but also by the measures of struggling tax evasion and reduction of debt and the Tax Office -would be further reduced, reducing the Greek government’s margins.
And one more thing: the correlation of European – Greek growth rate is relatively small (1 to 0.5) due to resources channeled into the Greek economy by the European Recovery Fund.
Without the recovery fund the correlation is 1 to 1. That is For every 1% loss in European GDP, Greek GDP loses 1%! However, the recovery fund’s cannons closes at the end of 2026. Therefore, if the US -EU trade war continues after 2026 (and thus its impact on the EU economy), then the effects of the expected recession on the EU will be greater than this year.