European Sovereigns on Diverging Paths as Public Debt Climbs Into 2026

Europe’s already elevated public debt levels are expected to climb higher in 2026, with gross funding needs driven by persistent deficits and a heavy redemption schedule. Structural spending pressures are mounting: ageing populations weigh on pensions and health care, climate commitments require sustained outlays, and defence has emerged as a further burden. At the same time, a broad investment agenda—highlighted by the Draghi report—demands capital that has yet to translate into stronger growth, while revenues continue to disappoint amid weak nominal expansion. Market conditions are also less forgiving: supply is abundant, central banks have shifted from net buyers to net sellers, and term premia are more persistent than during the 2010s. Within Europe’s largest sovereigns, France, the UK, Germany, Spain, and Italy appear under pressure, whereas Portugal, Ireland, and Greece stand out as relative outperformers on debt dynamics and buffers, reversing the narrative of a decade ago. …