Brussels: The EU's "ReArm Europe" plan, alongside increased military expenditures, could reduce the EU's rating headroom, according to Fitch Ratings. The international credit rating agency announced on Thursday that while additional debt at the EU level would not directly lead to a rating downgrade, it would lower the EU's rating headroom.

According to Anadolu Agency, Fitch Ratings emphasized that although the "ReArm Europe" initiative might influence the ratings of 'AAA' rated member states in the medium term due to greater national defense expenditure, it would also highlight the EU's policy significance, a crucial rating factor. The plan proposes EU defense loans amounting to £150 billion ($163 billion) to member states, funded by increased EU borrowing.

The agency noted that the plan also suggests offering member states new methods and incentives to utilize existing cohesion policy program funds to boost defense spending, without impacting the EU's debt level. Fitch anticipates the plan's approval by the end of March.

European Commission President Ursula von der Leyen, who introduced the defense package last week, stated that the "ReArm Europe" plan could mobilize £800 billion in defense spending. She further detailed that if EU member states raise their defense spending by 1.5% of their GDP, it could create a financial capacity of approximately £650 billion over four years, enabling the creation of an instrument to provide £150 billion in loans for defense investment.