The spillover of the cost of the $40 trillion US national debt onto the European economy is becoming an increasingly visible scenario for many analysts, at a time when geopolitical shifts, rising defense spending, and fiscal pressures are shaping a new and more demanding environment for international markets. America’s national debt has long ceased to be exclusively an American problem. Its rapid escalation, combined with higher government bond yields, is creating a new reality — and Europe finds itself among the biggest bearers of the cost.
At the start of Donald Trump’s first presidential term in 2016, the US national debt stood at just under $20 trillion. In roughly a decade, it has doubled. According to data from the Joint Economic Committee of the US Congress, the debt is growing at a rate of approximately $90,000 per second — nearly $7.8 billion per day.
The critical factor, however, is not just the size of the debt. It is the cost of financing it. “What is very different today compared to a decade ago is the level of interest rates,” notes Eric Swanson, Professor of Economics at the University of California and former senior economist at the Federal Reserve.
US debt: From Washington to Frankfurt
Long-term US bond yields are at multi-decade highs. Part of the rise is linked to inflation concerns. But another part relates directly to the scale of US government borrowing.
As investors demand higher returns to purchase US Treasury bonds, it becomes increasingly expensive for Washington to finance its deficits. And here another competition for available capital emerges: technology companies, borrowing massive sums to fund their artificial intelligence investments, are competing for the same market capital.
“When interest rates rise, financing the deficit becomes more expensive,” explains economist Mohamed El-Erian, professor at the Wharton School.
The cost of servicing US debt is already rising significantly. Interest payments are approximately 15% higher compared to the same period last year and now account for nearly 20% of US tax revenues — a share that exceeds defense spending, according to El-Erian.
The problem does not stop at America’s borders. In a global bond market, US Treasury bonds serve as the fundamental benchmark for pricing money. When their yields rise, the pressure is transmitted to other markets as well.
The problem for Europe
According to a Politico analysis, many EU governments will face mounting pressure to raise taxes or cut spending, even as they simultaneously attempt to increase defense budgets in response to geopolitical developments. Yields on 10-year German government bonds — the key benchmark for the European sovereign debt market — reached their highest level since 2011 earlier this week.
At the same time, the yield on the 30-year US Treasury bond hit its highest level in 19 years.
The link is critical: when investors can demand higher yields from US Treasury bonds, pressure also mounts on European governments to offer competitive returns in order to attract capital.
In simple terms, the rise in US borrowing costs can translate into more expensive money for Europe as well.
Europe’s fiscal headache
This development comes at an exceptionally difficult moment for Europe.
The total public debt of the Eurozone has risen from approximately 66% of GDP in 2007 to nearly 88% in recent years and, according to European Commission forecasts, the upward trend is expected to continue in the short term.
At the same time, European governments are being called upon to increase defense spending, address the fallout from geopolitical conflicts, and fund the investments required for the green and digital transition.
Governments may therefore find themselves facing a difficult dilemma: higher taxes, spending cuts, or larger deficits — and consequently, even more debt.
The problem is particularly acute in France, where high public debt and fiscal deficits have already triggered intense political controversy.
The cases of Greece and France, and the upcoming elections
The rise in French bond yields is handing new political ammunition to the far right. Marine Le Pen has already described the development as an “inexorable bill” for a decade of Emmanuel Macron’s governance.
The issue takes on even greater significance ahead of 2027, when a series of European countries are expected to enter an electoral cycle. These include France, Italy, and Spain, while elections are also anticipated in other countries, including Greece.
Fiscal policy, therefore, is no longer merely a matter of economic figures. It is becoming a central political battleground.
The situation in the US is not, however, a one-way road to a debt crisis. The American economy continues to grow, and that is decisive. Economic growth increases tax revenues and therefore makes debt servicing more manageable.
As long as growth remains strong, the problem may remain manageable. But if growth slows significantly, the picture changes. Washington would then need to consider difficult choices: tax reforms, restraint on government spending, fiscal austerity, or even more radical solutions for debt management.
So far, the US government has also attempted a form of “financial engineering.” The Treasury Department intervened by buying back government debt, with the aim of boosting demand for bonds and reducing borrowing costs.
The effect, however, proved temporary, as long-term yields moved higher once again. Despite the fiscal pressures, the baseline scenario does not anticipate a repeat of the European debt crisis of the previous decade.
The Eurozone’s fiscal deficit remains approximately half that of the United States, while the European Union and the European Central Bank now possess institutional tools that either did not exist or were insufficiently developed during the sovereign debt crisis of 2010.
