The Pressure Is on

How Geopolitical Tensions Impact Institutional Fiscal and External Stability Responses

Bibliographic Data

ID21393021
AuthorsAntónio Afonso (0000-0002-6926-2653, Instituto Superior de Economia e Gestão (ISEG) Universidade de Lisboa Lisboa Portugal, corresponding author), José Alves (0000-0002-9979-7544, Instituto Superior de Economia e Gestão (ISEG) Universidade de Lisboa Lisboa Portugal), João T Jalles (0000-0002-7171-5076, Instituto Superior de Economia e Gestão (ISEG) Universidade de Lisboa Lisboa Portugal), Sofia Monteiro (0000-0002-5644-6111, Instituto Superior de Economia e Gestão (ISEG) Universidade de Lisboa Lisboa Portugal)
Year2026
Volume73
Issue3
Publication date2026-07-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueScottish Journal of Political Economy (JOURNAL)
Journal identifiersISSN: 0036-9292 • E-ISSN: 1467-9485
PublisherWiley (PUBLISHER • GB)
DOI10.1111/sjpe.70059
OpenAlexW4395471350
LanguageEN
Citations received1
References cited45

We examine how geopolitical risks (GPR) affect fiscal (FS) and external sustainability (ES) across 27 European Union economies over 2001Q4–2022Q3. We apply a two‐step strategy: first, estimating time‐varying FS and ES coefficients using Schlicht's (2021) approach; second, analyzing their response to geopolitical risks through a panel framework with bootstrapped inference. Our results show that higher GPR systematically weakens both fiscal and external sustainability, with the effects on ES between three and six times larger than those on FS. Domestic risks exert stronger pressures than global ones, while spillovers from neighboring‐country GPR further amplify external imbalances, underscoring the interconnectedness of EU economies. The analysis also reveals structural shifts around major crises—including the global financial crisis, the European sovereign debt crisis, and the Russia‐Ukraine war—that mark turning points in sustainability dynamics. These findings highlight the importance of maintaining fiscal buffers, diversifying trade, and enhancing regional coordination to mitigate the destabilizing effects of geopolitical tensions

Economic system · Economics · Geopolitics · Political economy · Political science · Politics · Stability (learning theory) · Computer Science · Fiscal Policies and Political Economy · Global Financial Crisis and Policies · Law · Monetary Policy and Economic Impact