Germany's net annual interest payments are expected to increase to 2.1% of general government revenue by 2028, up 1.1 percentage points from 2020, according to a report by Scope Ratings to which Reuters had access on Tuesday.

This is a modest increase compared with the average of the four largest euro zone economies, with net interest payments for France, Germany, Italy and Spain projected to rise to approximately 5.4% of revenue by 2028, up from 3.8% in 2020, according to Scope Ratings.

"This places considerable pressure on euro area sovereign borrowers, particularly those with high debt levels and structural fiscal constraints, as they finance budget deficits and manage maturing debt," the report said.

Germany is in a strong position with ample fiscal flexibility to increase spending, while the situation is more challenging for Italy and France, according to Scope Ratings.

Interest payments as a share of revenue should remain below their recent historical peak of 6.5% on average in 2012, Scope Ratings said.

"An extended period of higher euro area interest rates is testing governments’ debt management as financing costs rise, adding urgency to the need for fiscal reforms to create space for higher social spending and green investment," the report added. (Reporting by Rene Wagner and Maria Martinez, Editing by Friederike Heine)