EU open to bending fiscal rules to boost defence spending
Flexing
Brussels is open to increasing the “flexibility” of the EU’s rules governing national debt and fiscal deficits to allow capitals to spend more on defence, in what would be a significant shift from the European Commission, following a summit of EU leaders to “brainstorm” ways to increase the continent’s security.
Context: The EU’s spending rules limit deficits to 3 per cent of GDP and debt to 60 per cent. The rules were recently reformed to give countries more wriggle room, but several member states have been asking the EU to exempt military spending from the thresholds altogether.
Making this a reality took centre stage at yesterday’s meeting, where trade with the US and UK-EU relations were also discussed.
António Costa, the EU Council president who chaired the meeting, said afterwards that EU leaders expected the commission to propose ways “to create more fiscal space . . . for more defence spending”.
“I am willing to explore and will use the full range of flexibility in the new stability and growth pact to allow for a significant increase in defence spending,” said commission president Ursula von der Leyen, referencing the new EU fiscal rules.
“It’s obvious that we need more resources to build up and strengthen our common defence. It’s a fact. At the national level but also at European level,” Finnish Prime Minister Petteri Orpo told the FT after the summit. “At the national level, the flexibility of fiscal rules is one tool, and I hope that we can use that, it’s [the] fastest way to boost spending to defence.”
Orpo also said that while his government had previously been against common funding, the “existential question” of Russian aggression meant that he was now “open to different kinds of solutions”.
German Chancellor Olaf Scholz endorsed the fiscal flexibility demands, but stopped short of endorsing common EU debt to finance them.
“We see a big fragmentation between many defence projects . . . this has to change,” Scholz said. During the summit he also proposed reforming the EU’s competition rules on defence, for countries to co-operate on the same tenders.
Scholz said that some countries faced greater hurdles than others in raising their military spending. “And that is why it is a very common view that there needs to be more flexibility . . . also for example through borrowing,” Scholz said.
But he specified that the EU “does not have the prospect of taking on joint debt. It is about creating more flexibility for the individual countries” — including for Germany, where he called for a reform of the strict debt brake.
But Scholz’s colleagues noticed a change in tone: “The approach of the German chancellor is today now much more positive [than in previous discussions],” said Polish Prime Minister Donald Tusk.
Prices in the Eurozone unexpectedly rose by 2.5 per cent in January, although the increase in inflation is not expected to alter policymakers’ plan to continue lowering interest rates.