The statements made by the new US authorities last week at NATO, and then at the Munich Security Conference, have sent out a shockwave: European Union Member States are picking up the pace on their discussions on how to make European budgetary rules more flexible in order to authorise massive investment in the defence sector, to enable Europeans to assume a greater share of their own security and to continue their military support for Ukraine.
At the Eurogroup meeting on Monday 17 February, several finance ministers from euro area countries welcomed the announcement by the President of the European Commission, Ursula von der Leyen, which had opened the way for the activation of a derogation clause in the Stability and Growth Pact (see EUROPE 13580/6).
Noting that certain partners have “insistently” urged Europe to strengthen its resilience, the Eurogroup President, Paschal Donohoe, said that the debate on the flexibility of the revised Stability Pact, which is also intended to stimulate investment, would begin “quickly”. Referring to a “heightened sense of urgency” among ministers, he said he was “confident” in the ability of Member States to find, within the framework of existing budgetary rules, “ways of increasing military spending, while continuing to advocate the pursuit of budgetary stability”.
The Belgian minister, Vincent Van Peteghem, said he was “very supportive” of the possibility of making more for defence investments within the budgetary rules. His Portuguese counterpart, Joaquim Miranda Sarmento, stated that his country, while maintaining its budgetary commitments, was ready “to follow” the work aimed at making existing budgetary instruments more flexible.
Portugal’s ambition is to reach the NATO military spending threshold of 2% of national GDP by 2029.
“We are evaluating all options”, said German Finance Minister Jörg Kukies, recalling that German Chancellor Olaf Scholz had already mentioned the possible need to make use of existing regulatory “exemptions”. However, he said he was “sceptical” about activating the general escape clause in the Stability Pact, which, as during the Covid-19 pandemic in 2020, would require “a severe economic downturn” at EU level. “Which we currently don’t see”, he noted, stressing the importance of long-term budgetary stability.
The remaining option, according to Germany, is for EU countries wishing to do so to activate the ‘national escape clauses’ provided for in the ‘preventive’ arm of the Pact.
On his arrival at the Eurogroup, the European Commissioner for the Economy and Productivity, Valdis Dombrovskis, did not wish to specify what type of clause derogating from the Pact the Commission was considering. We will be setting out the details “in the coming weeks”, he said, admitting that the budgetary stance is expected to return to expansionary at EU level. Later, he admitted that the national escape clause might seem “more suited to the current circumstances” characterised by the fact that the Trump administration’s commitment to the transatlantic partnership “cannot be taken for granted”.
Other options already under consideration. In addition to the flexibility of the Stability Pact, other euro area countries have mentioned the possibility of doing more to support defence investment. The Spanish minister, Carlos Cuerpo, mentioned the following other options: - increased mobilisation of the EIB (see EUROPE 13569/17); - “common funding” to finance “common public assets”, including defence, in his view; - the provision of public guarantees by the ‘European Stability Mechanism’ (ESM), the euro area’s permanent rescue fund.
Mr Van Peteghem mentioned the first two options brought up by his Spanish counterpart.
Last Friday, in a press release, Italy said that Mrs von der Leyen’s statements on the Stability Pact were “a first fundamental step in the right direction, which must be followed by the establishment of common financial instruments”.
The only dissenting voice at Monday’s Eurogroup meeting was that of the Dutch minister. Eelco Heinen felt that the Member States were facing “tough choices on budget”. In his view, it is necessary to think in terms of a constant budget, insofar as “what we spend on one element, we cannot spend it on the other”, because “money is not free”. And he said: “I don’t think more common borrowing is the way forward”. (Original version in French by Mathieu Bion)