On Monday 31 March, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) held an initial exchange of views on the European Commission’s proposals to use the flexibility of the Stability and Growth Pact and to set up the ‘SAFE’ European instrument for granting loans to Member States to help them increase military spending (see EUROPE 13603/8).
On the whole, MEPs welcomed these two options. Aurore Lalucq (S&D, French) and Roberts Zīle (ECR, Estonian) wondered whether the granting of loans would be sufficient in the face of the scale of the rearmament effort necessitated by geopolitical tensions at the EU’s borders. They did not rule out the possibility of the EU initiating common borrowing to provide non-repayable aid to Member States.
A number of MEPs raised the question of the long-term sustainability of national public finances, given that the Commission’s two options will increase Member States’ debt.
“There will have to be quid pro quos”, said Markus Ferber (EPP, German). Enikő Győri (PfE, Hungarian) asked whether the EU was opening “Pandora’s box” which could result in public debt spiralling out of control.
The European Commissioner for Economy and Productivity, Valdis Dombrovskis, took the view that the Russian military threat to international security justifies the activation, by those Member States that so wish, of the Pact’s national escape clause. He reiterated the Commission’s intention to regulate this clause at European level by means of three principles: - only defence expenditure (falling under Eurostat’s COFOG classification - EUROPE 13597/12) will be authorised; - additional annual military spending will be capped at 1.5% of national GDP; - the activation period for the clause will be limited to four years from 2025.
If a Member State respects these criteria, its medium-term public spending trajectory will be deemed to comply with the rules of the Pact, regardless of whether it has a public deficit of less than 3% of GDP or is subject to a public deficit procedure.
Mr Dombrovskis nevertheless made it clear that at the end of this four-year period, if the Pact’s national escape clause is not extended, Member States will have to “consider how their entire budget composition will look” in order to incorporate the new reality of much higher military spending than in the past. “Some adjustments will eventually have to be made, either on the expenditure side or the revenue side”, he said, stressing the importance of taking account of fiscal sustainability in an environment marked by higher interest rates than at the time of the Covid-19 pandemic.
However, none of the MEPs advocated cutting social spending in favour of increasing military spending.
René Repasi (S&D, German) noted that the Pact is silent on the possibility of limiting the national escape clause to a specific category of expenditure (see EUROPE 13580/6). In response, the Commissioner pointed to an opinion from the Commission’s Legal Service, which allows him to focus the flexibility of the Pact on military spending.
Like his compatriot Mr Repasi, Rasmus Andresen (Greens/EFA, German) asked Mr Dombrovskis about the advisability of reforming the Stability Pact to exclude military spending from the calculation of the public deficit. Taking the example of the legislative review that culminated in 2024, he did not look favourably on this option, which would involve “lengthy discussions” at a time when quick decisions are required.
Finally, in response to Georgios Aftias (EPP, Greek), who criticised the fact that Turkey could benefit from European financial aid through the ‘SAFE’ instrument for joint procurement with EU countries, Mr Dombrovskis acknowledged that Greece’s specific situation had to be taken into account. For a country applying for EU membership to take part in joint procurement, it will need to have concluded a security and defence partnership with the EU, he also pointed out. (Original version in French by Mathieu Bion)