In a report published on Monday 23 June, the European Fiscal Board (EFB) takes the view that, excluding an increase in national defence spending, a restrained fiscal stance for the euro area is appropriate in 2026.
“Budgetary flexibility in defence must not become a back door for broader fiscal loosening”, said the new chair of the European Committee, Pieter Hasekamp, convinced that “fiscal responsibility and collective security can go hand in hand”.
According to him, if all the countries in the euro area were to activate the general escape clause in the Stability and Growth Pact, which allows Member States to spend up to 1.5% of their national GDP on military equipment for four years without this expenditure being counted as part of the public deficit, the fiscal stimulus would reach 0.5% of the euro area’s GDP in 2026. Mr Hasekamp saw a risk to the sustainability of national public finances as a result of increased indebtedness.
At this stage, of the major euro area economies, only Germany has activated this clause (see EUROPE 13632/8).
In order to strengthen the credibility of their public finances, Member States, which will make use of the Pact’s national opt-out clause, should define “sound medium-term strategies to finance sustainably higher defence spending”, according to the EFB. This would involve the inclusion in multiannual budget programmes of “adjustments proportional to the level of expenditure and/or revenue in national budgets”, he added.
George Kopits, a member of the EFB,called on national governments to start this process as soon as possible, by planning “structural reforms” or increasing “taxation”. The budgetary consequences of pension reform take time to materialise, he said, admitting that it is difficult for a government to take unpopular decisions.
Asked whether it would be appropriate for Member States to raise common debt at European level, Mr Hasekamp felt that, “generally speaking, we could make a case for greater risk-sharing in the financing of [European] public goods”. This issue will be developed further in the European Board’s annual report, due in October.
The EFB is in line with the Commission’s spring economic forecasts, according to which economic growth will accelerate slightly in 2026 (see EUROPE 13643/7).
See the EFB report: https://aeur.eu/f/hif (Original version in French by Mathieu Bion)