Following the example of the ‘European Fiscal Board’ (see EUROPE 13665/27), on Monday 7 July the Eurogroup estimated that in 2026 the fiscal stance at euro area level should be restrained if an increase in national spending in the defence sector is excluded.
“Excluding increased defence spending, fiscal restraint remains appropriate. We expect a broadly neutral fiscal stance in the euro area in 2026, which seems overall appropriate in the current economic environment”, say the twenty finance ministers in their statement.
This position does not take account of Germany’s medium-term plan, which will provide for a sharp increase in national military spending and which Berlin will present at the end of July.
Referring to the activation by eleven euro area countries (out of a total of fifteen Member States) of the national escape clause in the Stability and Growth Pact, the Eurogroup stressed the importance of implementing this clause “in a prudent manner”, so as to maintain sustainable public finances in the medium term. With this clause activated for four years at this stage, it is committed to working towards “a gradual reprioritisation of national budgets” to take account of the increase in military spending, while remaining “focused on addressing other structural and social challenges”.
As far as growth is concerned, the ministers expect moderate wealth creation in 2025, but this should accelerate in 2026, driven by rising household incomes despite ongoing international trade tensions. However, they admit that risks to the growth outlook remain tilted to the downside.
The Eurogroup will re-examine the euro area’s fiscal stance in December.
To see the ministerial statement: https://aeur.eu/f/hqu (Original version in French by Mathieu Bion)