On Wednesday 3 June, European Commission will authorise the Member States that have activated the national escape clause of the Stability and Growth Pact in order to increase military spending to use a small part of this fiscal leeway to strengthen their energy resilience, notably through investments in the decarbonisation of their economy.
Technically, this proposal, which will be unveiled during the presentation of the country-specific recommendations on budgetary and economic policies as part of the fiscal process of the European Semester, will allow the countries concerned to make investments in the energy sector within the following budgetary limits: - this specific spending will be limited to a maximum threshold of 0.3% of national GDP per year; - cumulatively, it may not exceed 0.6% of national GDP over the period 2026-2028.
Spending eligible for this additional leeway will cover, for example, public aid for the purchase of electric vehicles, electric batteries and photovoltaic panels, as well as investments aimed at decarbonising the economy, increasing energy efficiency (networks, interconnections, etc.) and/or boosting the production of less polluting energy.
This therefore concerns energy expenditure that will not result in increased consumption of fossil fuels in the context of a hydrocarbons supply shock caused by the war in Middle East.
Eligible countries that have already reached the annual threshold of 1.5% of GDP for their military expenditure will still be able to make use of this additional fiscal flexibility, provided that their public finances remain sustainable. They could even, potentially, reduce their defence spending in order to take full advantage of this flexibility.
This targeted easing by the Commission should partly respond to the request from a few Member States, chiefly Italy. In May, Italian Prime Minister Giorgia Meloni officially asked the EU institution for increased fiscal flexibility to protect businesses and households affected by the inflationary shock caused by the war in the Middle East (see EUROPE 13869/15).
The Italian government will therefore have to activate the national escape clause of the Stability Pact for military expenditure in order to benefit from fiscal flexibility for energy spending. This sequence will complicate Italy’s exit from the excessive deficit procedure, while the Italian deficit stood at 3.1% of national GDP at the end of 2025.
At this stage, 17 Member States have activated the national escape clause of the Stability Pact: Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, Germany, Greece, Hungary, Latvia, Lithuania, Poland, Portugal, Slovakia and Slovenia. Spain will be added to this list, although its request still has to be formally approved by the Council of the EU.
On Wednesday, the Commission will also recommend that the EU Council open an excessive deficit procedure (EDP) against Bulgaria and close the one opened against Malta (see EUROPE 13878/23). (Original version in French by Mathieu Bion)