EU: Exemption of defense spending from the debt is requested by Greece and 3 countries

Greece, Romania, Poland and Lithuania are asking the European Commission for “special treatment” in terms of debt rules for defense spending to help cover military investment required after Russia’s invasion of Ukraine.

According to a document cited by the Reuters news agency, EU finance ministers will begin discussions on Saturday on how fiscal rules should be changed to adapt them to the post-pandemic reality of high public debt and large investments needed to combat climate change.

Addressing national security risks

In a paper prepared for the meeting, the four countries argue that EU rules, originally designed to limit government borrowing to preserve the value of the euro, should also help address risks to sovereignty and territorial integrity of the EU.

“Caring for the common good, which is freedom and broadly understood security, requires an immediate change in the treatment of individual member states’ defense spending,” the four countries wrote in their joint report, revealed by Reuters.

Germany is opposed to singling out individual sectors that should receive special treatment in the rules, but the Commission has shown some understanding of such an approach.

“It is time to include defense spending in this picture,” French Internal Market Commissioner Thierry Breton said earlier this week, adding that discussion of changes to EU debt rules should be “no taboo”.

Huge deficit

“Since the creation of the eurozone, European countries have accumulated a deficit of 1.3 trillion euros in defense spending compared to the target of 2% of GDP (of spending required by NATO membership),” Breton said, referring indirectly except clearly to Germany, which has long fallen short of NATO’s requirement.

“If every country had met its defense investment targets, its debt levels would have increased by at least twelve percentage points of GDP,” he said.

The paper also stresses that in the short term, considering disciplinary measures against a country running a deficit above the 3% of EU GDP threshold, the Commission should consider the country’s defense spending as a mitigating factor.

In the long term, the EU should introduce a deficit exemption, like the one introduced in 2011 to implement the pension reforms, he says.