MNI: EU Seeks To Avoid Stigma From Fiscal Opt Outs For Defence
MNI (BRUSSELS) - European Commission officials are working on ways to limit any market stigma directed at countries taking advantage of national escape clauses to the bloc’s fiscal rules in order to quickly boost defence spending, and will present proposals to European Union leaders at a March 6 Brussels summit, officials told MNI.
Limited budget space in many member states and optics around exempting them from fiscal rules only introduced a year ago make the stigma problem a real one as the Commission prepares its White Paper on Defence due on March 19.
"We have to thread this needle in such a way that the markets stay onboard and that we have their endorsement," one EU official said.
Another source said the Commission’s Directorate‑General for Economic and Financial Affairs hopes to make national fiscal exemptions look as much like a general exemption as possible.
An emphasis on the existential urgency of increased defence spending, together with clear definitions of how much of a spending increase and exactly what kinds of investment will be exempt are likely to be part of the solution, officials said. (See MNI INTERVIEW: EU Summit To Decide On Defence Boost Options)
"The EU is scrambling to come up with a National Escape Clause solution which is not going to lead to markets melting down and it is coming quite soon," another source said.
JOINT SOLUTIONS
Officials agreed that joint EU-level borrowing solutions, such as a defence-focused version of the NextGenerationEU programme initiated after Covid, a UK-Norway sponsored idea of a "European Rearmament Bank", or defence bonds are not off the table but would take more time to politically mature. (See MNI: EU Paper Flags Savings From Rolling Over NGEU Debt)
"We are not at a point of favouring or pushing a joint funding solution. But that is not a closed position," one EU source said.
A senior European official did not rule out that more collective or joint EU funding approaches could crystalise before year end if the current sense of urgency is maintained.
EU ambassadors are already due to start drafting the summit communique. In a pre-meeting agenda, they underscored that the meeting will be one for decisions, not just talk.
"There is a will to reach some decisions already on March 6 as Member States understand the urgency. The EU needs to show in concrete terms that it can take responsibility for itself,” an official said.