MNI: France, Other EU States, To Forego Defence Escape Clause
MNI (BRUSSELS) - France will not apply for a national escape clause to exempt any increase in defence spending from European Union fiscal constraints, a French official confirmed to MNI, as it becomes clear that applications for such exemptions from around the EU may fall well short of the potential maximum of EUR650 billion in additional fiscal space.
While France does not want to take advantage of the chance to exempt increases in defence spending of up to 1.5% of GDP from borrowing limits, it may consider taking some of the up to EUR150 billion in SAFE loans to be provided by the European Commission for military purposes, so long as the money is cheaper than other funding options, the official said.
“We will be pragmatic, depending on the specific circumstances,” the official said.
NATIONAL ESCAPE CLAUSES
Separately, MNI understands that applications for national escape clauses for defence could be limited to front-line states, like Poland and the Baltics, together with Germany, given agreement among political parties there on a reform of that nation’s debt brake. (See MNI INTERVIEW: German Chemicals Weigh Fiscal Boost Vs Energy)
High-debt states like Italy and Belgium, however, may decide not to take up the offer of an escape clause for fear of unpicking already politically fragile fiscal consolidation agreements as well as of unnerving financial markets. (See MNI ECB WATCH: Cuts 25BP, Direction No Longer Clear)
Meanwhile, closer inspection of measures unveiled by the Commission last week suggests that the figure of EUR800 billion in potential additional funding for defence may double count the EUR150 billion in Commission loans, and that these would be included within the EUR650 billion in fiscal space made available by escape clauses.
There is also reluctance among many member states to take up the loans, with appetite for them likely to be limited to those countries whose borrowing conditions are meaningfully more expensive than those of the Commission, MNI also understands.