MNI INTERVIEW: EU Escape Clause Defence Boost Lower Than Hoped

The take-up of the EU's proposed national escape clause from the bloc's fiscal rules to allow increased defence spending is likely to be "much less" than the EUR650 billion fiscal space initially estimated by the European Commission, fiscal expert Zsolt Darvas told MNI.

With the soft deadline for escape clause applications expirING at the end of Wednesday, only Germany, Poland, Latvia, Estonia and Greece have so far applied. France has ruled out applying and other big states may prove less interested than those on the EU's eastern frontline. 

"I am afraid it will be much less and it will come as a disappointment to many politicians and observers alike that many EU countries don't plan to increase significantly their defence spending, apart from Germany," Bruegel Senior Fellow Darvas said in an interview.  

"Certainly, what Germany will do will have an impact on the EU aggregate but for other countries they will stay well below what President Trump envisions - be that sometimes 3% [of GDP] or sometimes 5%." 

The Commission has already sought to manage expectations earlier, with spokesperson Balazs Ujvari telling reporters that the EUR650 billion estimate was “made on a particular set of assumptions which will have to be looked at again in light of how many member states have requested the activation.”

EAST-WEST DIVIDE

While the Baltic states and Poland see the threat from Russia as existential, Italy, Spain and Portugal in the EU's south and west do not view things in quite the same urgent way. The French Finance Ministry also reiterated to MNI its position that it would not be seeking an activation of the national escape clause for defence spending.  (See MNI INTERVIEW:Spain Unsure On Fiscal Escape Clause For Defence)

"France already has a strong army and is a nuclear power. It doesn't see the need to increase defence spending that much," Darvas noted. 

He also pointed out that Italian voters are not in favour of rearmament, making it unlikely that its leaders will be willing to invest political capital in boosting defence when they are also facing a need for major fiscal consolidation. 

Even those countries applying the clause may not take advantage of the full leeway allowed by the EC initiative which could be made available. Greece, for instance, has applied but has said it will only use 0.3% of GDP to boost its defence outlays by EUR600 million and that will only be applied in 2026.