EU countries are in no hurry with the European Commission's proposal to increase defense spending - Euractiv
Kyiv • UNN
EU member states are in no hurry to use the European Commission's proposal to increase defense spending. Many fear the risks to debt sustainability and market reaction.
No EU member state has responded to the European Commission's proposal to waive its strict budget rules and increase defense spending - and the deadline is five days away, Euractiv reports, UNN writes.
Details
Activating the so-called "escape clause" at the national level will allow EU countries to increase defense spending by 1.5% of annual GDP over four years.
Brussels presented a plan that, according to it, could increase the bloc's military spending by €650 billion, as part of a broader €800 billion ReArm Europe package, which includes €150 billion in loans for joint procurement projects.
"But there is an apparent lack of enthusiasm for the scheme," the publication writes.
"To date, no member state has formally requested the activation of the escape clause at the national level," said a European Commission spokesman.
Even Portugal, which announced its intention to activate this clause on Wednesday, has not yet made an official request.
What's the delay?
The reluctance of member states is likely due to a number of factors, according to EU officials, diplomats and analysts.
First, there is the time factor. Many governments had already finalized their annual budget plans when European Commission President Ursula von der Leyen announced the scheme in March.
Secondly, many countries, especially the "frugal" ones, mainly northern ones such as the Netherlands, Ireland, Denmark and Luxembourg, have strong financial health. They simply do not need additional fiscal flexibility to increase military spending.
Meanwhile, member states with limited financial capacity, many of which are located in southern Europe, are more concerned about the reaction of the bond market than the position of the European Commission, the publication writes.
Eight EU countries, including France, Italy and Poland, are already subject to the so-called "excessive deficit procedure" for exceeding the bloc's 3% deficit. Rome has explicitly ruled out activating this clause.
Their reluctance to "activate the escape clause shows that this plan is not working properly," said Niels Redeker, Deputy Director of the Jacques Delors Centre.
"These countries face real risks to debt sustainability and legitimate concerns about market reaction - constraints that apply regardless of what the European Commission offers," he said.
Nevertheless, some analysts believe these concerns are exaggerated.
Even if member states used the plan to its full extent, it would still only add 6% to their debt-to-GDP ratio, said Zsolt Darvas, a senior fellow at the Bruegel think tank.
"From a public debt sustainability point of view, this is not a problem," Darvas said, amid investor concerns about countries' growth prospects, interest rates and "long-term fiscal trajectories."
Darvas added that it is likely that Germany, which is still in the process of forming a government, will eventually activate the clause to make its planned scheme for infrastructure and defense worth €1 trillion compatible with EU budget rules.
A European Commission spokesman said that EU capitals are "invited" to submit their formal applications by April 30. Requests after this date are still possible, although submitting applications by the end of the month is recommended to ensure a "coordinated approach".
Optimistic assessment
The lack of use of the scheme also suggests that the European Commission's forecast of €650 billion is likely "too optimistic", according to analysts and officials. But the European Commission disagrees.
"If member states increase their defense spending faster, the total amount could exceed €650 billion," the spokesman said. In addition, they can receive another €150 billion in loans under the ReArm Europe initiative.
Regardless of the amount that is eventually raised, many still fear that the European Commission's proposal risks undermining confidence in the fiscal rules, which were only updated last year.
The current European Commission scheme represents the "worst of both worlds", Redeker said.
Reactivating this clause every four years does not provide EU member states with "budget planning security", but also does not offer any "clear end date" when such spending should again comply with normal rules, the publication writes.
"The real risk is that by avoiding reforms, we are bending fiscal rules to the point of breaking them, - Redeker said. - And if everyone starts bending them, they won't last long."