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The EU plans to temporarily ease its fiscal rules to allow countries to spend more on defence, as the bloc has come under pressure from the US to invest more in its own security.
“I can announce that I will propose to activate the escape clause for defence investments,” European Commission president Ursula von der Leyen said at the Munich Security Conference on Friday.
“This will allow member states to substantially increase their defence expenditure. Of course, we will do this in a controlled and conditional way,” she added.
EU fiscal rules are meant to ensure countries maintain debt-to-GDP ratios below 60 per cent and that they do not go above 3 per cent annual deficits. For countries in breach of these thresholds, they mandate spending ceilings that countries have to adhere to or risk facing fines.
But the rules can be temporarily lifted across the EU in case of “major shocks to the euro area or EU as a whole . . . to deal with a severe economic downturn”, something known as the “general escape clause”. This provision was used only once at the onset of the Covid-19 pandemic when the fiscal rules were suspended for three years, allowing countries to spend their way out of the crisis.
Alternatively, the rules can also be lifted in case of “exceptional circumstances outside the control of the government with a major impact on public finances”. This national exemption was introduced in 2023 and has never been used.
Von der Leyen was referring to the national clause, according to two people familiar with the matter. The commission would lay out which kind of defence expenditures could be exempted, one person said.
“It will be controlled and its use conditioned on designated defence expenditure,” the other person said.
Such a step is likely to trigger a backlash from capitals wary of Brussels inserting itself in national sovereign matters such as military spending.
Since returning to the White House last month, US President Donald Trump has pressured European allies to increase their defence spending beyond a Nato target of 2 per cent of GDP, floating 5 per cent as a new target — which at present only Poland is close to reaching.
US vice-president JD Vance, who addressed the Munich conference just after von der Leyen, said: “You all came here prepared to talk about how exactly you intend to increase defence spending over the next few years in line with some new target.”
“As President Trump has made abundantly clear, he believes that our European friends must play a bigger role in the future of this continent,” said Vance. “We think it’s an important part of being in a shared alliance together — that the Europeans step up.”
The commission will detail the new approach to fiscal rules and defence spending next month, two people with knowledge of the discussions said. Eight countries, including France, Poland and Italy, are under the so-called excessive deficit procedure for breaching the rules.
French President Emmanuel Macron has described them as “obsolete” in an interview with the Financial Times.
Italian finance minister Giancarlo Giorgetti said von der Leyen’s announcement was “a victory for Italy”, which is one of Nato’s biggest defence spending laggards and had been appealing for such leniency for almost two years.
“Italy was very isolated at the beginning of the debate,” Giorgetti told the FT on Friday. “I am happy that our common-sense positions have been accepted and become common positions.”
Additional reporting by Amy Kazmin in Rome
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