10 March 2022

POLITICO: Big countries play down calls to waive defense from EU deficit rules

The push comes ahead of this week’s informal gathering of EU leaders in Versailles, France. A push from Central and Eastern Europe to exempt defense spending from EU rules on budget deficits ran into resistance from other capitals on Monday, but has not yet been ruled out.

The calls come in response to Moscow's invasion of Ukraine, where casualties are growing among civilians trying to flee Russian shelling.

Representatives from Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovenia outlined their views over the past week during meetings behind closed doors in Brussels, four treasury officials confirmed. Italy and Greece, the EU’s most indebted countries, have joined the chorus.

A waiver would allow governments to ramp up public spending on defense without counting it as deficit spending. Paris, Berlin and The Hague are less enthusiastic, however, ahead of reform negotiations due later this year.

“It's important to be very mindful on the significant risks when you seek exemption under the deficit rules for certain types of investments, given the need for transparency and the impact it has in the end on debt and debt sustainability,” Dutch Finance Minister Sigrid Kaag, told POLITICO in an interview Sunday when asked about the prospect of introducing waivers into the deficit rules.

“Ultimately, we do need to work towards debt reduction, we need to be transparent, we need to be able to establish effective oversight,” added Kaag, who’s also the Dutch deputy prime minister and leader of social liberal party D66.

A senior French official said it would be “difficult” to implement such a waiver on defense spending, while decision-makers in Berlin remain opposed to talk of exemptions. A spokesperson for German Finance Minister Christian Lindner said that the minister “does not want to comment” on calls for exempting defense spending from the EU’s budget rules.

The nine-country push for a waiver comes ahead of this week’s informal gathering of EU leaders in Versailles, France, where they’re due to speak about reducing the bloc’s energy dependency on Russia, boosting its defenses and strengthening its economic fundamentals.

Part of that debate will likely touch on looming reforms to the bloc’s rules for public spending, known as the Stability and Growth Pact (SGP). ..

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