The European Union is close to agreeing provisions in revamped fiscal rules to enable extra military spending in the wake of Russia's invasion of Ukraine, officials close to the talks said.
EU fiscal rules underpin the euro currency used in 20 nations by limiting government borrowing. They set a ceiling on budget deficits at 3% of GDP and on public debt at 60% of GDP. The bloc's executive European Commission is supposed to start disciplinary steps against countries that exceed these limits.
"This did not fly, but there is agreement that while defence spending would still be part of the deficit calculations, the Commission would categorise such outlays as 'relevant factors' that allow it not to start any disciplinary steps even if the 3% limit is exceeded," one EU diplomat close to the talks said.
By stipulating that military spending would only be a "relevant factor" that could help avoid disciplinary action, the new rules would leave it to the Commission's judgement what spending would be eligible. The proposal has won backing among the committee of finance officials from EU capitals looking at how to reform the budget rules. The rules have been suspended since 2020 to allow higher public borrowing during the pandemic and the energy crisis but are to be reinstated from 2024.
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