Defense Spending: The Euro-Deal on the Escape Clause, Spending Limits, and Government Priorities

The government is anxiously awaiting the outcome of negotiations regarding the specific terms for the ‘escape clause’ that will apply to defense spending exemptions from the EU’s excessive deficit rules. On Tuesday, March 4, Ursula von der Leyen announced the key points of an €800 billion euro-package aimed at boosting EU defense. This package is divided into two main components: the creation of a new European defense fund and the possibility of exempting increased defense spending from the excessive deficit process rules. However, von der Leyen did not clarify whether this exemption would apply to all EU member states, including Greece, which spends over 2% of its GDP (the NATO benchmark), or only to those below this threshold. From Greece’s perspective, it is clear that no distinction should be made among EU members and that the clause should apply universally, especially given the tensions with Turkey. Additionally, Greece theoretically has room to further increase its defense spending by €3 billion annually under the agreed-upon Medium-Term Fiscal and Structural Program for 2025-2028 and the new Stability Pact. This program allows for annual increases of €1 billion for defense, pensions, and other purposes. Yet, the new Stability Pact prohibits using surplus budget revenues for anything other than debt repayment and reserve maintenance. Therefore, if Greece were excluded de facto from the escape clause, the only way to boost defense spending would involve reallocating more of the agreed-upon €3 billion, potentially affecting planned tax relief measures, a cornerstone of current government policy.