The Critical Moment for the Escape Clause: Implications for Defense Spending and Additional Benefits

The critical moment has arrived as tomorrow (03.05.2025), the Commission’s response to Athens’ official request to activate the national escape clause is expected. This aims to exempt increased expenditures from Greece’s fiscal targets, creating room for benefits. Potential approval of the activation of the escape clause for increasing defense spending will have consequences for the country’s broader economic policy, shaping a budgetary margin of approximately €600 million, which will be incorporated into the benefits package announced by the Prime Minister in September during the Economic Conference. The decision comes amid heightened geopolitical tensions, with Greece seeking to strengthen its defense without sacrificing developmental or social spending and avoiding financial pitfalls. This is because the escape clause allows member states to exclude defense expenses from the fiscal limits set by the Stability and Growth Pact. In Greece’s case, this means that the pre-planned increase in defense spending will not burden the official deficit calculation. Moreover, tomorrow’s Commission decision holds additional significance as Greece awaits Brussels’ verdict regarding the ‘base year’ for calculating the allowable annual increase, which must not exceed 1.5% of GDP. Initially, the Commission had set 2021 as the base year—when Greek defense spending surged to 2.7% of GDP due to heightened equipment needs and geopolitical pressures. If this year remained the reference point, the margin for additional spending in the coming years would be almost nonexistent, depriving the budget of critical flexibility during a period of intense geopolitical uncertainty. According to current forecasts, the country’s defense spending rose to 2.2% of GDP in 2024, with an estimated rise to 2.5% of GDP by 2026. In absolute terms, this corresponds to an annual increase of about €500 million for armament programs and defense enhancement. Specifically, Greece will secure a total fiscal space of €600 million, which can be spent on benefits, focusing on tax relief measures for the middle class, to be announced by the Prime Minister at the Economic Conference. These €600 million include €500 million in planned expenditures from the 2026 budget and an additional €100 million this year. The activation of the escape clause gains special significance in light of the new global economic reality, with geopolitical tensions affecting supply chains and public finances. Simultaneously, Greece seeks to maintain its fiscal stability while utilizing available resources for developmental and social policies.