EU Activates Fiscal Flexibility to Support Defence Spending in 15 Member States

The Council of the European Union has officially activated the national escape clause under the Stability and Growth Pact (SGP) for fifteen member states, granting them increased fiscal leeway to boost defence spending. The decision marks a significant institutional shift, acknowledging that national security requirements justify temporary deviations from standard budgetary paths. The clause, which allows for up to 1.5% of GDP in additional spending over four years, is applicable exclusively to defence-related expenditures. Countries benefitting from this flexibility include Belgium, Bulgaria, Croatia, Czechia, Denmark, Estonia, Finland, Greece, Hungary, Latvia, Lithuania, Poland, Portugal, Slovakia and Slovenia.

The Council’s decision comes in response to the evolving threat landscape and reflects a collective recognition that Europe's defence capabilities require urgent reinforcement. According to Danish Minister for Economic Affairs Stephanie Lose, “investment in our defence capabilities must remain our top priority.” The clause’s activation prevents the Commission from launching excessive deficit procedures against member states whose overspending stems solely from increased defence budgets. However, all other categories of public spending remain subject to the standard expenditure benchmarks and oversight mechanisms defined in the reformed economic governance framework.

The use of this flexibility is expected to have a strategic impact on the Union’s defence readiness. By allowing additional expenditure outside normal deficit limits, the clause aims to accelerate investment in critical capability areas, support procurement, and stimulate the development of the European defence industrial and technological base. The Council has stressed that these measures must contribute to reducing dependencies on non-European suppliers and to addressing the military shortfalls identified in joint capability assessments. Defence investments are expected to have both immediate and long-term effects, reinforcing deterrence and boosting the industrial resilience of the Union.

The Council’s decision builds upon the conclusions adopted during the European Council meeting of 6 March 2025, which reaffirmed the commitment of all member states to reinforce European defence. Russia’s ongoing war of aggression against Ukraine was cited as the principal “exceptional circumstance” justifying the temporary fiscal flexibility. Under the revised SGP, such conditions provide the legal basis for suspending the application of certain fiscal constraints, provided that the underlying measures contribute to long-term sustainability. Germany, although not included in the first tranche, has submitted a request which remains under review pending finalisation of its structural fiscal plan.

This activation signals a wider political shift within the European Union toward integrating fiscal and security policy. While the escape clause is temporary, it may serve as a precedent for future coordination between economic governance and strategic autonomy objectives. Additional member states may request activation in the coming months, especially as defence planning cycles and industrial mobilisation accelerate. The Council has indicated its willingness to assess further applications swiftly. Ultimately, the flexibility granted today underscores the EU’s commitment to ensuring that defence modernisation is not constrained by outdated fiscal orthodoxy, but instead supported by coherent, collective policy mechanisms.