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Nine EU capitals: Bloc’s deficit rules should waive defense spending

Governments should be able to spend more on defense without worrying about the bloc’s cap on budget deficits, according to nine EU countries — predominantly from the East.

As Russia’s invasion of Ukraine rages on, representatives from Italy, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania and Slovenia have called over the last week for a waiver on defense spending, four treasury officials confirmed Monday.

The push 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.

EU ambassadors are currently working on a declaration that leaders are set to publish after the informal summit. No direct reference to the EU’s deficit rules are expected to be included, the officials said.

Normally, EU treasuries are forced to keep their budget deficit below 3 percent of economic output while trying to limit their public debt to 60 percent. Brussels put those rules on ice during the pandemic to ensure governments could battle the outbreak without fearing punishment from the European Commission.

The so-called Stability and Growth Pact is supposed to come back into force starting next January. But the Commission has hinted that the rules could be delayed further amid uncertainty stemming from the war in Ukraine — and the war’s potential impact on the EU’s economy could extend that pause.

The war aside, the SGP is subject to change for other reasons. Indebted countries in the South are pushing for deficit waivers for green investments to ensure they can battle climate change and handle their debt burden at the same time.

Although the war has given support for a waiver for defense spending as well, that attempt is likely to face pushback from the likes of the Netherlands and Denmark, the officials cautioned.

This article is part of POLITICO’s premium policy service: Pro Financial Services. From the eurozone, banking union, CMU, and more, our specialized journalists keep you on top of the topics driving the Financial Services policy agenda. Email [email protected] for a complimentary trial.

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