The EU Commission to look into national exemptions for more defense spending

National exemptions to the Stability and Growth Pact are an option gaining momentum after the President of the European Commission, Ursula von der Leyen, announced that more flexibility will soon be allowed in the context of the EU debt rules to leave more space for defense spending.

‘There is no final decision yet, but there are some reasons that indicate that it is more appropriate to activate escape clauses of the Stability and Growth Pact rules at the national level, rather than opting for a general clause’, the European Commissioner for Economy and Productivity told journalists after a Eurogroup meeting in Brussels. More work is needed before the European Commission could present its proposal in the weeks ahead.

In January, the Polish presidency of the EU proposed a draft of the code of conduct that will allow Member States to implement the escape clause without breaching the rules of the Stability and Growth Pact.

The plan seems to be in line with the position of the German government, where Minister for Finance Jörg Kukies dissuaded from activating a general escape clause that EU rules bind to “a situation of the generalized crisis caused by a severe economic downturn for the euro area or the EU as a whole.”

Germany is cutting off the proposal to issue new common debt that some countries are leveraging. “There are many countries, from southern to northern Europe, that demonstrate that it is possible to achieve levels well above the target of 2% of GDP for defense spending, even within the current structure of debt rules”, Kukies told the reporters before the meeting with the other 19 homologs of the Euro area. His Dutch colleague called on Member States the struggle to reach the target to embark on difficult choices on their budget, whereas “a stable economy and a strong currency contribute to more security.”

Polish Economy Minister Andrzej Domanski said in a press conference on behalf of the European Commission, “Some countries are already ready to support common debt, and our approach will be pragmatic. The path has just started. There are no taboos, but we need a pragmatic approach.”

Commissioner Dombrovskis did not answer when asked if the European Commission would be tabling a proposal on common debt but announced that a new proposal on funding would soon be unveiled.

Finance Ministers at the EU level last Tuesday confirmed the EU list of non-cooperative jurisdictions for tax purposes with no changes. The list thus includes the same 11 jurisdictions as before: Samoa, Anguilla, Fiji, Guam, Palau, Panama, Russia, Samoa, Trinidad and Tobago, Virgin Islands, and Vanuatu.

In addition to the list of non-cooperative tax jurisdictions, the Council approved the usual document reflecting the ongoing cooperation between the EU and its international partners and the commitments of these countries to reform their legislation to adhere to agreed standards of good tax governance.

Two jurisdictions, Costa Rica and Curaçao, have fulfilled their commitments by changing a harmful tax regime and will be removed from the progress document. On the other hand, Brunei Darussalam has committed to amending or abolishing its foreign source income exemption regime by the end of next year, which will be included in the progress document.