The calls for more flexibility in military spending finds growing support across the EU

There is “broad support” among EU Finance ministers to allow Member States to activate the national escape clause enshrined in the new economic governance framework to benefit from more flexibility on defense spending without incurring sanctions. “Across the continent, the message is to significantly increase defense spending, and our responsibility is to do it effectively and credibly,” Polish Minister Andrzej Domanski told journalists after a ministerial meeting on behalf of the rotating presidency of the EU Council.

The discussion has been unfolding since the announcement by the European Commission President Ursula von der Leyen at the Munich Security Conference, who suggested that Member States increase defense spending by 1.5% on average in the EU and raise up to 650 billion euros more for this line item by 2030.

“Many member states emphasize that the activation should be targeted and temporary, which should allow member states to move to a structurally higher level of defense spending while considering fiscal sustainability,” EU Commissioner for Economy Valdis Dombrovskis told journalists after the meeting.

Article 26 of the so-called “preventive arm” regulation, one of the staples of the revised Stability and Growth Pact legislation, regulates the option. It allows Member States to ask for a budget deviation “where exceptional circumstances” outside their control “have a major impact on the public finances.” A vote by a qualified majority based on the Commission’s analysis enables the option.

The EU Executive is also expected to unveil further proposals on the other points of the ReArm Europe plan for Defence next week and present them in parallel with the White Paper on the Future of European Defense. The European Commission will deliver a new financial instrument worth 150 billion euros to stimulate joint procurement in a range of military products related to air defense and anti-drones systems, electronic war equipment, and artillery systems.

Ministers are also seeking an agreement on a broad definition of defense spending. That means expanding the list of products included in the COFOG standard, which is used within the EU as a common breakdown of government expenditures according to their function. Some Member States, such as Italy, are also asking to broaden the definition of Defense spending for other objectives, such as border management and internal security. The Polish presidency is finding broad support for expanding the definition of military expense.

Commissioner Dombrovskis ruled out the possibility of further revising the EU economic governance framework, stating that the current rules already provide enough flexibility.

The EU Council also reached a political agreement on a new EU directive (DAC9) to improve taxation administrative cooperation. This legislation aims to strengthen cooperation and exchange of information on minimum effective corporate taxation to better fulfill the compilation obligations that multinational and large-scale domestic groups have under the second pillar of the G20/OECD global agreement. The DAC9 updates the EU Administrative Cooperation Directive by extending the rules on tax transparency by simplifying reporting for large companies, improving data exchange between tax authorities, and aligning with global minimum tax standards.

They also adopted non-binding conclusions, asking for more simplification in the taxation field. The conclusions represent the views of the Council and provide guidance on possible future initiatives while considering the context of improving EU competitiveness and reducing administrative, regulatory, and reporting burdens.

Four principles should guide the review of legislation, which should also apply to current and future tax initiatives: reducing reporting, administrative, and compliance burdens for member state administrations and taxpayers; eliminating obsolete and overlapping tax rules; increasing the clarity of tax legislation; and streamlining and improving the application of tax rules, procedures, and reporting obligations.