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Brussels  –  The finance ministers of Germany and the Netherlands have rejected on Monday increasing the EU’s debt to boost defense spending, a move supported by other countries like Spain or Belgium, thus showing their reluctance towards the plan by European Commission President Ursula von der Leyen, to allow greater fiscal leeway for investments in this area by activating the escape clause provided by the regulations in exceptional cases.

“We are skeptical that the safeguard clause is a viable rule, because it requires a major economic slowdown that we do not foresee,” said the German Finance Minister, Jorg Kukies, who believes that the bloc must “be aware that any change must respect the principle of fiscal stability.”

 This was the minister’s statement on Von der Leyen’s proposal last Friday to freeze the EU’s fiscal rules for defense investments, as was done in 2020 to facilitate measures to combat the spread of the Covid-19 pandemic.

“In the coming days and weeks, we will explain the details,” said the European Commissioner for Economy, Valdis Dombrovskis, who acknowledged that greater flexibility in defense matters in the budgets of member states “will undoubtedly change the European fiscal situation, although it remains to be seen to what extent.”

Diplomatic sources told Europa Press that, for now, Von der Leyen’s plan is “just one line in a speech,” but “ultimately, debt is debt” and warn that “markets will not make any difference whether it is debt with Von der Leyen’s approval or not.”

 “I have not yet seen any proposal on the table, so I cannot react,” added the Dutch Finance Minister, Eelco Heinen, on Monday, who admitted that “all member states are seeking fiscal space” but warned that to find it “difficult budgetary decisions must be made.”

 “It’s not easy, I acknowledge, but it must be done because money is not free. If you spend it at one point, you cannot spend it at another,” added the Dutch minister, who also rejected the idea that “more common loans or more debt are the way forward for Europe” and instead believes that the bloc needs “more security,” but also a “strong economy and currency.”

Furthermore, he expressed concern about repaying the debt the EU has already contracted with the creation of the anti-crisis fund to tackle the pandemic, which, according to Von der Leyen herself, will require between 25,000 and 30,000 million annually during the next seven-year EU budget.

 “Once joint debt is taken on, at some point the bill comes, and then difficult decisions have to be made,” said the minister, opposing the thesis supported by countries like Spain or Belgium, advocating more fiscal leeway to facilitate necessary defense investments.

However,  the Minister of Economy, Trade, and Enterprise of the Spanish Government, Carlos Cuerpo, believes that “there is room for the EU to increase its debt” to meet the challenges presented by the current geopolitical landscape and spend more in areas like defense.

“It is about having the political will to use all the tools at our disposal,” highlighted the Spanish minister, before explaining that the EU’s common GDP “is barely at 2.5%, that is, still very small figures compared to other countries or other jurisdictions,” so he considers that there is still “room to finance important projects.”

The Spanish minister recalled that the new fiscal rules already include “necessary flexibility elements” to face the “enormous” defense expenses required in the coming years, but stressed at the same time that there are “more areas” where the EU needs to “dialogue and agree,” such as the use of European financial institutions.

Cuerpo has advocated using the European Investment Bank (EIB), but also another “key” institution such as the European Stability Mechanism (ESM), whose maximum lending capacity is set at 400,000 million.

On the other hand, he emphasized that common financing will also be a “fundamental pillar” when financing projects in an area like defense, “which is a European public good.”

His Belgian counterpart, Vincent van Peteghem, also supports the European Commission having “opened the possibility to extend the margin for defense investments within the fiscal rules and the European budgetary framework,” though he calls to go further and “explore other possibilities, such as a common European financial instrument or more investments in the European defense industry.”

Meanwhile, the President of the Eurogroup, Paschal Donohoe, encouraged member states to collaborate to “find ways to increase defense spending while at the same time defending economic stability,” convinced that “both things can occur simultaneously.”  (February 17)