European Union finance ministers were discussing on Tuesday how to spend more on defence without breaking EU rules and upsetting markets, with focus on boosting growth and excluding military investment from EU rules that trigger disciplinary steps.
The ministers' talks follow a meeting of European leaders last week when they decided to boost defence spending after U.S. President Donald Trump froze U.S. military aid to Kyiv and raised doubts about Washington's commitment to European allies.
"We will focus on fiscal rules and how to enable countries that want to spend more on defence and security to spend more within the fiscal rules," Polish Finance Minister Andrzej Domanski, who chairs the discussions, said on entering the talks.
The European Commission proposed last week to allow each of the EU's 27 countries to raise defence spending by 1.5% of GDP a year, for four years, without any disciplinary steps that would normally kick in once a government deficit is above 3% of GDP.
EU fiscal rules, designed to underpin the euro currency by limiting government borrowing, could envisage such a temporary exception on the argument the war in Ukraine and the ensuing security threat from Russia to the EU is an exception event outside the control of EU governments.
But some countries, like Germany, argue defence investments take longer, sometimes 10 years or more and that the exemption for such outlays should be more than the proposed four years, or maybe even permanent.
The difficulty is that markets set debt prices on the basis of debt and deficit levels and they may be concerned about large additional borrowing in Europe, especially by countries which already have high debt.
Officials believe therefore that if special treatment of defence spending were to become more permanent, it would have to be counterbalanced by more focus on growth.
"We need our economies to grow, because 2% (of GDP the current NATO defence spending target) of 500 is more than 2% of 200, so the economy needs to grow first of all," Swedish Finance Minister Elisabeth Svantesson told reporters.
The ministers will also discuss broadening the existing definition of defence spending.
The current rules do not deem the construction of ammunition factories, or the reinforcement of roads and bridges to enable the crossing of tanks, to be defence expenditure and many governments want to change that.
Also on the agenda is a discussion about what starting point to take when measuring the increase in spending on defence. Poland has proposed to use defence spending levels from 2021, the year before Russia invaded Ukraine.
