EU leaders signal loosening the stability pact for defense

Brussels – No Eurobonds. The EU may consider introducing greater and renewed flexibility in the common budget rule to finance defense and the industry. The informal leaders’ summit that European Council President Antonio Costa convened to discuss defense produced a significant political outcome: a loosening of the constraints of the Stability Pact. Germany is yielding — without really yielding. German chancellor Olaf Scholz was firm when he said at the end of the proceedings that “the European Union has no prospect of issuing common debt.” At the same time, he acknowledges the need to act to stimulate a sector that has suddenly become strategic and, therefore, indispensable: “It is rather a matter of creating more flexibility for individual countries.”

Here, Germany — always mindful of budget rules their enforcement, breaks a taboo. It stood its ground after its firm ‘nein’ to Eurobonds for defense while also trying to appease the German electorate ahead of the Feb. 23 elections that could reshape the German and European political landscape. With AfD gaining momentum, Scholz can return home and claim he has not created new common debt and ensure that Germany will not pay the financial burdens of others.

The real work begins now, and it’s all for the European Commission. “We will look at how best to use all the flexibility we can within the [stability] pact, and there is a lot of it, to favor defense spending,” EU Commission president Ursula von der Leyen confirmed at the press conference held late in the evening.

 After all, the meeting of heads of state and government does not produce much more than a call to explore “common options and innovative tools” to “do more, faster, better, and together” on defense, Costa explains without going into too much detail. This effort, however, will involve greater reliance on the European Investment Bank (EIB) and restructuring the functioning of the European Defense Agency (EDA).