But Donohoe acknowledged that it is “inevitable that in the years ahead, Europe will have to increase its defense expenditure.”
BRUSSELS — The EU should stick to its recently agreed spending rules despite growing calls to tweak them to increase defense investment, the president of the influential group of eurozone finance ministers said.
In an interview with POLITICO, Paschal Donohoe, who is also Ireland’s finance minister, said the EU needs to find a way to fund the bloc’s increasing defense needs that is “consistent with the maintenance of economic stability within Europe as well.”
But, he acknowledged, it is “inevitable that in the years ahead, Europe will have to increase its defense expenditure. We will do that.”
“The use of the existing [fiscal] framework, I believe, will offer ways in which that can be done, » Donohoe said, adding that the spending rules are “an essential element of the stability of the euro area.”
Europe’s security architecture has been upended in a matter of days as the U.S. and Russia begin talks on ending the war in Ukraine, which do not include the EU. Asked whether the EU’s decision-making forums can move quickly enough to resolve issues on the bloc’s defense and economic challenges, Donohoe said: “Absolutely, yes.”
“It is that economic stability that I believe will be a foundation and that we will use to deal with so many of the other security and economic challenges that we confront. But inside that framework there are existing areas of flexibility that are already there,” Donohoe said.
The EU’s fiscal rules, which were agreed after stormy negotiations in late 2023, intend to stop countries exceeding a debt-to-GDP ratio of 60 percent and ensure their annual deficits do not exceed 3 percent. Countries that break the rules can be hit with ceilings on their spending or fines.
But the rules can be temporarily suspended in emergencies under a “general escape clause,” which was used at the start of the COVID-19 pandemic.
Last week, Commission President Ursula von der Leyen proposed triggering the emergency clause in order to allow countries to significantly increase their military expenditure. It remains unclear at this stage whether that would signify the bloc suspending its fiscal rules, or introducing targeted flexibility on a country-by-country basis specifically for defense spending.
Economy commissioner Valdis Dombrovskis indicated at a press conference Monday evening that the national route was more likely.
Frozen assets questions
Donald Trump’s U-turn on America’s Ukraine policy is also raising questions over the use of the Russian central bank’s frozen assets, which are held in Belgian securities depository Euroclear. The G7 will hold a meeting in the margins of next week’s G20 finance ministerial in South Africa, where the issue will be discussed.
The G7 agreed in October to use the profits of frozen Russian assets for a $50 billion loan to Ukraine, and there have been calls from the EU’s top diplomat Kaja Kallas to confiscate the funds to aid Ukraine.
Donohoe urged caution on changing the treatment of frozen assets, saying the G7 “should consider different options” to support Ukraine and its economy, but that “at the moment I think there is great value in working with the U.S. to implement the agreements that we already have.”
It is currently unclear whether U.S. finance minister Scott Bessent will attend the ministerial in South Africa next week, raising questions over the stability of the country’s endorsement of the frozen assets deal or potential pivots ahead.
Bessent has only spoken with a handful of EU leaders, including European Central Bank president Christine Lagarde, since the new U.S. administration began.
Donohoe said he is “not aware of any signals” from the Americans that they would change direction on the frozen assets deal.