‘Flexibility window’ for Greek economy (As for 16 EU Member States in total), approval from the latest Ecofin of the escape clause for the defensive costs.
The escape clause allows for the creation of additional defense spending up to 1.5% of GDP, which will not burden the deficit of the Greek economy (however, will be recorded in public debt).
The most important is the change of the base year for military spending, which has been transferred to 2024 since 2021. If it had been maintained as a basis in 2021- with Greek defense spending exceeding 3% of GDP- there would be no margin of flexibility. With the new base, the increase of 0.3 percentage points of GDP creates a fiscal space of approximately € 500 million.
An amount, which is expected to go to the “euro” of the 1 billion euros created by the retention of primary costs and additional revenue from tax evasion measures. This is how a “package” of lightenings totaling 1.5 billion euros that the prime minister at the TIF will have in his “suitcase” next September.
Following Ecofin’s decision, Minister of National Economy and Finance Kyriakos Pierrakakis spoke of “a strategic victory for Greece”, which “in addition to its sovereignty, defends the European Union’s external borders and needs tools to do so effectively”. Pointing out that “our country was one of the Member States who took the initiative to exclude part of defense spending from budgetary rules. We were one of the first to apply for the request and now we have an additional € 500 million to boost defense in 2026 and support Greek citizens, as it opens fiscal space. “
According to the Commission, the escape clause will apply from 2025 to 2028, with the possibility of extension for another year, and will be accompanied by an annual application check. For Greece, the forecast is tied to the new 12-year long-term defense program (2025-2036), which provides for costs of 2.2% of GDP in 2024, to 2.3% of GDP in 2025 and to 2.5% of GDP in 2026.
Also for our country, the European Commission estimates that the impact on the exploitation of the escape clause will be 1.2% of GDP in deficit and 1.8% of GDP in debt by 2028. According to Commission’s recommendations, Greece will have to proceed with annual fiscal interventions of € 0.2% (€ 500 million), or EUR 500 million, or € 500 million), 0.1% for seven years, since it is selected longer by the next medium -term program.
It is noted that the evaluation of the Member States was made in two circles: the first, covering the period 2025-2028, concerns the activation of the clause and temporary relaxation. The second, starting in 2029, focuses on restoring fiscal balances, with stricter targets for the budget deficit and public debt.
Indeed, the European Commission warns that the escape clause is not a “white check”. He points out that it is a temporary relaxation, insisting on maintaining fiscal sustainability, in order to avoid derailment of deficit and debt from 2029 onwards. And it sounds the “danger” of the Member States to be ready, if required, for the necessary adjustments, in order not to shake the long-term fiscal stability after the end of the flexibility period.