A “flexibility window” for Greece (along with 16 EU member states in total) opens with the approval by the latest Ecofin of the escape clause for defense spending. It allows the creation of additional military expenditures up to 1.5% of GDP, which will not burden the country’s deficit (however, they will be recorded in public debt).
Ecofin: Approval of defense spending escape clause – What it means for Greece
The most significant change is the shift of the base year for military spending from 2021 to 2024. If 2021 had remained the base year – with Greek defense spending exceeding 3% of GDP at that time – there would have been no room for flexibility. With the new base, the increase of 0.3 percentage points of GDP creates fiscal space of approximately 500 million euros.
This amount is expected to join the “piggy bank” of 1 billion euros created from restraining primary spending and additional revenues from tax evasion measures. This forms a relief “package” totaling 1.5 billion euros that the Prime Minister will have in his “briefcase” at the Thessaloniki International Fair next September.
Following the Ecofin decision, Minister of National Economy and Finance Kyriakos Pierrakakis spoke of “a strategic victory for Greece,” which “besides defending its sovereignty, also defends the external borders of the European Union and needs the tools to do so effectively.” He emphasized that “our country was one of the member states that took the initiative to exempt part of defense spending from fiscal rules. We were among the first to submit the relevant request and now we have an additional 500 million euros at our disposal to strengthen defense in 2026 and support Greek citizens, as this opens fiscal space.”
In effect from 2025 to 2028
According to the European Commission, the escape clause will be valid from 2025 to 2028, with the possibility of extension for one more year, and will be accompanied by annual implementation reviews. For Greece, the provision aligns with the new 12-year Long-term Defense Equipment Program (2025-2036), which provides for increasing spending from 2.2% of GDP in 2024 to 2.3% of GDP in 2025 and 2.5% of GDP in 2026.
Also for our country, the European Commission estimates that the impact from utilizing the escape clause will be 1.2% of GDP on the deficit and 1.8% of GDP on debt by 2028. According to the Commission’s recommendations, Greece should proceed with annual fiscal interventions of 0.2% of GDP (500 million euros) for four years, or alternatively, 0.1% for seven years, if a longer time horizon is chosen in the next Medium-term Program.
It should be noted that the evaluation of member states’ plans was conducted in two cycles: The first, covering the period 2025-2028, concerns the activation of the clause and temporary relaxation. The second, starting from 2029, focuses on restoring fiscal balances with stricter targets for the fiscal deficit and public debt.
Indeed, the European Commission warns that the escape clause is not a “blank check.” It emphasizes that this is a temporary relaxation, insisting on maintaining fiscal sustainability to avoid derailment of deficit and debt from 2029 onwards. It sounds the “alarm bell” for member states to be ready, if required, for necessary adjustments to ensure long-term fiscal stability is not undermined after the flexibility period ends.
Source: ANA-MPA
