Relaxed

The European Fiscal Board (EFB) criticized the European Commission for allowing some of the defence spending leeway from last year to be used for transitioning to clean energy. Last year, the Commission allowed EU governments to spend an extra 1.5% of GDP annually for four years on defense against potential attacks from Russia, using a national escape clause due to uncontrollable events.

Italy, facing high fuel prices from the U. S.-Israeli war on Iran, sought more fiscal flexibility from the EU to help manage costs ahead of elections. The Commission agreed to permit 0.3% of that 1.5% for the clean energy transition. EFB Chairman Pieter Hasekamp stated that the energy crisis should drive transformation rather than increased spending, urging that fiscal credibility is critical to minimize borrowing costs.

The EFB emphasized the importance of adhering to previously agreed spending paths to reduce debt, noting that many EU countries still need to cut back post-pandemic stimulus. They expressed concern that extending escape clauses for energy could lead to excessive and untargeted financial support. The board also advised that if oil prices remain high, governments should prioritize public investment over efforts to sustain consumer demand.

With information from Reuters