A total of 18 EU countries have now requested activation of the national escape clause for defence spending, while Italy and Spain are pushing to extend that fiscal flexibility to absorb the budgetary impact of the latest energy shock triggered by the war in Iran.
The first year of the newly adopted fiscal rules has been described by the European Fiscal Board as one of fiscal indulgence rather than consolidation. In parallel, calls for Eurobonds are intensifying.
The intuition behind those calls is understandable. The union faces structural pressures that 27 national budgets are ill-equipped to finance on their own, such as defence or energy security.
The EU’s long-term budget (MFF) remains capped at around 1.1 per cent of EU gross national income. The combined stock of euro-denominated AAA sovereign and supranational safe assets is roughly one seventh of the US Treasury market. The demand for additional common fiscal capacity is therefore both economic and strategic.
Yet the conditions under which Eurobonds could become a credible instrument are not in place.
