EU extends defense fiscal flexibility to energy investments

EU Economy Commissioner Valdis Dombrovskis announced plans Wednesday to extend additional fiscal flexibility granted for defense spending to energy investments, citing the energy shock triggered by the war in the Middle East.

"Upon request by a member state, the scope of the current National Escape Clause for defense can be broadened," Dombrovskis said during a news conference, presenting the European Semester 2026 Spring Package.

While the National Escape Clause allows member states to temporarily depart from EU fiscal rules in exceptional circumstances, Dombrovskis noted that an annual cap of 0.3% of GDP could be applied to energy support measures within the existing 1.5% of GDP cap granted for additional defense spending.

He added that the measure would be available from 2026 to 2028, with a cumulative limit of 0.6% of GDP in the three-year period.

"For those few member states that have already used full flexibility under the national escape clause to increase defense spending, this would allow them to move beyond 1.5% of GDP, subject to an additional sustainability assessment," said Dombrovskis.

He said the flexibility would be available for measures undertaken from February 2026 onward, highlighting that it covers initiatives aimed at reducing dependence on fossil fuels.

He said the flexibility does not cover support measures that subsidize fossil fuel use.

"Our recommendation remains unchanged to have temporary and targeted measures not to sustain the demand for fossil fuels because the problem right now is we are facing supply shock and you cannot address supply shock with stimulating demand," he added.