First of all, thank you for your invitation to join you today.
As you are all aware, Europe is faced with grave threats to its security. In a changing world, we must take more responsibility for our own defence.
Rebuilding Europe's defense capabilities and ramping-up our defence industry's production capacity requires urgent and significant investment.
So, earlier this month, the Commission presented the ReArm Europe/Readiness 2030 initiative to facilitate and encourage such investment.
It has the potential to mobilise €800 billion, and consists of three main elements:
Firstly, we proposed the coordinated activation of the national escape clause of the Stability and Growth Pact
This will facilitate a rapid increase in defence spending by allowing Member States to temporarily deviate from the normal fiscal requirements.
I will return to the national escape clause in a moment.
Secondly, a new €150 billion loan instrument, called Security Action for Europe (SAFE).
This will provide loans to Member States to invest in key defence areas like missile defence, drones, and cyber security.
The funds will be raised on capital markets and disbursed to interested Member States upon demand, based on their national plans.
So, SAFE will encourage Member States to spend better, together and European.
Thirdly, we will better channel private financing towards the defence sector.
We are supporting the European Investment Bank Group in widening the scope of its lending to defence and security projects.
We are also accelerating the Savings and Investments Union to mobilise private capital so that the European defence industry is not reliant on public investment alone.
Returning now to the activation of the national escape clause.
This would allow Member States to deviate from, meaning exceed, the net expenditure paths set out in the national medium-term fiscal-structural plans, as validated by the Council, or from the corrective paths for Member States in the excessive deficit procedure.
Member States may request the activation of this clause in the event of, and I quote from the regulation, "exceptional circumstances outside the control of the Member State with a major impact on its public finances, provided that it does not endanger fiscal sustainability over the medium term".
Of course, Russia's continued war of aggression against Ukraine and its threat to European and global security represent such exceptional circumstances, requiring a rapid surge in defence spending.
The activation of the national escape clause would allow Member States to raise their defence spending to a structurally higher level, without this having to be immediately compensated by extra revenues or spending cuts elsewhere.
While the activation of the clause will have an enabling effect, it will remain important for Member States to safeguard fiscal sustainability.
Therefore, in the medium to long-term, other expenditures and revenues will eventually have to adjust.
Moreover, to safeguard fiscal sustainability, the deviation will be limited, in a transparent framework, on the basis of three important principles.
First, scope.
The flexibility would cover the increase of total defence expenditure only, including both investment and current expenditure. Here, we will use the broad "Cofog" defence definition – which is consistent with the other indicators used for fiscal surveillance – that will form the starting point.
Expenditure financed by loans provided by the new SAFE instrument will automatically benefit from flexibility as well.
For other expenditure items, the EU fiscal rules would continue to operate normally.
Second, duration. The Commission will propose activation of the national escape clause for a limited period of four years starting from 2025.
And third, volume. The Commission proposed that the flexibility will be capped at 1.5% of GDP per year during this period.
This clarifies and limits the possible impact on public debt – where it is important to create predictability and transparency, also for financial markets.
The amounts would be calculated taking 2021 as reference year – this is the year immediately prior to the exceptional circumstances justifying the activation of the national escape clause.
Basically, 2021 is the last pre-war year.
To conclude, let me recall the importance for Europe to urgently increase its defence capabilities and industrial base.
It is a matter of securing our own future. Our democracies. Our values.
To maximise the impact of our collective effort, the increase in European defence spending should be well coordinated and directed effectively.
In that, there is a link with our competitiveness.
Beyond enhancing Europe's security, we expect the additional defence spending to also boost competitiveness and economic growth, drive innovation and create new jobs.
The impact will eventually depend on the spending trajectory of Member States over time and its composition, in particular the extent to which funds are allocated to investments, domestic production, and innovation.
For that, it is important that we spend better and more together, in Europe.
Also, the SAFE instrument should help in this regard.
I will stop here with my introductory remarks and I am open for your questions and comments.
