Germany has argued for a relaxation of fiscal rules to boost defence spending in EU talks next week

Pushed by Germany, the EU agreed to begin discussions on a long-term reform of fiscal rules to allow member states to increase defence spending.

Eu leaders meeting in Brussels on Thursday (March 6) called on the European Commission to "explore further measures" on the so-called stability and Growth pact, according to the text of the summit's conclusions seen by Bloomberg. The leaders also backed a proposal by the committee to temporarily suspend limits on defense spending. The summit was held to discuss the defense of Ukraine and Europe.

For decades, EU policy has been shaped by Germany's insistence on controlling public borrowing at home and in other member states. But Trump's return to the White House and his insistence that the United States should no longer be the main guarantor of European security has prompted a dramatic shift in Germany, where Chancellor designate Merz this week unveiled a massive spending plan aimed at reforming the German military.

In this context, the EU is working to mobilize potentially trillions of euros in additional defense funding to counter the threat of Russian aggression. While the European Commission has proposed adding a short-term exemption clause to the Stability and Growth Pact to boost defense spending, Bloomberg previously reported that a broader discussion was sparked at a meeting on Wednesday, when Germany told member states that the commission's plan was not enough.

Eu envoys already signaled Thursday that Germany's request for a review of fiscal rules has broad support. Only a year ago, Germany objected to similar demands from some member states in the 2024 reform of fiscal rules.

"In the long run, we have to make sure that countries can spend on defense as they want," current German Chancellor Angela Scholz said as he arrived at the summit venue. He insisted that the EU needed "a long-term adjustment of the rules to ensure that member states can make their own decisions on defence spending".

The summit also concluded that new measures to relax fiscal rules should not endanger debt sustainability. This is an important consideration for some countries.

Eu finance ministers are expected to discuss options for easing the rules when they meet on Monday and Tuesday. One of the questions they need to clarify is how long this flexibility to increase defense spending will last. A German official says it should last at least 10 years.