kom (2025) 0604 - Ingen titel

Europaudvalget 2025
KOM (2025) 0604
Offentligt

EUROPEAN

COMMISSION

Brussels, 4.6.2025

COM(2025) 604 final

Recommendation for a

COUNCIL RECOMMENDATION

Allowing Estonia to deviate from the maximum growth rates of net expenditure as set by

the Council under Regulation (EU) 2024/1263

(Activation of the national escape clause)

kom (2025) 0604 - Ingen titel

Recommendation for a

COUNCIL RECOMMENDATION

Allowing Estonia to deviate from the maximum growth rates of net expenditure as set by

the Council under Regulation (EU) 2024/1263

(Activation of the national escape clause)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular

Article 121 thereof,

Having regard to Regulation (EU) 2024/1263, and in particular Article 26 thereof,

Having regard to the recommendation from the European Commission,

Whereas:

(1)

Regulation (EU) 2024/1263 of the European Parliament and of the Council on the

effective coordination of economic policies and on multilateral budgetary

surveillance

, together with the amended Regulation (EC) No 1467/97 on speeding up

and clarifying the implementation of the excessive deficit procedure

, and the

amended Council Directive 2011/85/EU on requirements for budgetary frameworks of

the Member States

are the core elements of the reformed EU economic governance

framework. The framework aims at ensuring public debt sustainability, and sustainable

and inclusive growth through reforms and investments. It promotes national ownership

and has a medium-term focus, combined with an effective and coherent enforcement

of the rules.

The maximum growth rates of net expenditure as set in a Council recommendation in

accordance with Articles 17(1) or 19 of Regulation (EU) 2024/1263 are the single

operational reference for the annual fiscal surveillance of each Member State and are

at the centre of the new economic governance framework. The maximum growth rates

of net expenditure as set by that Council Recommendation establishes a budgetary

constraint for four or five years, which is based on an adjustment period of four years

that can be, in the case of an extension, extended by an additional period of up to three

years.

The framework provides for flexibility in the application of the rules in the event of

exceptional circumstances outside the control of Member States that have a major

Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on the

effective coordination of economic policies and on multilateral budgetary surveillance and repealing

Council Regulation (EC) No 1466/97 (OJ L, 2024/1263, 30.4.2024, ELI:

http://data.europa.eu/eli/reg/2024/1263/oj).

Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of

the excessive deficit procedure (OJ L, 209, 2.8.1997, ELI:

http://data.europa.eu/eli/reg/1997/1467/2024-04-

30).

Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the

Member States (OJ L, 306, 23.11.2011, ELI:

http://data.europa.eu/eli/dir/2011/85/2024-04-30).

(2)

(3)

kom (2025) 0604 - Ingen titel

impact on the public finances, in accordance with Article 26 of Regulation (EU)

2024/1263. In the latter case, following a request from a Member State and on

a recommendation by the Commission based on its analysis, the Council may within

four weeks of the Commission recommendation adopt a recommendation allowing

a Member State to deviate from its maximum growth rates of net expenditure as set by

the Council, where (i) exceptional circumstances outside the control of the Member

State, (ii) have a major impact on the public finances of the Member State concerned,

and (iii) provided that such deviation does not endanger fiscal sustainability over the

medium term. The Council is to specify a time limit for such deviation.

(4)

The Heads of State or Government, meeting in Versailles on 10-11 March 2022,

committed to bolster European defence capabilities in light of Russia’s military

aggression against Ukraine. These aims were reiterated in the Strategic Compass for

Security and Defence. In its Conclusions on European defence of 6 March 2025, the

European Council welcomed the intention of the Commission to recommend the

activation, in a coordinated manner, of the national escape clause under the Stability

and Growth Pact as an immediate measure.

In its Communication of 19 March 2025

, the Commission has invited all Member

States to make use of the flexibility provided by the national escape clause in a

coordinated manner with a view to maximising the impact on the EU’s defence

capabilities. This flexibility aims at facilitating the transition to higher levels of

defence spending on a permanent basis. That Communication describes that the

activation of the national escape clause would allow Member States to deviate from

the maximum growth rates of net expenditure as set by the Council when endorsing

the medium-term fiscal-structural plans or when establishing the corrective paths

under the excessive deficit procedure, to the extent that this deviation is justified by an

increase in defence spending relative to the reference year, and that the annual excess

through 2028 will not exceed 1.5% of GDP. Increases beyond that amount would be

subject to the normal assessments of compliance. Such a maximum is necessary to

ensure that fiscal sustainability is not endangered, while allowing all Member States to

benefit from the flexibility as they move towards a higher level of defence

expenditure. The exact amounts will be determined when outturn data become

available, to ensure that the additional flexibility is used only for its intended purpose.

The Council recommendation of 21 January 2025

endorsed the net expenditure path

of Estonia.

On 29 April 2025, Estonia submitted a request to the Council and the Commission, to

activate the national escape clause.

In its request, Estonia sets out that, in a context of heightened geopolitical tensions,

Russia’s continued war of aggression against Ukraine and its threat to European

security constitutes an existential challenge for the Union, which requires a significant

increase of defence spending. This situation is an exceptional circumstance outside the

control of each Member State.

In its request, Estonia reports data on total defence expenditure (Table 1). In addition

to this, Estonia envisages to increase defence spending to at least 5% of GDP from

Commission Communication (C (2025) 2000 final) of 19 March 2025.

Council Recommendation of 21 January 2025 endorsing the national medium-term fiscal-structural plan of

Estonia (OJ C, C/2025/655, 10.2.2025, ELI:

http://data.europa.eu/eli/C/2025/655/oj).

(5)

(6)

(7)

(8)

(9)

kom (2025) 0604 - Ingen titel

2026 onwards, for the years to come. Therefore, the increase in defence expenditure

has a major impact on the public finances of Estonia.

Table 1: Total defence spending in Estonia

2021 a

General government total

defence expenditure

(% of GDP)

2.0

2022 a

2.2

2023 a

3.2

2024 b

3.4

2025 b

3.7

Source:

a: Eurostat; b: Information provided to the Council and the Commission by Estonia.

(10)

Estonia estimates that the increase in total defence expenditure as a ratio to GDP from

2021 to 2025 will be in the order of 1.7 percentage points and therefore contribute to

deteriorating the government balance and increasing government debt.

All else being equal, an increase in expenditure over the period covered by the national

escape clause will lead to higher government debt and a higher deficit by the end of

that period. Indicative projections run by the Commission and assuming, by 2028, a

linear uptake of the full increase in government expenditure allowed by this

recommendation suggest that the deficit-to-GDP ratio and debt-to-GDP ratio in 2028

would be 1.2 pps. and 2.6 pps. higher, respectively, than if net expenditure grew in

line with the path set by Council Recommendation. This would likely require an

additional fiscal adjustment after the period of activation of the national escape clause

in order to meet the requirements of the fiscal framework, including to ensure that the

debt ratio is put or remains on a plausibly downward path, or stays at prudent levels

below 60% of GDP over the medium term and that the deficit stays or is brought

below 3% of GDP and maintained below the reference value over the medium term.

Estonia acknowledges that, going forward, structurally higher defence expenditure

may require policies to preserve fiscal sustainability and compliance with the fiscal

rules over the medium term.

General government defence expenditure data are compiled and released by the

national statistical authorities and Eurostat according to the International Classification

of the Functions of Government (COFOG)

in the framework of the European System

of National Accounts (ESA2010)

. These data are appropriate to assess the impact of

defence spending on government deficit, debt and net expenditure, and related

concepts. Eurostat, in close cooperation with the national statistical authorities, will

establish a data collection process. The starting point should be COFOG defence

categories, while also considering the NATO definition and retaining the possibility to

address anomalies that might be attributable to differences in the respective annual

reporting systems. The data collection process needs to be aligned with EDP reporting

deadlines.

Moreover, for some of the contracts for military equipment signed during the period of

activation of the national escape clause, delivery may occur at a later stage, therefore

(11)

(12)

(13)

Manual on sources and methods for the compilation of COFOG statistics — Classification of the Functions

of Government (COFOG) — 2019 edition.

Regulation (EU) No 549/2013 of the European Parliament and of the Council (OJ L 174, 26.6.2013, p. 1).

kom (2025) 0604 - Ingen titel

impacting public finances only after the period of activation of the clause. To cater for

this eventuality, the flexibility granted under the national escape clause should also

apply to defence expenditure linked to such later delivery, provided that the

corresponding contracts were signed during the period of activation of the clause and

that this delayed defence spending remains within the overall cap mentioned above.

(14)

The expenditure financed by loans provided by the new instrument for Security Action

for Europe (SAFE)

for the reinforcement of European defence industry would

automatically benefit from the above flexibility. To this end, Member States would

report to Eurostat all defence-related expenditures made under the SAFE Instrument

under the categories “defence products” and “other products for defence purpose” as

defined in the proposal for a Regulation establishing the SAFE Instrument.

This recommendation does not modify the definitions of government deficit, debt and

net expenditure, and related concepts. Data based on these concepts are to be compiled

and reported by Estonia in accordance with Regulations (EU) 2024/1263, No

479/2009 and No 549/2013.

(15)

HEREBY RECOMMENDS:

1. During the period 2025-2028, Estonia is allowed to deviate from and exceed the

maximum growth rates of net expenditure as set by Council Recommendation

C/2025/655

to the extent that the net expenditure in excess of these maximum

growth rates is not more than:

(i)

(ii)

the increase in defence expenditure in percent of GDP since 2021;

provided that the deviation in excess of the maximum growth rates of net

expenditure does not exceed 1.5 percent of GDP.

2. In the years after 2028, Estonia may still deviate from and exceed the maximum

growth rates of net expenditure as set by a Council Recommendation in accordance

with Articles 17 or 19 of Regulation (EU) 2024/1263, to the extent that the net

expenditure in excess of these maximum growth rates is related to deliveries of

military equipment contracted before end-2028 and remains within the overall cap

mentioned above.

3. In accordance with Article 22(7) of Regulation (EU) 2024/1263, the deviations from

the maximum growth rates of net expenditure as set by the Council that are allowed by

this Recommendation will not be recorded as debits in the control account of Estonia.

4. In order to ensure correct recording of the additional expenditure Estonia is to include

actual and planned data on total defence expenditure (COFOG division 02) and

Council Regulation (EU) 2025/… establishing the Security Action for Europe (SAFE) through the

Reinforcement of the European Defence Industry Instrument.

Council Recommendation of 21 January 2025 endorsing the national medium-term fiscal-structural plan of

Estonia (OJ C, C/2025/655, 10.2.2025, ELI:

http://data.europa.eu/eli/C/2025/655/oj).

kom (2025) 0604 - Ingen titel

defence investment (COFOG division 02 P.51) and any expenditure to be financed by

SAFE loans that are not covered in COFOG-02:

(a) for years T-4, T-3, T-2 and T-1 (with year T being the current year) in the

reporting to the Commission (Eurostat) in accordance with Council Regulation

(EU) No 479/2009;

(b) for years 2021 through year T (current year), in national medium-term fiscal

structural plans and in annual progress reports in accordance with Articles 11(1)

and 15, and 21(1) of Regulation (EU) 2024/1263;

Regulation (EU) No 472/2013.

This recommendation is addressed to Estonia.

Done at Brussels,

For the Council

The President