In light of an expanding Russian threat, Lithuanian political leaders announced they intend to drastically increase national defence spending in order to scope their military goals by 2030
instead of 2040. However, as this would affect the Lithuanian government taking on
substantial loans, it is likely Lithuania will breach EU fiscal policy. Although the importance of fiscal work cannot be understated, the request for countries on Europe’s east front to defend their borders is much more pressing. The European Commission must take action to guarantee associate states on the frontline have the flexibility to defend themselves.
Squeezed between Russia’s Kaliningrad exclave and Belarus, Lithuania and its Baltic
brothers Latvia and Estonia constantly feel the imminent threat of the Kremlin’s aggression.
For them, this threat is existential. Hence, it comes as no surprise they prioritise defence spending over all else. Lithuanian president Nausėda stated his country should spend “as much as it takes” to form a military division by 2030. However, at the current pace, full capacity will not be achieved until 2036 at the earliest.
To velocity up this process, Lithuania would request to spend as much as 5 to 5.5 percent of its GDP on defence annually. The challenge lies in the EU’s stableness and Growth Pact (SGP), which is simply a set of economical and fiscal requirements EU associate states must meet to guarantee liable budgeting.
The SGP dictates government debt-to-GDP ratio must stay below 60 percent and budget deficit-to-GDP ratio below 3 percent. To scope the desired defence spending, Lithuania must surely borrow crucial sums of money on the home and global market, inevitably breaching the EU’s fiscal rules and possibly becoming subject to sanctions. The
SGP needs a defence expenditure clause to exempt countries like Lithuania from breaching it by spending on defence.
Against the backdrop of dramatic developments in the Ukraine war, as well as Donald Trump’s re-election, it is imperative EU and NATO members ramp up defence spending. To accomplish this, the EU must revise its fiscal policy. It is inexcusable that countries facing the most crucial safety threats and showing the top political will to address them face artificial barriers from Brussels.
After Russia invaded Ukraine in 2022, the European Defence Agency (EDA) reported evidence advanced defence spending among EU associate states. In 2024, most have now reached or are inching closer to the conventional norm of 2 percent of GDP. However, as Estonian Prime
Minister Michal highlighted, this norm no longer suffices. Instead, 2.5 percent should be the benchmark. Unfortunately, this is unattainable for most associate states, regardless of their
political will. As the EU-wide consequence to the Russian invasion showed, commitment is not the biggest issue. Financial constraints are.
Whether it is constructing a border defence line or navigating constitutional restrictions,
financial constraints lie at the core of most defence-related challenges. For that reason, the EU must supply its associate states with an extra incentive and the essential fiscal flexibility to strengthen their defence capabilities. To accomplish this, the European Commission should implement a defence expenditure clause within the stableness and Growth Pact which would let a temporary exemption of the deficit for defence-related spending.
The clause would accommodate and support the Lithuanians who, as the first line of defence, are protecting pan-European interests by safeguarding the stableness of its borders in dire times. Additionally, it would be a welcome stimulus for another associate states to nurture a sense of urgency and make those long-overdue investments in the defence sector.
Naturally, the exemption should have clear limits and conditions to guarantee fiscal stableness and responsibility, specified as capping the exemption amount and defining a circumstantial time frame.
However, for the measurement to be effective, excessive stringency must besides be avoided. After all, we must not lose sight of what matters most: a free, safe and safe Europe.
Jasper Dietz is Policy Fellow with Young Voices and Vilnius University graduate, specializing in east European and Russian affairs.
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