Macroeconomic and fiscal implications of structurally higher defence spending in the European Union

Client/Funding Institution

European Parliament

Abstract

By temporarily exempting additional defence expenditure from fiscal adjustment requirements within defined limits, the National Escape Clause reduces the need for offsetting spending cuts or tax increases over 2025–2028. We analyse how much fiscal consolidation pressures under EU fiscal rules could increase after 2028, once the clause expires and higher defence spending becomes a permanent feature of national budgets requiring financing. We examine key factors shaping how higher defence expenditure affects macroeconomic and fiscal outcomes across EU member states.

Duration

June 2026 - September 2026

wiiw team Leader

Philipp Heimberger

wiiw Staff

Corinna Covi

Countries covered: EU

Research Areas: Macroeconomic Analysis and Policy

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