Germany pushes for longer-term easing of EU rules on defense spending

PHOTO CAPTION: A German service member observes a target area during a training exercise. (Bundeswehr/Maximilian Schulz)

BRUSSELS (Reuters) -     Germany opened the door on Wednesday to changing EU fiscal rules -- the Stability and Growth Pact -- to help governments spend more on defence in the long term without worrying about EU-imposed spending limits or disciplinary action, diplomats said.

The proposal, a complete U-turn by Germany from just a year ago, took the rest of EU governments by surprise and met with some push back, but it is in line with Berlin's latest plans, announced on Tuesday, to lift all limits on defence investment.

After decades of under spending on the military, Berlin now wants to ramp up its defence capabilities, realising Europe can no longer count on the United States to provide security against a potential Russian invasion given differences between U.S. President Donald Trump's administration and Europe over support for Ukraine.    

During preparatory discussions among ambassadors of EU governments ahead of the special EU summit on defence on Thursday, Germany proposed that summit conclusions include a call for "further adaptations to the Pact to facilitate significant defence spending at national level", diplomats said.

"The understanding was that this was pointing toward a more permanent flexibility," one diplomat said. Two other diplomats had the same view.

The Stability and Growth Pact now describes defence spending as a relevant factor that the Commission will take into account when assessing whether to launch disciplinary steps against a government deficit above 3% of GDP.

While important, it does not guarantee immunity from EU disciplinary action, which Poland found out when the Commission launched an excessive deficit procedure against it last year for running a deficit well above 5% of GDP even though its defence spending was more than 4% of GDP. 

To make life easier for governments, the European Commission proposed on Tuesday to exempt 1.5% of GDP of extra spending every year for the next four years of each EU country from agreed government spending limits without triggering any disciplinary action from Brussels. 

But Germany believes four years might not be long enough as defence projects often take longer to complete. The call for a more permanent change to the rules stemmed from that, diplomats said. The issue is likely to be raised during talks of EU leaders on Thursday.

 (Reporting by Jan Strupczewski, Andrew Gray and Lili Bayer in Brussels and John Irish in Paris; Editing by Alistair Bell)