January 3, 2025 –
Jasper Dietz
–
Articles and Commentary
Lithuanian Speaker of Parliament visits 3rd US Infantry Division in Lithuania. Photo: Staff Sgt. Oscar Gollaz (US Army) / Wikimedia.org
In light of an increasing Russian threat, Lithuanian political leaders announced they intend to drastically increase national defence spending in order to reach their military goals by 2030
instead of 2040. However, as this would involve the Lithuanian government taking on
substantial loans, it is likely Lithuania will breach EU fiscal policy. Although the importance of fiscal responsibility cannot be understated, the need for countries on Europe’s Eastern front to protect their borders is much more pressing. The European Commission must take action to ensure member states on the frontline have the flexibility to protect 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 speed up this process, Lithuania would need to spend as much as 5 to 5.5 percent of its GDP on defence annually. The challenge lies in the EU’s Stability and Growth Pact (SGP), which is a set of economic and fiscal requirements EU member states must meet to ensure responsible budgeting.
The SGP dictates government debt-to-GDP ratio must remain below 60 percent and budget deficit-to-GDP ratio below three percent. To reach the desired defence spending, Lithuania must certainly borrow significant sums of money on the domestic and international 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 significant security threats and showing the greatest political will to address them face artificial barriers from Brussels.
After Russia invaded Ukraine in 2022, the European Defence Agency (EDA) reported record high defence spending among EU member states. In 2024, most have now reached or are inching closer to the traditional 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 member states, regardless of their
political will. As the EU-wide response 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 provide its member states with an extra incentive and the necessary fiscal flexibility to strengthen their defence capabilities. To achieve this, the European Commission should implement a defence expenditure clause within the Stability and Growth Pact which would allow 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 stability of its borders in dire times. Additionally, it would be a welcome stimulus for other member 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 ensure fiscal stability and responsibility, such as capping the exemption amount and defining a specific time frame.
However, for the measure to be effective, excessive stringency must also be avoided. After all, we must not lose sight of what matters most: a free, safe and secure Europe.
Jasper Dietz is Policy Fellow with Young Voices and Vilnius University graduate, specializing in Eastern European and Russian affairs.
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defence, defence budged, European Union, Lithuania
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Publish date : 2025-01-03 06:16:00
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