Estonia will not use European Commission's proposed budget flexibility

The European Commission has decided to further relax fiscal rules because of rising energy prices. Estonia will not make use of this option, Finance Minister Jürgen Ligi said.

Under the Commission's decision, member states may spend up to an additional 0.3 percent of GDP per year on measures to strengthen energy security through 2028.

At the same time, member states must rely on a so‑called escape clause that allows them to increase defense spending by up to 1.5 percentage points above the 3% budget deficit limit. So far, 17 member states have activated this clause, including Estonia.

European Commission Executive Vice President for the Economy Valdis Dombrovskis said Wednesday that all countries that have already activated the clause must submit a formal request to the Commission before making additional energy‑related expenditures.

According to Dombrovskis, the Commission will allow the defense spending clause to be extended to measures that reduce dependence on fossil fuels, such as purchasing electric vehicles or supporting the installation of solar panels. He also confirmed that fossil fuel purchases cannot be subsidized under the flexibility measures.

According to media reports, the Commission's decision marks a significant win for Italy. Italian Prime Minister Giorgia Meloni had asked the Commission to extend the defense spending exemption to measures aimed at mitigating the impact of rising energy prices.

Finance Minister Jürgen Ligi said it currently appears that funds intended for defense spending will be used for measures that are not effective. Estonia will not take advantage of the looser rules, he said.

"We won't use it. I'm critical of this," Ligi said. "The point is that a deficit of 4.5%—as far as we understand—won't be allowed to increase. But this was meant to boost defense spending and address a specific situation. If countries start using this money to hand out benefits to their citizens, they will in fact be putting less into defense."

Ligi added that he intends to criticize the European Commission's decision at the meeting of EU finance ministers in Luxembourg next Friday.

"This is a very fundamental policy choice again: the budget rules are being loosened, but in reality defense spending is often not increased. We have countries here that are not moving at all and are at around 1 percent, and now they can loosen the rules again. I don't understand why the Commission did this. I know there is pressure," Ligi added.