The heavy price our country is already paying, but also the challenges and opportunities that are emerging, are revealed in the Bank of Greece Report on Monetary Policy 2024-2025. And warns that the “escape clause” introduced under the new European fiscal rules should not be turned into an alibi for relaxing fiscal discipline and uncritical benefits to citizens.

While the Report explains that this new escape clause does allow for the exclusion from the deficit calculation of defence spending if its increase is higher than the increase in nominal GDP and the debt-to-GDP ratio is declining, this should not create the illusion of greater fiscal space because, even with the clause, the overall public debt is burdened.

The BoE stresses that “fiscally, higher defence spending is expected to weigh on debt, although temporary flexibility in EU fiscal rules and European co-financing will partly mitigate the market reaction, especially for countries with heightened fiscal sustainability challenges.”.

The wording “partly” and “in particular for countries with increased challenges” is crucial: it suggests that even if defence spending is – formally – excluded from the deficit, it remains a reality that must be dealt with responsibly, so as not to expose the country to the risk of downgrades or increased borrowing costs, and not to mortgage the future of future generations.