Greece has submitted a request to activate the escape clause for defense spending, launching the process of calculating the fiscal space that the country will have at its disposal in order to finance the additional support measures for 2026. Further details are expected after June, although the first estimates point to an amount of around 500 million euros.
This will be added to the fiscal space that can be created by the other “reservoir” resulting from the rate of change in net spending and which is estimated to be able to create additional space of around 1.0-1.1 billion euros. Therefore, the economic staff can make its calculations based on an amount that can even reach 1.6 billion euros.
Competent sources pointed out, however, that it is still too early to “lock in” any decision, given that the execution of this year’s budget and the uncertainty regarding international developments are critical factors that can affect the final amount. The amount to be made available results from the application of the new fiscal rules of the European Union as they emerged after the “update” of the Stability Pact.
In fact, there is one decisive indicator: the percentage change in “net expenditure” that replaced that of the primary surplus. Greece is expected to submit to the European Commission the so-called “annual growth report” and it will record the maximum permitted percentage increase in net expenditure for both this year and next year. The upward revision of the percentage is now considered a given, regardless of whether this will be reflected in today’s official text that the Greek government will submit to Brussels.
The difference of 2.6%
The reason is the very good fiscal performance of the country in 2024. While a 2.6% growth rate of net expenditures was taken into account last year, ultimately with the fiscal assumptions made (performance of measures to combat tax evasion, containment of specific expenditures, etc.), the final rate of change was calculated at… 0%.
The government is in a position to “share” this difference of 2.6% in the budgets of the following years. Thus, this year’s rate of change in net expenditures may even reach 4.3%-4.4% and approximately at the same levels for 2026. At this rate – which leaves room for an increase in net expenditures by more than 4.0-4.5 billion euros on an annual basis – not only the new support measures must be “contained” but also all the fiscal commitments that the government has already undertaken for next year, which are not few at all. What has already been planned for next year:
- The new increase in pensions based on the percentage that will result from the growth rate and inflation.
- The horizontal increase in salaries based on the adjustment of the minimum wage from April 2026. In any case, the various individual increases that have been announced this year for the State (uniforms, etc.) will have a greater fiscal impact in 2026, as they will be applied for the entire year.
- The reinstatement of all the measures that will be activated this year and in the following years (rent refund, one-off economic aid for low-income pensioners, etc.).
Based on the estimates so far, the margin for new permanent support measures is currently estimated at 1.0-1.1 billion euros. This amount also incorporates the need to increase defense spending by approximately 500-600 million euros in 2026 compared to 2025.
If this amount is not ultimately included in the calculation of the rate of change in net expenditure, then the margins for increasing the amount of financing for additional support measures will automatically rise. The amount of 500-600 million euros is a first estimate and has not been “locked in.”
Even the representatives of the European Commission who were asked about it yesterday avoided any quantification, as it also depends on the technical framework under which the escape clause will be applied.
