ECB’s Knot: Exemptions From Budget Rules to Increase Defense Spending Should Be Temporary

20 March 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Klaas Knot said on Thursday that exemptions from fiscal discipline granted to enable higher defense spending should be temporary and limited.

In a speech at the presentation of the annual report for 2024 of the De Nederlandsche Bank, which he heads, Knot said that increasing defense expenditures came ‘with a hefty price tag.’

‘In view of this, there is a strong case for giving countries a temporary exemption from the budget rules for additional defence spending’, he said.

However, these exemptions should be limited in time and scope, he said, as elevated spending was structural and public debt was still at high levels in the EU.

‘A temporary relaxation of the rules will allow countries to integrate additional defence spending into their budgets in the longer term’, he said. ‘Because sustainable public finances may not be compromised.’

Turning to the Dutch economy, Knot said that domestic inflation was higher than in the Eurozone as a whole but that the Netherlands could not expect the ECB to deal with this.

‘Getting Dutch inflation under control is a joint responsibility both for the social partners and the government’, he said.

The government had to keep a ‘trend-based budget policy’ and should avoid throwing ‘more fuel on the inflationary fire’, he said.