Recommendation for a COUNCIL RECOMMENDATION Allowing Latvia to deviate from the maximum growth rates of net expenditure as set by the Council under Regulation (EU) 2024/1263 (Activation of the national escape clause)
Date: 2025-06-04
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: European Semester, Latvia, budget deficit, defence expenditure, gross domestic product, multilateral surveillance, public debt, public expenditure, stability pact, structural adjustment

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   EUROPEAN COMMISSION  Brussels, 4.6.2025  COM(2025) 610 final  Recommendation for a COUNCIL RECOMMENDATION Allowing Latvia to deviate from the maximum growth rates of net expenditure as set by the Council under Regulation (EU) 2024/1263 (Activation of the national escape clause)   
 
Recommendation for a 

COUNCIL RECOMMENDATION 

Allowing Latvia to deviate from the maximum growth rates of net expenditure as set by 
the Council under Regulation (EU) 2024/1263 
(Activation of the national escape clause) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121 thereof, 

Having regard to Regulation (EU) 2024/1263, and in particular Article 26 thereof, 

Having regard to the recommendation from the European Commission, 

Whereas: 

(1) 

(2) 

Regulation  (EU)  2024/1263  of  the  European  Parliament  and  of  the  Council  on  the 
effective  coordination  of  economic  policies  and  on  multilateral  budgetary 
surveillance1, together with the amended Regulation (EC) No 1467/97 on speeding up 
and  clarifying  the  implementation  of  the  excessive  deficit  procedure2,  and  the 
amended Council Directive 2011/85/EU on requirements for budgetary frameworks of 
the  Member  States3  are  the  core  elements  of  the  reformed  EU  economic  governance 
framework. The framework aims at ensuring public debt sustainability, and sustainable 
and inclusive growth through reforms and investments. It promotes national ownership 
and has a medium-term  focus, combined with an effective and coherent enforcement 
of the rules. 

The maximum growth rates of net expenditure as set in a Council recommendation in 
accordance  with  Articles  17(1)  or  19  of  Regulation  (EU)  2024/1263  are  the  single 
operational reference for the annual fiscal surveillance of each Member State and  are 
at the centre of the new economic governance framework. The maximum growth rates 
of  net  expenditure  as  set  by  that  Council  Recommendation  establishes  a  budgetary 
constraint for four or five years, which is based on an adjustment period of four years 
that can be, in the case of an extension, extended by an additional period of up to three 
years. 

(3) 

The framework provides for flexibility  in  the application of the rules in  the event  of 
exceptional  circumstances  outside  the  control  of  Member  States  that  have  a  major 

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Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on the 
effective coordination of economic policies and on multilateral budgetary surveillance and repealing 
Council Regulation (EC) No 1466/97 (OJ L, 2024/1263, 30.4.2024, ELI: 
http://data.europa.eu/eli/reg/2024/1263/oj). 
Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of 
the excessive deficit procedure (OJ L, 209, 2.8.1997, ELI: http://data.europa.eu/eli/reg/1997/1467/2024-04-
30).  
Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the 
Member States (OJ L, 306, 23.11.2011, ELI: http://data.europa.eu/eli/dir/2011/85/2024-04-30). 

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impact  on  the  public  finances,  in  accordance  with  Article  26  of  Regulation  (EU) 
2024/1263.  In  the  latter  case,  following  a request  from  a Member  State  and  on 
a recommendation by the Commission based on its analysis, the Council may within 
four  weeks  of  the  Commission  recommendation  adopt  a recommendation  allowing 
a Member State to deviate from its maximum growth rates of net expenditure as set by 
the  Council,  where  (i)  exceptional  circumstances  outside  the  control  of  the  Member 
State, (ii) have a major impact on the public finances of the Member State concerned, 
and (iii) provided that such deviation does not endanger fiscal sustainability over the 
medium term. The Council is to specify a time limit for such deviation. 

The  Heads  of  State  or  Government,  meeting  in  Versailles  on  10-11  March  2022, 
committed  to  bolster  European  defence  capabilities  in  light  of  Russia’s  military 
aggression against Ukraine. These aims were reiterated in  the Strategic Compass for 
Security and Defence. In its Conclusions on European defence of 6 March 2025, the 
European  Council  welcomed  the  intention  of  the  Commission  to  recommend  the 
activation, in  a coordinated manner, of the national escape clause under the Stability 
and Growth Pact as an immediate measure. 
In  its  Communication  of  19  March  20254,  the  Commission  has  invited  all  Member 
States  to  make  use  of  the  flexibility  provided  by  the  national  escape  clause  in  a 
coordinated  manner  with  a  view  to  maximising  the  impact  on  the  EU’s  defence 
capabilities.  This  flexibility  aims  at  facilitating  the  transition  to  higher  levels  of 
defence  spending  on  a  permanent  basis.  That  Communication  describes  that  the 
activation  of  the  national  escape  clause  would  allow  Member  States  to  deviate  from 
the  maximum  growth  rates  of  net  expenditure  as  set  by  the  Council  when  endorsing 
the  medium-term  fiscal-structural  plans  or  when  establishing  the  corrective  paths 
under the excessive deficit procedure to the extent that this deviation is justified by an 
increase in defence spending relative to the reference year, and that the annual excess 
through 2028 will not exceed 1.5% of GDP.  Increases beyond that amount would be 
subject  to  the  normal  assessments  of  compliance.  Such  a  maximum  is  necessary  to 
ensure that fiscal sustainability is not endangered, while allowing all Member States to 
benefit  from  the  flexibility  as  they  move  towards  a  higher  level  of  defence 
expenditure.  The  exact  amounts  will  be  determined  when  outturn  data  become 
available, to ensure that the additional flexibility is used only for its intended purpose. 
The Council recommendation of 21 January 20255 endorsed the net expenditure path 
of Latvia. 

On 28 April 2025, Latvia submitted a request to the Council and the Commission, to 
activate the national escape clause. 

In  its  request,  Latvia  sets  out  that,  in  a  context  of  heightened  geopolitical  tensions, 
Russia’s  continued  war  of  aggression  against  Ukraine  and  its  threat  to  European 
security constitutes an existential challenge for the Union, which requires a significant 
increase of defence spending. This situation is an exceptional circumstance outside the 
control of each Member State.  

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

In  its  request,  Latvia  reports  data  on  total  defence  expenditure  (Table  1).  Latvia 
acknowledges  that  the  projected  increase  of  defence  expenditure  to  3.8%  of  GDP  in 

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Commission Communication (C (2025) 2000 final) of 19 March 2025. 
Council Recommendation of 21 January 2025 endorsing the national medium-term fiscal-structural plan of 
Latvia (OJ C, C/2025/652, 10.2.2025, ELI: http://data.europa.eu/eli/C/2025/652/oj). 

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2026,  4.0%  in  2027  and  3.9%  in  2028  is  fully  reflected  in  the  net  expenditure  path 
endorsed by the Council on 21 January 2025. In addition to this, Latvia envisages to 
significantly increase defence expenditure to achieve a level of 5% of GDP according 
to the NATO methodology and to maintain that level for the long term. Therefore, the 
increase in defence expenditure has a major impact on the public finances of Latvia. 

Table 1: Total defence spending in Latvia 

General government total 
defence expenditure  
(% of GDP) 

2021 a 

2022 a 

2023 a 

2024 b 

2025 b 

2.5 

2.4 

3.1 

3.0 

3.3 

Source: a: Eurostat; b: Information provided to the Council and the Commission by Latvia.. 

(10)  Latvia estimates that the increase in total defence expenditure as a ratio to GDP from 
2021 to 2025 will be in the order of 0.8 percentage points and therefore contribute to 
deteriorating  the  government  balance  and  increasing  government  debt.  Specifically, 
Latvia  expects  public  debt  to  rise  above  55%  of  GDP  in  the  medium  term,  before 
gradually declining to 47% of GDP in 2038 if the national escape clause is fully used.  

(11)  All else being equal, an increase in expenditure over the period covered by the national 
escape clause will lead to higher government debt and a higher deficit by the end of 
that  period.  Indicative  projections  run  by  the  Commission  and  assuming,  by  2028,  a 
linear  uptake  of  the  full  increase  in  government  expenditure  allowed  by  this 
recommendation suggest that the deficit-to-GDP ratio and debt-to-GDP ratio in 2028 
would  be  1.3 pps.  and  2.7 pps.  higher,  respectively,  than  if  net  expenditure  grew  in 
line  with  the  path  set  by  Council  Recommendation  C/2025/652.  This  would  likely 
require  an  additional  fiscal  adjustment  after  the  period  of  activation  of  the  national 
escape clause in order to meet the requirements of the fiscal framework, including to 
ensure that the debt ratio is put or remains on a plausibly downward path, or stays at 
prudent levels below 60% of GDP over the medium term and that the deficit stays or is 
brought below 3% of GDP and maintained below the reference value over the medium 
term.  Latvia  acknowledges 
that,  going  forward,  structurally  higher  defence 
expenditure may require policies to preserve fiscal sustainability and compliance with 
the fiscal rules over the medium term. 

(12)  General  government  defence  expenditure  data  are  compiled  and  released  by  the 
national statistical authorities and Eurostat according to the International Classification 
of the Functions of Government (COFOG)6 in the framework of the European System 
of National Accounts (ESA2010)7. These data are appropriate to assess the impact of 
defence  spending  on  government  deficit,  debt  and  net  expenditure,  and  related 
concepts.  Eurostat,  in  close  cooperation  with  the  national  statistical  authorities,  will 
establish  a  data  collection  process.  The  starting  point  should  be  COFOG  defence 
categories, while also considering the NATO definition and retaining the possibility to 

6  Manual on sources and methods for the compilation of COFOG statistics — Classification of the Functions 

of Government (COFOG) — 2019 edition. 
Regulation (EU) No 549/2013 of the European Parliament and of the Council (OJ L 174, 26.6.2013, p. 1). 

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address  anomalies  that  might  be  attributable  to  differences  in  the  respective  annual 
reporting systems. The data collection process needs to be aligned with EDP reporting 
deadlines. 

(13)  Moreover, for some of the contracts for military equipment signed during the period of 
activation of the national escape clause, delivery may occur at a later stage, therefore 
impacting public finances only after the period of activation of the clause. To cater for 
this  eventuality,  the  flexibility  granted  under  the  national  escape  clause  should  also 
apply  to  defence  expenditure  linked  to  such  later  delivery,  provided  that  the 
corresponding contracts were signed during the period of activation of the clause and 
that this delayed defence spending remains within the overall cap mentioned above. 

(14)  The expenditure financed by loans provided by the new instrument for Security Action 
for  Europe  (SAFE)8  for  the  reinforcement  of  European  defence  industry,  would 
automatically  benefit  from  the  above  flexibility.  To  this  end,  Member  States  would 
report  to  Eurostat  all  defence-related  expenditures  made  under  the  SAFE  Instrument 
under the categories “defence products” and “other products for defence purpose” as 
defined in the proposal for a Regulation establishing the SAFE Instrument.  

(15)  This recommendation does not modify the definitions of government deficit, debt and 
net expenditure, and related concepts. Data based on these concepts are to be compiled 
and reported by Latvia in accordance with Regulations (EU) 2024/1263, No 479/2009 
and No 549/2013. 

HEREBY RECOMMENDS: 

1.  During  the  period  2025-2028,  Latvia  is  allowed  to  deviate  from  and  exceed  the 
maximum  growth  rates  of  net  expenditure  as  set  by  Council  Recommendation 
C/2025/6529 to the extent that the net expenditure in excess of these maximum growth 
rates is not more than: 

(i) 

the increase in defence expenditure in percent of GDP since 2021;  

(ii)  provided  that  the  deviation  in  excess  of  the  maximum  growth  rates  of  net 

expenditure does not exceed 1.5 percent of GDP. 

2.   In the years after 2028, Latvia may still deviate from and exceed the maximum growth 
rates  of  net  expenditure  as  set  by  a  Council  Recommendation  in  accordance  with 
Articles 17 or 19 of Regulation (EU) 2024/1263, to the extent that the net expenditure 
in excess of these maximum growth rates is related to deliveries of military equipment 
contracted before end-2028 and remains within the overall cap mentioned above.  

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Council  Regulation  (EU)  2025/…  establishing  the  Security  Action  for  Europe  (SAFE)  through  the 
Reinforcement of the European Defence Industry Instrument. 
Council Recommendation of 21 January 2025 endorsing the national medium-term fiscal-structural plan of 
Latvia (OJ C, C/2025/652, 10.2.2025, ELI: http://data.europa.eu/eli/C/2025/652/oj). 

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3.  In accordance with Article 22(7) of Regulation  (EU) 2024/1263, the deviations from 
the maximum growth rates of net expenditure as set by the Council that are allowed by 
this Recommendation will not be recorded as debits in the control account of Latvia. 

4.   In order to ensure correct recording of the additional expenditure Latvia is to include 
actual  and  planned  data  on  total  defence  expenditure  (COFOG  division  02)  and 
defence investment (COFOG division 02 P.51) and any expenditure to be financed by 
SAFE loans that are not covered in COFOG-02: 

(a) for years T-4, T-3, T-2 and T-1 (with year T being the current year) in the reporting 
to  the  Commission  (Eurostat)  in  accordance  with  Council  Regulation  (EU)  No 
479/2009;  

(b)  for  years  2021  through  year  T  (current  year),  in  national  medium-term  fiscal 
structural plans and in annual progress  reports in accordance with  Articles 11(1) 
and 15, and 21(1) of Regulation (EU) 2024/1263; 

(c)  for  years  T  (current  year)  and  T+1  in  draft  budgetary  plans  in  accordance  with 

Regulation (EU) No 472/2013. 

This recommendation is addressed to Latvia. 

Done at Brussels, 

For the Council 
The President 

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