Vulcan View: The latest EU developments 28 April – 2 May

Sixteen EU countries trigger ‘escape clause’ for defence spending

On Wednesday, 30 April, sixteen European Union member states announced their intention to use the ‘national escape clause’ – a special budget flexibility rule- to ramp up defence spending prompted by Russia’s ongoing war in Ukraine and the heightened security threat across Europe, these countries are seeking permission to invest more in their military capabilities without immediately breaching the EU’s strict fiscal guidelines.

On the same day, the European Commission announced that it had already received formal requests from twelve nations, with the other four expected to follow in the coming days, signalling a significant push to bolster the continent’s defence readiness in the face of exceptional circumstances.

The security landscape in Europe has fundamentally shifted since Russia’s full-scale invasion of Ukraine. Recognising the urgent need to strengthen their collective defence, EU leaders agreed in March 2025 that member states must build up their military capabilities. However, this presents a challenge. Most EU countries operate under the Stability and Growth Pact, a set of rules to ensure sound public finances by limiting government deficits and debt. Rapidly increasing defence budgets can clash with these rules, especially for countries already managing tight budgets.

To address this, the EU’s recently reformed economic rulebook includes a specific tool: the national escape clause. This provision permits a member state to temporarily diverge from its established budget targets if exceptional circumstances beyond its control significantly affect its public finances. The European Commission and the Council have determined that the current security situation and the need for defence investment constitute exceptional circumstances. As a result, countries that invoke the national escape clause for defence will be permitted to deviate from budgetary rules by up to 1.5 per cent of their GDP per year for a maximum of four years.

What countries are triggering it?

So far, Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Greece, Croatia, Latvia, Lithuania, Hungary, Poland, Portugal, Slovenia, Slovakia, and Finland have signalled they will use the clause. Notably, this group includes many Eastern European nations on the front line of the security challenge, as well as several smaller member states. Among the EU’s largest economies, only Germany is currently planning to activate it.

Countries like France and Italy, which face greater budget pressures, have not joined the request at this stage. Italian Finance Minister Giancarlo Giorgetti suggested Italy might reach its defence spending targets through accounting adjustments and is waiting for revised NATO spending goals, which are expected in June, before considering options like the escape clause. Similarly, Spanish Economy Minister Carlos Cuerpo stated that Spain is still considering the defence clause. He noted that Spain’s decision may depend on advancements in creating a European fund to counteract U.S. tariffs.

Other countries with healthier public finances, like the Netherlands and Sweden, are increasing defence spending significantly but believe they don’t need this specific budget flexibility. Denmark, despite having sound finances, explicitly joined the request to send a strong political signal of EU unity on rearmament.

Conclusion

The activation of the national escape clause by a large group of EU countries marks a clear commitment to strengthening European defence in response to geopolitical threats. It provides a practical tool for governments to invest more and faster. The following steps will involve formal assessment and approval by the EU institutions in the coming months.

The Irish government eyes windfall funds and the NDP review to back the semiconductor sector with new strategy

The Irish Government is set to approve a new strategy to support the growth of the semiconductor sector in Ireland. The strategy was brought forward by Peter Burke, Minister for Enterprise, on Tuesday, 29 April.

This announcement underpins the government’s commitment to supporting the semiconductor industry and reinforces the view that it is a crucial sector to the country’s economic and strategic interests. The introduction of this strategy aligns with the IDA’s strategic objectives, which recognise the semiconductor sector as a key driver of future growth.

The strategy will focus on three key areas:

• Supporting high-value jobs.
• Securing long-term investment.
• Solidifying Ireland’s position as a leader in Europe’s semiconductor future.

Additionally, on 8 April, Minister Burke announced that the strategy will aim to “signpost actions” for the sector, “coordinate activities” among stakeholders, and provide the industry with a clear pathway for growth while focusing on EU-level opportunities.

The government will not provide any immediate funding with the new strategy. However, it will explore options to subsidise the semiconductor sector. Funding decisions will be made during Budget 2026 discussions and as part of broader investment strategies such as the National Development Plan (NDP) and the allocation of Apple and AIB windfall funds. The upcoming review of the NDP, led by Public Expenditure Minister Jack Chambers, will be a crucial opportunity to push for subsidies for the industry.

European Context

The strategy follows a recent report from the European Court of Auditors which found that there is little chance that the EU will meet its goal of a 20 per cent share of the global microchip market by 2030. Europe’s share of worldwide microchip value is estimated to reach 11.7 per cent by 2030. This is despite progress made by the EU Chips Act, which allowed for a relaxation of state aid rules to permit increased member-state investment in the sector. According to the ECA, the investments arising from the Act will have a limited impact on strengthening the EU’s competitiveness in the industry.

In addition to funding challenges, the report highlighted several other issues facing the EU semiconductor industry. These include:

• Over-reliance on imported raw materials.
• High energy costs.
• Constraints from environmental policies.
• Geopolitical instability.
• Shortage of skilled labour.

U.S Context

Furthermore, the strategy comes at a pivotal moment for the global semiconductor industry, with the Trump administration currently conducting a probe into imports of pharmaceuticals and semiconductors. According to Federal Register filings, the move is part of an effort to impose tariffs on both industries, citing national security concerns over heavy reliance on foreign production of pharmaceuticals and semiconductors.

Von der Leyen and Starmer signal renewed EU-UK cooperation

On Thursday, 24 April, European Commission President Ursula von der Leyen and UK Prime Minister Keir Starmer met in London on the sidelines of the IEA’s Summit on the Future of Energy Security for a discussion. The EU and UK are expected to sign a formal declaration committing to “free and open trade” ahead of the EU-UK summit on 19 May.

During the meeting, they discussed the ongoing efforts on the “strategic and defence partnership agreement,” which would enable the UK to “participate in the European Commission’s SAFE programme.”

While the mood between the two has significantly improved and there is a strong likelihood of an agreement being signed at the London Summit, disputes regarding fishing rights and SPS rules, among other issues, persist.

Additionally, von der Leyen highlighted cooperation between the UK and the EU on energy security, identifying the North Sea as a potential “powerhouse” for clean energy technologies. Von der Leyen emphasised the importance of collaboration between the UK and the EU to create a stable and unified regulatory framework, which is essential for unlocking investment in the region.

In a statement released by von der Leyen, she noted, “We are friends, and we are Europeans, we are very like-minded. We share the same interests and the same values. We face the same challenges, but we are complementary also in defending our democracies.”

Notably, the UK is looking to balance its interests by attempting to maintain trade relations with both the U.S. and EU post-Brexit. Efforts to maintain regulatory alignment with the EU – particularly in the agriculture sector – may limit the UK’s ability to achieve bilateral negotiations with the U.S.

Currently, the U.S. is demanding that the UK lower its food quality standards to allow U.S. imports of beef and chicken – something the UK government firmly rejects. As an alternative, the UK government is willing to reduce its digital services tax – primarily affecting large U.S. tech firms – in exchange for tariff reduction on steel, aluminium and cars.

Therefore, the recent meeting between European Commission President Ursula von der Leyen and British Prime Minister Keir Starmer signals a renewed commitment to cooperation in EU-UK relations, particularly in trade, energy and security. The anticipated signing of a “free and open trade” agreement highlights a step towards greater alignment during a time of shared geopolitical challenges.

Compliments of Vulcan Consulting – a member of the EACCNY