Some EU countries that have so far been adhering to strict fiscal rules now signal different approach, including Denmark that will take over the EU Presidency in July. Even the idea of a common European debt is again on the table.
Danish Prime Minister Mette Frederiksen has recently signaled that Denmark may be willing to drop its traditionally frugal position on the EU budget. The shift is largely driven by Russia’s growing threat. Her remarks reflect a broader shift in attitudes toward government debt across Europe, as security concerns increasingly take precedence over fiscal restraint.
For years, Denmark has stood with Austria, the Netherlands, and Sweden in opposing larger EU budgets and stricter fiscal integration, the so-called ‘frugal four’. Now, in the face of war on the continent, even the continent’s frugal north is reevaluating what responsible statecraft looks like.
Their original position was spelled out clearly in a joint op-ed in the Financial Times by the leaders of the group in 2020, during a heated debate over the bloc’s long-term budget and post-pandemic recovery . The ‘frugal four’ insisted that contributions to the EU remain capped at 1% of gross national income, and that rebates and budget corrections were essential to ensure fairness for high-contributing countries like theirs.
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“Being ‘frugal’ does not mean that we are any less committed to the EU,” they wrote. “The success of the European project is measured by our ability to deliver on our political ambitions — not by the size of the budget.” Ultimately, “standing up for common values does not have a price tag”, the leaders were convinced. Frederiksen called an increased budget “completed nonsense”.
War in Ukraine as game-changer
But times have changed since.
Denmark is now of the opinion that to defend those values, the EU must bolster defense funds amid Russia’s assault on Ukraine. Talks over the EU’s next long-term budget, the Multiannual Financial Framework for 2028 to 2034, are expected to start after the summer. Denmark’s position will carry weight, with Copenhagen taking over the rotating Council presidency in July, and now displays a striking reversal from the tough stance it took during the last round of negotiations. “As Danes, we will always be tough in the negotiations in the budget. But being part of the Frugal Four is no longer the right place for us,” Frederiksen said during a press conference ahead of Denmark’s Council of the EU presidency.
This shift echoes a broader mood in the European Parliament, which recently assessed the European Commission’s plans for the next Multiannual Financial Framework. The Parliament concluded that the current budget is not sufficient to meet the challenges Europe faces today. While the EU budget has traditionally hovered around 1% of the bloc’s combined income, many MEPs argued that this is inadequate to tackle issues such as the war in Ukraine, economic hardships, competitiveness, and climate change. The proposal garnered support from 317 MEPs, faced opposition from 206, and saw 123 abstentions.
European common debt no more a red line
Frederiksen had already signaled a fiscal U-turn last December. She then remarked that Denmark was looking at European common debt — traditionally a taboo topic for the Nordic country — with “new eyes.” In her New Year’s speech, she called for more investment and argued that state aid may be necessary to revive European economies.
European common debt should be looked at with new eyes. – Mette Frederiksen, Danish PM
The idea of joint European debt, once a red line for many, is increasingly being debated at the highest levels. In his 2024 report on EU competitiveness, Former Italian Prime Minister Mario Draghi argued that a future-proof and resilient Europe will need joint funding and borrowing capacity to finance its ambitions, particularly in defense and green technologies. Following a swift rejection of the proposal, most notably by the Netherlands and Germany, Draghi then backed down and said common debts are not ‘essential’ for EU competitiveness.
Yet EU plans for ‘Eurobonds’, or common debt to finance defense procurement, are gaining traction, especially under the financial pressure of rearming in response to Russia’s war in Ukraine. Through the ReArm Europe initiative, member states have effectively broken the long-standing taboo by committing to joint borrowing, albeit for now limited strictly to the defense domain.
Germany and Netherlands lead the resistance
Across the broader EU agenda, resistance against common debts remains strong.
German Chancellor Friedrich Merz has so far ruled out permanent joint debt at the EU level. “We cannot go into never-ending spirals of debt”, Merz said during his first official visit to Brussels in May — emphasizing fiscal prudence even as Germany shifts toward a growth-oriented economic policy.
Likewise, the centrist Dutch party NSC — part of the outgoing cabinet — expressed skepticism about expanding joint debt, warning it could lead to a new debt crisis. European debt, they argued, is the “achilles heel of Europe”. In their view, joint debts could spiral highly indebted countries further into trouble, potentially forcing other EU members to bail them out if things go wrong.
Fiscal rules are getting looser
Yet even as resistance to EU-wide debt instruments persists, there are undeniable signs that Europe’s broader fiscal orthodoxy is changing. Across capitals, including former budget hawks, governments are loosening their purse strings, often at the expense of the EU’s budget rules.
In May, Germany Finance Minister Lars Klingbeil said that Germany wants to grow its economy, even if that means breaking the EU’s budget rules. Due to the huge investments approved by the German parliament in March, Germany is facing a deficit larger than allowed under EU rules — rules that the previous German finance minister had strongly advocated for in Brussels.
We want to see our economy grow even if that would mean breaking EU’s budget rules. – Lars Klingbeil, Germany Finance Minister (SPD)
Now, Germany is charting a new course by raising the minimum wage and cutting taxes to revive its economy, and refuses to let EU budget rules stand in the way. “I am very optimistic and confident that we will find a common path with the Commission,” Minister Klingbeil said.
Likewise, the European Commission has started disciplinary steps against Austria recently over the country’s budget deficit that exceeds EU limits. As Austria had a budget deficit of 4.7% of GDP last year — well above the European Union’s upper limit of 3% of GDP, Commissioner Valdis Dombrovskis (Economy and Productivity) said “the Commission will propose to the Council to open an Excessive Deficit Procedure for Austria”.
With Austria joining the group, about one-third of EU countries, representing roughly half of the Union’s population, are now breaching the bloc’s own fiscal rules. Brussels has acknowledged that this is largely due to budgetary pressures from European rearmament and has granted some flexibility by allowing military spending of up to 1.5 % of gross domestic product to be excluded from fiscal oversight.
Last week, the underlying friction between fiscal restraint and increased military spending stirred once more. NATO chief Mark Rutte declared allies were close to embracing a 5 % defense spending goal — more than double the current benchmark. When the 1.5 % flexibility for military budgets was agreed upon, it was hailed as a major shift. The ink on that concession has barely dried, but it may soon already be yesterday’s compromise.
