Clyde Caruana warns EU risks social unrest if defence spending cuts into welfare
Europe needs more flexible fiscal rules to be competitive, he said
Europe risks weakening itself by cutting into the welfare state to fund higher defence spending, Finance Minister Clyde Caruana warned on Monday.
Speaking at an event to mark the 20th anniversary of the European think tank Bruegel, Caruana said Europe finds itself at a delicate juncture, facing twin threats of external aggression and internal disquiet, including "growing inequality, social division, and the erosion of trust in our Union".
He pointed to ongoing discussions about the EU’s upcoming budget, marked by “difficult conversations about how to balance new defence spending with long-standing commitments”.
While geopolitical tensions mean that increasing Europe’s defence spending is “necessary,” this should not come “at the cost of dismantling our social safety nets,” Caruana said.
If this happens, “we may find that we have won battles abroad only to lose the peace at home,” he added.
“In short, rising inequality and social unrest could undermine the very European project we seek to defend,” he said.
Caruana argued that, ultimately, Europe is only as strong as its member state’s national government.
“At a time when around us nationalism is on the rise, Europe finds itself with ever weaker governments,” he said.
Caruana’s speech comes just weeks after the French minority government collapsed over Prime Minister Francois Bayrou’s plans to cut the French budget by almost €44 billion.
Meanwhile, a European Commission proposal to greatly increase the EU budget to tackle Russian aggression was opposed by the bloc’s largest member, Germany, which argued that the EU budget should not increase “at a time when all member states are making considerable efforts to consolidate their national budgets".
Caruana argued that European lawmakers need to rethink the bloc’s fiscal rules to meet today’s global challenges, including the green transition, digital innovation, and collective defence.
“Rules designed for yesterday’s problems cannot blindly be applied to today’s realities,” Caruana said, saying fiscal rules need to “evolve” if Europe is to avoid falling behind its competitors in these sectors.
New fiscal rules need to be “strict enough to avoid reckless spending, yet flexible enough to respond to crises and invest in our future,” Caruana said.
Turning to Malta, Caruana described the country’s fiscal consolidation in the wake of the Ukraine war as “a marathon not a sprint,” enabling it to bring the country’s deficit and debt ratio down gradually.
“Fiscal responsibility does not mean austerity, we have proven that it can go hand in hand with social and economic progress,” Caruana said.