Experts like Luigi Scazzieri from the Centre for European Reform warn that while the escape clause may provide some relief, joint defense bonds could potentially raise significantly more funds.

Under the Stability and Growth Pact, EU member states must maintain a government deficit below 3% of GDP and debt under 60% of GDP, or face penalties.

The potential issuance of bonds could also involve the UK through a special vehicle, which would help navigate opposition from certain EU countries, such as Hungary.

Italy's finance minister, Giancarlo Giorgetti, has praised the escape clause as a significant win for Italy, which faces challenges with high public debt and low economic growth compared to other EU nations.

The urgency surrounding discussions on European defense strategy reflects a critical shift influenced by both internal politics and external pressures.

These discussions are driven by Europe's increasing defense needs, particularly as reliance on U.S. support declines.

At a recent summit in Paris focused on Ukraine, two key policy options emerged: the introduction of joint defense bonds and the activation of a defense escape clause.

European Commission President Ursula von der Leyen plans to activate the escape clause in the EU's fiscal rules to enhance defense investment, drawing parallels to measures taken during the Covid pandemic.

Support for the escape clause has been voiced by EU finance ministers and German Chancellor Olaf Scholz, who is advocating for exemptions for German defense spending from existing debt rules.

Possible bond initiatives are being discussed, aiming to raise around €500 billion, with German Foreign Minister Annalena Baerbock hinting at a larger €700 billion security package post-German elections.

Historically, Germany has opposed EU-wide joint debt issuance; however, a precedent was established during the pandemic with an €800 billion facility for grants and loans to member states.

Friedrich Merz, a leading candidate for German chancellor, has indicated a willingness to entertain discussions on joint defense bonds, marking a notable shift from prior opposition.