Portugal asks EU to activate fiscal leeway for defence spending

LISBON (Reuters) - Portugal will ask the European Commission to activate the so-called fiscal escape clause to allow for higher defence spending worth up to 1.5% of gross domestic product, the finance ministry said on Wednesday, one of the first member states to do so.

European countries are under pressure from U.S. President Donald Trump, who is pushing NATO allies to lift military spending to as high as 5% and is reluctant to continue funding Kyiv in the war in Ukraine.

Portugal spent 1.55% of GDP on defence last year, still well below NATO's official target of 2%, but has promised more spending in coming years to bolster production and procurement of military equipment and technology in Europe.

The European Commission has proposed allowing member states to raise defence spending by 1.5% of GDP each year for four years, without any disciplinary steps that normally kick in once a government deficit climbs above 3% of GDP.

The move is part of its plans to mobilize close to 800 billion euros ($910.80 billion) to strengthen Europe's defence industry and increase military capabilities.

Portugal's centre-right government, in a caretaker role pending an election in May, has consulted the main opposition Socialist Party before taking the decision to activate the clause, the finance ministry said in a statement.

Unlike most of its euro zone peers, Portugal has been running budget surpluses for several years, which may explain its willingness to try out the escape clause without risking a major deficit blowout.

The government has forecast a surplus of 0.3% of GDP this year after last year's 0.7% surplus.

Neighbouring Spain, which among the 32 members of NATO had the lowest defence spending as a share of its economic output last year at just 1.3%, on Tuesday rolled out a 10.5-billion-euro plan to meet the 2% goal this year, but said it was still evaluating whether to activate the escape clause.

Italy has said it will not ask for the budget leeway.

($1 = 0.8783 euros)

(Reporting by Andrei Khalip and Sergio Goncalves; Editing by Ros Russell and Sharon Singleton)