EU Rejects Italy Prime Minister Meloni’s Request for Energy Crisis Debt Exemptions

Giorgia Meloni wants the EU to exempt energy crisis spending from its budget limits, just as it already exempts defence. The European Commission rejected the request immediately. Germany's finance minister backed the refusal. This dispute over a budget clause is the first real test of Europe's new fiscal rules — reformed barely two years ago and already under pressure.

What Meloni Wants, and Why Brussels Said No

The EU's Stability and Growth Pact (the rules limiting government deficits to 3% of GDP) was overhauled in April 2024. Rigid numerical targets gave way to country-specific spending plans negotiated with the Commission. Then, in March 2025, Europe added a special carve-out: the National Escape Clause, which lets governments exclude up to 1.5% of GDP in defence spending from their deficit calculations for four years. Seventeen countries have activated it. Italy, France, and Spain have not.

Meloni argues that if defence gets a pass because of geopolitical emergency, energy spending during the Hormuz crisis deserves the same treatment. But the escape clause covers only military expenditure, classified under a specific statistical category. Energy subsidies fall into entirely different budget lines. Changing this would require either rewriting the law or activating the broader General Escape Clause, which demands evidence of a eurozone-wide recession (European Parliament).

Italy's Fiscal Trap

Italy's public debt stands at 137.1% of GDP, and the 2025 deficit came in at 3.1% — just above the 3% ceiling, missing the government's own target (Eurostat). Growth forecasts for 2026 hover around 0.8% (European Commission). The IMF has told Rome it needs a primary surplus (revenue minus spending, excluding debt interest) of 3% of GDP by 2027, nearly four times its current level.

This squeeze is playing out inside Meloni's own cabinet. Defence Minister Guido Crosetto has written twice to Finance Minister Giancarlo Giorgetti asking him to approve €14.9 billion in loans from SAFE (Security Action for Europe), an EU programme that finances joint defence procurement through EU-issued bonds at favourable rates. Giorgetti hasn't replied. The deadline is end of May. Crosetto went public with his frustration on May 14, an unusual move that laid bare the internal standoff (Il Sole 24 Ore).

Giorgetti's calculus: don't lock in €14.9 billion in defence debt unless Brussels also grants flexibility on energy spending. A package deal, or nothing.

Berlin Won't Budge

Chancellor Friedrich Merz called the existing defence exemption "already at the limit of what's acceptable". Germany's own fiscal watchdog, the Bundesrechnungshof, warned that the defence carve-out risks becoming "the standard rule for debt accumulation", with over 96% of planned federal borrowing for 2029 falling under the exemption.

Germany is spending roughly €10 billion on its own energy relief in 2026 — fuel tax cuts, grid fee subsidies, reduced electricity taxes for manufacturers (Bundesregierung). But Berlin is funding this within existing budget limits, not by seeking EU-level exemptions. Finance Minister Lars Klingbeil has signalled that from 2030, even defence exemptions should be capped at 1% of GDP. Independent economists advising the German government warned Klingbeil directly that Germany's own spending growth of 5.75% already exceeds the EU-permitted 4.5%.

The Netherlands joined the opposition. "The response to shocks cannot be more debt," The Hague argued.

Europe reformed its fiscal rules barely two years ago. The defence exemption was the first exception. If energy spending gets the same treatment, what follows — climate adaptation costs? Migration spending? Each carve-out weakens the spending limits the 2024 reform was built to enforce. As one CDU deputy put it: "Anyone who constantly declares an economic state of emergency makes rules like the debt brake permanently obsolete."

Meloni must choose before month's end. Accept the SAFE defence loans and absorb the fiscal hit, or bet that Brussels and Berlin will blink first.