Italy leverages defense pact for energy relief

The G7 Finance Ministers met in Paris last weekend and handed Italy's Economy Minister Giancarlo Giorgetti exactly nothing. The communiqué called for "fiscal restraint", not flexibility, even as the Iran war pushes European energy costs to levels not seen since 2022. No G7 member backed Rome's demand to treat energy spending the way Europe already treats military spending: as an emergency worth bending budget rules for.

This refusal exposes how Europe's fiscal rules work in practice. Seventeen EU countries have activated the National Escape Clause (NEC), a provision in the Stability and Growth Pact (the EU's rulebook on government borrowing) that lets them spend up to 1.5% of GDP above their deficit targets on defense without triggering penalties. Italy wants the same treatment for energy costs caused by the Strait of Hormuz blockade. Brussels says no.

Who gets to use the escape hatch

The NEC was built on a simple premise: Russia's war in Ukraine created a security threat, so governments need room to rearm. The clause was activated for 15 member states in July 2025. Germany joined in October 2025, Austria in February 2026.

Italy's Prime Minister Giorgia Meloni wrote to Commission President von der Leyen on May 17 arguing that energy security, during a shooting war that has shut a major oil chokepoint, is just as strategic as military readiness. Commission Vice-President Valdis Dombrovskis said the request was being "examined", which in Brussels typically means shelving it. Extending the clause to energy would let every high-debt country walk through the same door, at a cost that Reuters has estimated at over €30 billion across the EU.

The debt divide

Germany's Chancellor Friedrich Merz sharpened the northern position on May 19: excessive debt "threatens sovereignty," he said, and some countries "spend more on interest than on defense." He didn't name Italy, but the target was unmistakable.

Yet Germany itself uses the NEC generously. Its federal audit court has warned that cybersecurity, civil protection, and intelligence spending are bundled under "defense," though in ordinary times they'd be classified as domestic administration. Berlin also channels roughly €15 billion in energy subsidies through its regular budget and climate fund. Germany can do this because its debt sits at around 65% of GDP. Italy's is at 137%. The Netherlands, at 44% with a top-tier credit rating (meaning very low borrowing costs), can absorb energy shocks without straining its budget.

The rules heavily favor countries with fiscal room. France shows this most painfully. Paris has been in an Excessive Deficit Procedure (the EU's penalty track for governments that overspend) since July 2024, which bars it from activating the NEC even though 17 other countries have.

France's interest payments have reached an estimated €74 billion in 2026, according to a French Senate report, now exceeding its defense budget of roughly €57 billion. The government has responded with a €6 billion spending freeze, cutting other ministries euro for euro to cover each new energy expense. Europe's main security partner pays more to service old debt than to fund its military.

Rome's strongest card

Giorgetti told reporters there are "many paths" to the same result: redirecting unspent recovery fund money, reclassifying energy spending as one-off, or taxing energy companies' outsized profits. Italy has not increased its windfall tax despite an estimated €9 billion in domestic upstream energy profits.

Rome's real leverage, though, is SAFE, the EU's new €150 billion joint defense lending programme. Italy has requested €14.9 billion from it. Meloni has signalled that without energy flexibility, explaining SAFE to the Italian public would be "very difficult." The activation deadline is end of May. This is a political trade.

If Italy delays or declines, the EU's rearmament programme loses its third-largest member. The Commission knows this. How much Brussels will bend on energy rules to protect its defense ambitions is the calculation that matters now.