EU energy carve-out offers €50 billion in leeway

Ten EU member states are under excessive deficit procedures, meaning Brussels has formally flagged them for spending beyond their means. The European Commission now wants to let governments exclude up to 0.3% of GDP in energy spending from those deficit calculations each year from 2026 to 2028. Across the EU-27, that adds up to roughly €50 billion per year in budget headroom (Bloomberg). But the maths is entirely regressive: the countries with the healthiest budgets get the most space, while those under the heaviest fiscal pressure get almost nothing.

How the Carve-Out Works

Under the EU's reformed fiscal rulebook, the Stability and Growth Pact (overhauled in April 2024), each member state gets a ceiling on how fast its spending can grow. Breach that ceiling by more than 0.3% of GDP in a single year, or 0.6% cumulatively, and Brussels can force spending cuts (CEPR/VoxEU).

The energy proposal carves out an exception. Qualifying spending on green investments like grid upgrades, battery storage, and renewables won't count toward that ceiling (Council draft note, March 2026). Fuel subsidies, general price caps, and across-the-board VAT cuts are explicitly excluded. The carve-out copies the defense escape clause already used by 17 member states and sits inside the same 1.5% of GDP envelope. This is a reallocation of existing room, not new money.

Who Gets the Money, Who Gets Locked Out

France runs a deficit of around 5.1% of GDP, already under an excessive deficit procedure, and effectively cannot access the new flexibility. The Lecornu government has frozen €3.2 billion in credits and cancelled €847 million across ministries to fund even modest energy relief. No French official has publicly addressed the exclusion.

Italy, with a deficit near 3.1%, is exiting its procedure and can tap roughly €6.5 billion per year. But the Commission restricted eligible spending to green investments, rejecting Rome's push for broad fuel tax cuts (Euronews). Portugal, with a deficit of just 0.1%, has the most room of all. The country that once needed a bailout now qualifies comfortably for flexibility it barely needs.

Governments with the strongest budgets gain the most space. Those where energy poverty bites hardest gain the least.

Germany Blocks What It Practises

Germany's Merz government called the Commission's broader budget expansion "unacceptable in times when all member states are making significant consolidation efforts." Sweden's Europe minister was blunter: "There is no free money".

Berlin itself runs a deficit of roughly 4% of GDP, well above the 3% limit, while having sidestepped its own constitutional debt brake through a €500 billion off-balance-sheet infrastructure fund. Berlin preaches fiscal discipline to Rome and Madrid while practising creative accounting at home.

The Tax Nobody Wants to Collect

While governments expand deficits to shield consumers, energy companies pocket windfall profits (excess gains from abnormally high wholesale prices). Five countries called for an EU-level levy on those profits in April 2026. The Commission left the matter to national capitals. Italy raised its regional business tax on energy firms from 3.9% to 5.9%. No other major economy has imposed a meaningful windfall tax this cycle. Taxpayers absorb the fiscal cost; energy producers keep the margin.

The ECB has warned that "any deviation from temporary, targeted, tailored principles would be counterproductive and could lead to a different monetary policy stance". The real question ahead: can a framework that offers budget room mainly to those who don't need it, while locking out those who do, still call itself common?