Italy wins €6.5 billion energy budget waiver

The European Commission is expected to announce on June 3 that Italy can exclude up to 0.3% of GDP per year in energy investments from its deficit calculations, worth roughly €6.5 billion over 2026-2028 (Il Fatto Quotidiano). The flexibility won't come through a new rule. It gets tucked inside the defence spending exemption that 15 member states already activated last July. Energy spending, redefined as security, now qualifies for the same treatment as tanks and troops, and the precedent matters more than the amount.

How Defence Swallowed Energy

The EU's reformed Stability and Growth Pact (the framework that limits how much governments can borrow), in force since April 2024, replaced old targets with a "net expenditure path" that caps how fast governments can increase spending each year. To accommodate post-Ukraine military buildups, it includes a national escape clause allowing up to 1.5% of GDP in extra defence spending through 2028 (European Parliament).

Italy never activated that clause for defence. Instead, Giorgia Meloni wrote to Commission President von der Leyen on May 17, arguing that if budget rules flex for tanks, they should flex for energy security. The response, brokered by Italian Vice-President Raffaele Fitto, widens the defence clause from within: energy investments can take up to 0.6% of GDP cumulatively, inside the existing 1.5% ceiling (Corriere della Sera). Only capital investment qualifies. Subsidies and price caps are excluded.

The economic case is genuine. Italian industrial electricity ran at 278 €/MWh in the first half of 2025, about 29% above the EU average of 216 €/MWh (Confindustria, Eurostat). The Hormuz strait crisis widened that gap. Italian manufacturers pay more for power than almost anyone in Europe, and the cost feeds directly into lost competitiveness.

Who Gets to Call It "Security"

While the economic case holds up, the political reception depends on who is asking. When Der Spiegel covered Meloni's letter, it called it a "Bettelbrief", a begging letter. Germany's own projected deficit for 2026 runs at 3.7% of GDP (Bundesfinanzministerium). Italy's sits lower, at around 3%. Berlin also activated the defence escape clause and set up a constitutionally exempted infrastructure fund, where the ifo Institute found up to 95% of spending drifting from its stated purpose (WirtschaftsWoche). Nobody called that begging.

France, meanwhile, is locked out entirely. With a deficit around 5% and stuck in the EU's excessive deficit procedure (the penalty box for governments that consistently overspend), Paris can't access the defence clause and therefore can't reach the energy sub-clause either (El País). France spends roughly €6 billion on emergency energy aid, about what Italy's derogation covers, but every euro hits the French deficit directly (Parlons Politique).

What Gets Carved Out Next?

Academics at the CEPR already see gaps between the new rules and how they're being applied. Bond markets are paying attention too: Italy's BTP-Bund spread (the extra interest Italy pays over Germany to borrow) widened from 59 basis points in January to above 100 by April, according to countryeconomy.com. Not panic. But not indifference.

Each exception added to the fiscal framework is individually defensible. Italy's energy costs genuinely hurt competitiveness. Defence genuinely needed room. But if energy fits inside defence, climate investment is next. Then digital. Then housing. The reformed rules are barely two years old, and they are already being reinterpreted until the constraints stop constraining.