EU energy leeway leaves France outside

Europe's fiscal rules are about to get another exception. Ten EU member states are under excessive deficit procedures, the formal warning system used when governments breach the bloc's limits on borrowing. The European Commission now wants to let capitals leave up to 0.3% of GDP in energy spending out of those calculations each year from 2026 to 2028.

Across the EU-27, that would create roughly €50 billion per year in budget room (Bloomberg). The catch is in the design. The countries with the soundest public finances get the most room to move. The countries already under the greatest fiscal strain get very little.

How the Carve-Out Works

The mechanism sits inside the EU's reformed fiscal rulebook, the Stability and Growth Pact, which was overhauled in April 2024. Each member state is given a ceiling on how quickly public spending can grow. If it breaches that ceiling by more than 0.3% of GDP in a single year, or 0.6% cumulatively, the Commission can push it towards spending cuts (CEPR/VoxEU).

The new proposal would carve out a narrow exception. Spending on green investments such as grid upgrades, battery storage and renewables would not count towards the ceiling (Council draft note, March 2026). Fuel subsidies, general price caps and across-the-board VAT cuts are left outside.

The model follows the defence escape clause already used by 17 member states. It also sits within the same 1.5% of GDP envelope. In plain terms, this is not fresh money from Europe. It is permission to move existing fiscal space from one box to another.

Who Gets the Money, Who Gets Locked Out

France shows the flaw in the arrangement. It is running a deficit of about 5.1% of GDP, is already under an excessive deficit procedure, and in practice has almost no access to the new flexibility. The Lecornu government has frozen €3.2 billion in credits and cancelled €847 million across ministries just to fund modest energy relief. No French official has publicly addressed the exclusion.

Italy is in a different position. With a deficit near 3.1%, it is exiting its procedure and can use roughly €6.5 billion per year. But Rome did not get the policy it wanted. The Commission limited eligible spending to green investment, rejecting the Meloni government's push for broad fuel tax cuts (Euronews).

Portugal has the cleanest story on paper. With a deficit of just 0.1%, it has the most room of all. The country that once needed a bailout now qualifies comfortably for flexibility it barely needs.

So the distribution is awkward. 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 has called the Commission's broader budget expansion "unacceptable in times when all member states are making significant consolidation efforts." Sweden's Europe minister put it more bluntly: "There is no free money".

Berlin's own position is less tidy. Germany is running a deficit of roughly 4% of GDP, above the 3% limit, while sidestepping its constitutional debt brake through a €500 billion off-balance-sheet infrastructure fund. Berlin tells Rome and Madrid to respect fiscal discipline while using creative accounting at home.

The Tax Nobody Wants to Collect

As governments stretch their budgets to shield consumers, energy companies are keeping windfall profits, the excess gains made when wholesale prices rise abnormally. 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. The result is simple enough: taxpayers carry the fiscal cost, while 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". That leaves the Commission with a political problem as much as a fiscal one. A common framework that gives most room to the countries least in need will be hard to defend when energy bills start biting again.