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

Giorgia Meloni has found the weak point in Europe’s new budget rules: the moment every crisis asks to be treated like the last one. The Italian prime minister wants energy crisis spending kept outside the EU’s deficit limits, in the same way defence spending now can be. The European Commission said no straight away. Germany’s finance minister backed the refusal. A dry argument over a fiscal clause has become the first serious test of rules that were rewritten only two years ago.

What Meloni Wants, and Why Brussels Said No

The Stability and Growth Pact, the EU rulebook that keeps government deficits below 3% of GDP, was overhauled in April 2024. The old system of hard numerical targets was softened into country-by-country spending plans negotiated with the Commission. Then, in March 2025, Europe added a defence exception: the National Escape Clause, allowing governments to exclude up to 1.5% of GDP in defence spending from their deficit calculations for four years. Seventeen countries have used it. Italy, France and Spain have not.

Meloni’s case is simple enough. If Russia’s war and Europe’s security fears justify special treatment for defence, she argues, energy costs during the Hormuz crisis should qualify too. The problem is legal as much as political. The escape clause applies only to military expenditure, recorded under a specific statistical category. Energy subsidies sit in different budget lines. To treat them the same way, the EU would have to rewrite the law or activate the broader General Escape Clause, which requires evidence of a eurozone-wide recession (European Parliament).

Italy's Fiscal Trap

Italy is making this argument from a difficult place. Public debt is 137.1% of GDP, while the 2025 deficit came in at 3.1%, just above the EU ceiling and above the government’s own target (Eurostat). Growth in 2026 is forecast at about 0.8% (European Commission). The IMF has told Rome it needs a primary surplus, meaning revenue minus spending before debt interest, of 3% of GDP by 2027, nearly four times the current level.

That pressure is now visible 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, the EU programme that funds joint defence procurement through EU-issued bonds at favourable rates. Giorgetti has not replied. The deadline is the end of May. Crosetto went public on May 14, an unusual step that exposed the standoff (Il Sole 24 Ore).

Giorgetti’s position appears to be that Italy should not take on €14.9 billion in defence borrowing unless it also gets room from Brussels on energy spending. In effect, Rome wants a package deal.

Berlin Won't Budge

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

Germany is spending about €10 billion on its own energy relief in 2026, including fuel tax cuts, grid fee subsidies and lower electricity taxes for manufacturers (Bundesregierung). Berlin is doing that inside existing budget limits, not by asking for an EU exemption. 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 have also warned Klingbeil that Germany’s own spending growth of 5.75% already exceeds the EU-permitted 4.5%.

The Netherlands is on the same side. "The response to shocks cannot be more debt," The Hague argued.

For countries that remember how quickly fiscal rules can become political instruments, the argument is familiar. Europe softened the pact in 2024 to make it more realistic, not meaningless. Defence was the first exception. If energy follows, the next claims almost write themselves: climate adaptation, migration, industrial subsidies. Each one may have a case. Together, they would hollow out the spending limits the reform was meant to preserve. As one CDU deputy put it: "Anyone who constantly declares an economic state of emergency makes rules like the debt brake permanently obsolete."

Meloni has until the end of the month to decide. She can accept the SAFE defence loans and take the fiscal strain, or hold out in the hope that Brussels and Berlin blink first.