Italy trades defence backing for energy relief

Giancarlo Giorgetti went to Paris last weekend looking for room to breathe. Italy's Economy Minister left the G7 Finance Ministers' meeting with none. The communiqué called for "fiscal restraint", even as the Iran war drives European energy costs back towards the levels last seen in 2022.

Rome wanted energy spending caused by the Strait of Hormuz blockade treated like military spending: an emergency that justifies bending Europe's budget rules. No G7 member backed it.

Who gets to use the escape hatch

The dispute goes to the heart of how Europe's fiscal rules work in practice. Seventeen EU countries have activated the National Escape Clause, a provision in the Stability and Growth Pact, the EU rulebook on government borrowing, that allows them to spend up to 1.5% of GDP above deficit targets on defence without penalties.

The logic was straightforward. Russia's war in Ukraine created a security threat, so governments needed space to rearm. The clause was activated for 15 member states in July 2025. Germany joined in October 2025, Austria in February 2026.

Giorgia Meloni wrote to Commission President Ursula von der Leyen on May 17 making the Italian case: energy security, during a shooting war that has closed a major oil chokepoint, is as strategic as military readiness. Commission Vice-President Valdis Dombrovskis said the request was being "examined", which in Brussels often means the file is being parked.

The Commission's problem is obvious. If energy qualifies for special treatment, every high-debt country can make the same argument. Reuters has estimated the cost at more than €30 billion across the EU.

The debt divide

Friedrich Merz gave voice to the northern view on May 19. Excessive debt "threatens sovereignty", the German Chancellor said, adding that some countries "spend more on interest than on defence". He didn't name Italy, but the target was clear.

Berlin, though, is hardly allergic to flexibility when it suits. Germany uses the National Escape Clause generously. Its federal audit court has warned that cybersecurity, civil protection and intelligence spending are being bundled under "defence", even though in calmer times they would sit under domestic administration.

Germany also channels roughly €15 billion in energy subsidies through its regular budget and climate fund. It can do so because its debt is about 65% of GDP. Italy's stands at 137%. The Netherlands, with debt at 44% and a top-tier credit rating, can absorb an energy shock without putting serious strain on its borrowing costs.

The rules favour countries that already have fiscal room. France shows the bind most clearly. Paris has been in an Excessive Deficit Procedure, the EU penalty track for governments that overspend, since July 2024. That bars it from activating the clause, even as 17 other countries use it.

A French Senate report estimates France's interest payments at €74 billion in 2026, above its roughly €57 billion defence budget. The government has answered with a €6 billion spending freeze, cutting other ministries euro for euro to cover new energy costs. Europe's main security partner is spending more servicing old debt than funding its military.

Rome's strongest card

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

Rome's real leverage is SAFE, the EU's new €150 billion joint defence 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 deadline for activation is the end of May.

That makes this a trade, not a technical discussion about accounting. If Italy delays or walks away, the EU's rearmament programme loses its third-largest member. The Commission knows it. The question now is how much it will bend on energy rules to protect its defence ambitions.