Italy Secures €6.5 Billion Energy Waiver

Italy is about to get something more useful than a speech about solidarity: room in the EU budget rules. The European Commission is expected to announce on June 3 that Rome can leave up to 0.3% of GDP per year in energy investments out of its deficit calculations, worth roughly €6.5 billion over 2026-2028 (Il Fatto Quotidiano).

The mechanism is the interesting part. The Commission is not writing a new fiscal rule. It is folding energy investment into the defence spending exemption that 15 member states activated last July. Energy, recast as security, now gets treated like tanks and troops. The money matters. The precedent matters more.

How Defence Swallowed Energy

The EU’s reformed Stability and Growth Pact, the rulebook that limits how far governments can borrow and spend, has been in force since April 2024. It replaced the old headline targets with a "net expenditure path", which caps how quickly governments can increase spending each year. To make space for the post-Ukraine military build-up, it also created a national escape clause allowing up to 1.5% of GDP in extra defence spending through 2028 (European Parliament).

Italy did not activate that clause for defence. Instead, Giorgia Meloni wrote to Commission President Ursula von der Leyen on May 17, making a simple argument: if the rules can bend for military security, they can bend for energy security too.

The answer, brokered by Italian Commission vice-president Raffaele Fitto, widens the defence clause from the inside. Energy investments can account for up to 0.6% of GDP cumulatively, within the existing 1.5% ceiling (Corriere della Sera). Only capital investment qualifies. Subsidies and price caps do not.

Rome has a real case. Italian industrial electricity cost 278 €/MWh in the first half of 2025, about 29% above the EU average of 216 €/MWh (Confindustria, Eurostat). The Hormuz Strait crisis pushed the gap wider. Italian manufacturers are paying more for power than almost anyone else in Europe, and that cost lands directly on competitiveness.

Who Gets to Call It "Security"

The economics are not flimsy. The politics are sharper. When Der Spiegel covered Meloni’s letter, it called it a "Bettelbrief", a begging letter.

That is a curious word from Berlin. Germany’s own projected deficit for 2026 is 3.7% of GDP (Bundesfinanzministerium). Italy’s is lower, at around 3%. Germany has also activated the defence escape clause and created a constitutionally exempted infrastructure fund, where the ifo Institute found that up to 95% of spending was drifting from its stated purpose (WirtschaftsWoche). Nobody called that begging.

France is in a tighter corner. With a deficit around 5%, Paris is stuck in the EU’s excessive deficit procedure, the penalty box for governments that keep overshooting the rules. That means it cannot access the defence clause, and therefore cannot reach the energy sub-clause either (El País). France spends roughly €6 billion on emergency energy aid, about the same as Italy’s derogation covers, but every euro counts against the French deficit (Parlons Politique).

What Gets Carved Out Next?

Academics at the CEPR already see gaps between the EU’s new fiscal rules and the way they are being applied. Bond markets have noticed too. Italy’s BTP-Bund spread, the extra interest Rome pays over Berlin to borrow, widened from 59 basis points in January to above 100 by April, according to countryeconomy.com. That is not panic. It is not indifference either.

Every exemption can be defended on its own terms. Italy’s energy costs are a real drag on industry. Defence spending did need space after Russia’s war in Ukraine. But once energy can fit inside defence, climate investment will have its turn. Then digital. Then housing. The reformed rules are barely two years old, and already they are being interpreted until the limit starts to look less like a limit.