EU rejects Prime Minister Meloni's bid for energy crisis debt exemptions

Giorgia Meloni wants Brussels to treat energy crisis spending the way it now treats defence spending: outside the EU’s normal deficit limits. The European Commission rejected the request immediately, and Germany’s finance minister backed the refusal. For Malta and every other eurozone country, the argument matters because it tests whether the EU’s new fiscal rules are rules at all, or a menu of exemptions negotiated under pressure.

What Meloni Wants, and Why Brussels Said No

The EU’s Stability and Growth Pact, which caps government deficits at 3% of GDP, was overhauled in April 2024. The old fixed targets were replaced by country-by-country spending plans negotiated with the Commission. Then, in March 2025, the EU created a special defence carve-out: the National Escape Clause, allowing governments to exclude up to 1.5% of GDP in defence spending from deficit calculations for four years. Seventeen countries have activated it. Italy, France and Spain have not.

Meloni’s argument is simple enough. If defence spending is treated differently because Europe faces a geopolitical emergency, energy spending during the Hormuz crisis should get the same treatment. Brussels’ answer is that the clause was written for military expenditure, which sits in a specific statistical category. Energy subsidies are booked under different budget lines. To include them, the EU would have to rewrite the law or trigger the wider General Escape Clause, which requires evidence of a eurozone-wide recession (European Parliament).

Italy’s Fiscal Trap

Italy’s public debt is 137.1% of GDP, and its 2025 deficit came in at 3.1%, just above the 3% ceiling and above the government’s own target (Eurostat). Growth forecasts for 2026 are around 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 its current level.

That pressure is now visible inside Meloni’s cabinet. Defence Minister Guido Crosetto has written twice to Finance Minister Giancarlo Giorgetti, asking him to approve €14.9 billion in SAFE loans. SAFE, Security Action for Europe, is an EU scheme that finances joint defence procurement through EU-issued bonds at favourable rates. Giorgetti has not replied. The deadline is the end of May.

Crosetto made his frustration public on 14 May, an unusual step that exposed the split inside government (Il Sole 24 Ore). Giorgetti’s position is hard-headed: Italy should not lock in €14.9 billion in defence debt unless Brussels also gives it room on energy spending. In other words, a package deal, or no deal.

Berlin Won’t Budge

Chancellor Friedrich Merz has called the existing defence exemption "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 within existing budget limits, not by asking for a new 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 directly that Germany’s own spending growth of 5.75% already exceeds the EU-permitted 4.5%.

The Netherlands has taken the same line. "The response to shocks cannot be more debt," The Hague argued.

The EU rewrote its fiscal rules barely two years ago. Defence was the first exception. If energy is added, the next claims will be obvious enough: climate adaptation, migration, industrial support. Each carve-out reduces the force of the spending limits the 2024 reform was meant to restore. As one CDU deputy put it: "Anyone who constantly declares an economic state of emergency makes rules like the debt brake permanently obsolete."

Meloni now has until the end of the month to choose. She can accept the SAFE defence loans and take the fiscal hit, or gamble that Brussels and Berlin will blink first.