Italy Ties SAFE Role to Energy Relief

The G7 finance ministers met in Paris last weekend and gave Italy's Economy Minister Giancarlo Giorgetti no fiscal help. The communiqué called for "fiscal restraint", even as the war with Iran pushes European energy costs back towards the levels last seen in 2022. No G7 member backed Rome's demand to treat emergency energy spending as Europe already treats military spending: a shock serious enough to justify bending budget rules.

For Malta, the argument is familiar. EU fiscal rules do not land evenly across a eurozone of very different economies. The same energy shock is manageable for a state with cheap borrowing and low debt, but brutal for one already paying heavily to service old liabilities.

The mechanism is the National Escape Clause, or NEC, inside the Stability and Growth Pact, the EU's rulebook on government borrowing. Seventeen EU countries have activated it for defence, allowing them to spend up to 1.5% of GDP above their deficit targets without triggering penalties. Italy wants the same treatment for energy costs caused by the Strait of Hormuz blockade. Brussels is saying no.

Who gets to use the escape hatch

The NEC rests on a clear political premise. Russia's war in Ukraine created a security threat, so governments needed room to rearm. The clause was activated for 15 member states in July 2025. Germany joined in October 2025, and Austria followed in February 2026.

Prime Minister Giorgia Meloni wrote to Commission President Ursula von der Leyen on 17 May arguing that 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". In Brussels, that often means the file has been parked.

The Commission's fear is obvious. If energy is added to defence, every high-debt government hit by the Hormuz shock will claim the same exemption. Reuters has put the possible EU-wide cost at more than €30 billion.

The debt divide

German Chancellor Friedrich Merz made the northern case bluntly on 19 May. Excessive debt "threatens sovereignty", he said, adding that some countries "spend more on interest than on defence". He did not name Italy, but the target was clear.

Germany, however, also uses the NEC widely. Its federal audit court has warned that cybersecurity, civil protection and intelligence spending are being counted under "defence", although in normal times they would sit closer to domestic administration. Berlin also channels about €15 billion in energy subsidies through its ordinary budget and climate fund.

Germany can do this because its debt is around 65% of GDP. Italy's is 137%. The Netherlands, at 44% and with a top-tier credit rating, can absorb energy shocks without putting its budget under the same pressure.

So the rules reward countries that already have fiscal space. France shows the problem most sharply. Paris has been under an Excessive Deficit Procedure, the EU's penalty track for governments that overspend, since July 2024. That blocks it from activating the NEC, even though 17 other countries have done so.

A French Senate report estimates that France's interest payments will reach €74 billion in 2026, more than its defence budget of roughly €57 billion. 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 now spends more on old debt than on its military.

Rome's strongest card

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

Rome's stronger hand 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 to activate the programme is the end of May.

That makes this a political trade, not a technical budget dispute. If Italy delays or walks away, the EU's rearmament plan loses its third-largest member. The Commission knows it. The real question now is how far Brussels will bend on energy rules to keep its defence programme intact.