Italy wins €6.5 billion energy carve-out

The European Commission is expected to say on 3 June that Italy may keep up to 0.3% of GDP a year in energy investment outside its deficit calculations, worth about €6.5 billion over 2026-2028 (Il Fatto Quotidiano). This is not a new rule. It is being folded into the defence spending exemption that 15 member states activated last July.

Energy spending, recast as security spending, will now receive treatment similar to tanks, troops and military procurement. For Malta, where EU budget rules quickly become domestic constraints, the precedent matters more than the amount.

How defence swallowed energy

The EU's reformed Stability and Growth Pact, the framework that limits how far governments can borrow and spend, has applied since April 2024. It replaced the old targets with a "net expenditure path", meaning a yearly ceiling on how quickly public spending can grow.

To make room for the military build-up after Russia's invasion of Ukraine, the new rules include a national escape clause. It allows governments to add up to 1.5% of GDP in extra defence spending through 2028 without breaching their agreed path (European Parliament).

Italy did not activate that clause for defence. Instead, Giorgia Meloni wrote to Commission President Ursula von der Leyen on 17 May, arguing that if the rules can bend for tanks, they should also bend for energy security.

The answer, brokered by Italian Vice-President Raffaele Fitto, widens the defence clause from inside. Energy investments may take 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.

Italy has a real economic case. Industrial electricity prices there averaged 278 €/MWh in the first half of 2025, around 29% above the EU average of 216 €/MWh (Confindustria, Eurostat). The crisis in the Hormuz strait widened that gap. Italian manufacturers pay more for power than almost anyone else in Europe, and that cost feeds directly into lost competitiveness.

Who gets to call it "security"

The economics are serious. The politics depend on who is asking.

When Der Spiegel covered Meloni's letter, it called it a "Bettelbrief", a begging letter. Germany's own projected deficit for 2026 is 3.7% of GDP (Bundesfinanzministerium). Italy's is lower, at about 3%.

Berlin also activated the defence escape clause and created a constitutionally exempted infrastructure fund. The ifo Institute found that up to 95% of its spending was drifting away from its stated purpose (WirtschaftsWoche). Nobody called that begging.

France is in a different position. With a deficit of around 5%, and already inside the EU's excessive deficit procedure, the penalty track for governments that keep overspending, Paris cannot access the defence clause. That also blocks access to the new energy sub-clause (El País).

France spends roughly €6 billion on emergency energy aid, about the same amount covered by Italy's derogation. But in France's case, every euro still counts directly against the deficit (Parlons Politique).

What gets carved out next?

Academics at the CEPR already see gaps between the new fiscal rules and the way they are being applied. Bond markets are watching as well. Italy's BTP-Bund spread, the extra interest Italy pays over Germany 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.

Each exception can be defended on its own terms. Italy's energy costs are hurting competitiveness. Defence spending needed fiscal room. But once energy fits inside defence, the next claims are obvious: climate investment, digital infrastructure, housing.

The reformed fiscal rules are barely two years old. They are already being interpreted in ways that make the limits less limiting.