ROME, July 21 - Italy intends to use the European Union's escape clause from fiscal rules to fund programmes aimed at reducing energy-related burdens for households and businesses in 2027 and 2028, a statement from Prime Minister Giorgia Meloni's office said on Tuesday.
The statement reported that Meloni and senior coalition figures reached "broad agreement" on a proposal to deploy the EU's temporary flexibility to help families and firms cope with rising energy bills over the next two years.
The available flexibility arises from an EU decision taken after Russia's invasion of Ukraine. In March 2025 the European Commission ruled that member states could raise defence spending by up to 1.5% of GDP per year for a four-year period through 2028 without triggering disciplinary procedures.
Italy lobbied for that mechanism to also accommodate fiscal measures aimed at softening the impact of higher energy costs. As a compromise, the Commission recently decided to permit EU countries to allocate 0.3% of GDP - drawn from the 1.5% of GDP extra leeway originally intended for defence - to investments that support the transition away from fossil fuels toward green energy.
Invoking the clause ahead of a general election scheduled for 2027 indicates the government is preparing to set aside efforts to reduce the budget deficit beneath the 3% of GDP threshold and to conclude the EU's ongoing excessive deficit procedure. Under Italy's multi-year budget framework published in April, the government had targeted a deficit-to-GDP ratio of 2.9% for this year and 2.8% for 2027.
Key context and implications
- The measure would apply in 2027 and 2028 and is intended to shield households and businesses from higher energy costs.
- The EU’s March 2025 decision granted member states an additional 1.5% of GDP per year for defence spending through 2028; 0.3% of that allowance may now be used for investments supporting the green energy transition.
- Using the clause before the 2027 election implies a departure from the current deficit trajectory that targeted sub-3% ratios in the multi-year budget.
Analytical note
The government statement frames the move as targeted support to families and businesses facing elevated energy bills. The decision leverages a narrowly circumscribed portion of the EU flexibility - 0.3% of GDP - repurposed from defence leeway to energy transition investment, according to the Commission decision referenced in the statement.
Risks and uncertainties
- Shifting to use the escape clause for energy relief suggests Italy may not meet its previous deficit-reduction objectives, potentially affecting public finances and fiscal planning.
- Invoking the clause a year before a scheduled general election introduces political timing uncertainty around budgetary choices and medium-term deficit targets.
- The permitted 0.3% of GDP is a limited share of the broader 1.5% leeway; the extent to which it can finance meaningful transition investment versus short-term relief is constrained by that cap.
This report is based on the statement issued by the Prime Minister's office and decisions announced by the European Commission as described in that statement.