The European Commission has rejected demands from Italy and Greece for additional exemptions from EU spending rules as the Middle East energy crisis drives inflation higher, exposing renewed divisions over how much financial assistance European governments can provide.
The European Commission has rejected requests from Italy and Greece for greater freedom to increase public spending in response to the energy crisis, resisting pressure from two member states that argue existing budget restrictions are limiting their ability to protect households and businesses.
The decision, confirmed on 8 October, follows renewed appeals from Italian Prime Minister Giorgia Meloni and Greek Prime Minister Kyriakos Mitsotakis for measures recognising the exceptional financial burden imposed by higher energy prices.
Meloni wants Brussels to take greater account of unexpected inflation when assessing national budgets and to permit additional tax revenue generated by rising prices to be used for energy relief. Mitsotakis has sought the exclusion of temporary support measures for consumers and businesses from the expenditure limits agreed under the EU’s fiscal framework.
Economic Commissioner Valdis Dombrovskis rejected the argument for further concessions, maintaining that the existing arrangements already take inflation into account and provide mechanisms for responding to exceptional circumstances.
The disagreement comes as Europe’s governments confront the economic consequences of the Middle East conflict, including higher fuel costs, inflationary pressures and increased demands for state intervention.
Italy’s increasingly difficult budget choices
For Italy, the dispute adds to a fiscal problem that has been developing throughout the year.
The government expects its budget deficit to rise to 3.4 per cent of GDP in 2027, reversing an earlier objective of reducing borrowing below the EU’s three per cent reference value.
As EU Today reported earlier this month, Rome plans to use additional fiscal room for defence and energy-related expenditure, while public debt is projected to remain close to 138 per cent of GDP.
The new request concerns the treatment of inflation and the financial support required to offset its effects.
Energy inflation creates an unusual budgetary problem. Governments can receive additional nominal tax revenue as prices rise, particularly through consumption taxes, while simultaneously facing public pressure to compensate consumers for higher living costs.
Meloni argues that such unexpected revenue should be available for targeted assistance without forcing equivalent reductions elsewhere in national expenditure.
Brussels is reluctant to accept arrangements that could turn temporary increases in tax receipts into an opportunity for permanent spending expansion.
Italy’s position also reflects the political competition between defence spending and domestic economic support. Rome has accepted the need for higher military expenditure but faces immediate pressure from households and energy-intensive industries.
That competition was already apparent when the government chose to prioritise energy relief over the full use of defence-spending flexibility.
Greece seeks different treatment for emergency support
Greece’s request is more narrowly focused on the treatment of temporary assistance under the EU’s expenditure rules.
Athens argues that measures intended to help businesses and households manage exceptional energy costs should not be counted against the normal spending limits.
The Greek government faces an economic environment in which higher imported energy prices threaten household purchasing power and business profitability, particularly in sectors dependent on transport and fuel.
Excluding temporary relief from expenditure calculations would give Athens additional room to intervene without breaching its agreed fiscal trajectory.
The Commission, however, has resisted establishing further exemptions beyond those already provided in the fiscal framework.
Its objection is institutional as well as financial. If additional categories of emergency expenditure are repeatedly excluded from fiscal calculations, the system becomes increasingly difficult to enforce consistently across the Union.
The limits of Europe’s reformed fiscal rules
The EU revised its fiscal governance framework in 2024, introducing nationally agreed expenditure paths intended to provide greater flexibility while maintaining sustainable public finances.
The Commission’s rules on exceptional circumstances permit member states to depart temporarily from normal requirements under specified conditions.
Those provisions have already been used to accommodate higher defence expenditure, while the Commission has also issued guidance on their application to energy-security investments.
Temporary financial assistance intended to reduce household energy bills, however, is not necessarily treated in the same way as investment in infrastructure that reduces Europe’s long-term dependence on imported fuel.
That distinction has become a source of friction between Brussels and national capitals.
Governments argue that the immediate economic effects of an international crisis require exceptional measures. The Commission is concerned that repeated concessions could weaken the credibility of the spending framework.
A wider dispute over Europe’s economic response
The Commission’s decision also comes as France faces increasing pressure over its debt and budget deficit.
The deterioration in French borrowing conditions has reinforced concerns about the risks associated with heavily indebted governments continuing to expand expenditure.
France, Italy and Greece have different fiscal positions, but the problems confronting them originate partly in the same combination of expensive energy, weak economic growth and competing spending commitments.
The dispute will now feed into preparations for the European Council meeting on 15–16 October, where energy prices and economic competitiveness are prominent agenda items.
EU leaders are expected to consider targeted and temporary measures to reduce the burden on businesses and consumers, alongside longer-term initiatives intended to reduce dependence on fossil fuels.
The Commission’s refusal to provide Italy and Greece with further fiscal exemptions establishes the limits within which those discussions will take place.
National governments remain free to introduce assistance, but Brussels is insisting that they account for its cost within the fiscal rules already agreed.
For Rome and Athens, the question is whether those rules provide sufficient room to respond to an energy crisis whose duration remains uncertain.
Login
