Italy to Tap EU Budget Clause for Energy Relief, Signaling Higher Deficit

The Italian government plans to utilize a European Union budget flexibility clause to fund energy relief measures for households and businesses in 2027 and 2028. The decision signals a potential shift in fiscal policy that could see the country's budget deficit remain above the EU's key threshold, according to a statement from Prime Minister Giorgia Meloni’s office on Tuesday.

Fiscal Policy Shift

According to the statement, senior coalition figures reached a "broad agreement" to invoke the clause to soften the impact of high energy costs. This move suggests that Rome is preparing to forgo its efforts to bring its budget deficit below the EU's 3% of GDP ceiling and exit the bloc's excessive deficit procedure.

Under its most recent multi-year budget framework, unveiled in April, Italy had projected a deficit-to-GDP ratio of 2.9% for the current year and 2.8% in 2027. The plan to use the additional spending leeway, timed a year before a scheduled general election, indicates these targets are now unlikely to be met.

Context of the EU Clause

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The fiscal flexibility stems from a so-called "escape clause" introduced by the European Commission. The key details include:

• Following Russia's invasion of Ukraine, the Commission ruled in March 2025 that member states could increase defense spending by up to 1.5% of GDP annually through 2028 without facing disciplinary action.
• After lobbying from Italy and other nations, the Commission later agreed to a compromise allowing countries to use a portion of that leeway—specifically 0.3% of GDP—for investments in the green energy transition.

It is this specific provision for energy-related spending that the Meloni government intends to use to finance its relief measures over the next two years.