Just two years ago, the European Union sealed one of the most intricate negotiations of the past decade: the reform of the bloc’s fiscal rules. After years of clashes between countries favoring strict budget discipline and governments demanding more leeway to invest, Brussels secured a new framework designed to pair fiscal sustainability with economic flexibility. Its aim was nothing less than to end a long spell of exceptionalism inaugurated by the pandemic and restore predictability to European economic governance.
However, geopolitical reality is no ally of this kind of institutional design. Russia’s war against Ukraine first, the rush toward European rearmament afterward, and now the energy price surge triggered by the Middle East crisis are pushing the European Commission to reinterpret rules whose signature is still fresh. Brussels will present a proposal to allow that part of the fiscal flexibility — granted to Member States to increase military spending — to be used for energy investments. From an economic standpoint, there is more at stake than the technical dimension. This shift reflects a transformation of European economic philosophy and, at the same time, a growing political pressure from Italy.
“Who had built much of their political career on denouncing Brussels’ impositions adopted, once in power, a notably pragmatic attitude”
Because behind this initiative there is a name and a set of circumstances: Giorgia Meloni and her electoral expectations, which are wobbling after the referendum on justice she called and lost. For much of her tenure, the Italian prime minister surprised both her European partners and the financial markets. Who had built much of his political career on denouncing Brussels’ impositions adopted, once in power, a notably pragmatic attitude. Her government reduced the public deficit from 8.1% of GDP in 2022 to 3.1% in 2025, approaching the 3% threshold demanded by European rules. Rome avoided open confrontations with the Commission, maintained a functional relationship with Ursula von der Leyen and, at the same time, projected an image of fiscal responsibility that helped stabilize international perception of Italy.
Nevertheless, the tipping point has been reached and must be rebalanced. Today, the rise in energy prices is hitting the Italian economy particularly hard. Dependent on energy imports and especially exposed to fluctuations in global gas and oil markets, Italy watches with concern as energy costs once again threaten businesses and consumers. Business organizations estimate the additional impact could range between €7 billion and €21 billion in 2026. Meanwhile, the transport sector threatens to mobilize and fuel prices have become a politically sensitive issue.
All of this occurs with general elections planned for early 2027. These elections are already conditioning the strategy and decisions of the coalition government led by Fratelli d’Italia.
The European fiscal question has thus become a tool of domestic politics. In recent days, Rome has intensified pressure on Brussels to widen the available budgetary margins. Economy Minister Giancarlo Giorgetti (Lega) has called for greater flexibility to respond to the effects of the energy crisis. Various leaders within the governing coalition have even raised the possibility of unilateral action if the Commission does not offer satisfactory solutions.
“Meloni has progressively tempered her discourse on the European Union, but in the meantime Salvini is trying to reclaim the euro-skeptic banner”
Nevertheless, Meloni’s problem is not only in Brussels. It also lies within her own majority. The Italian prime minister shares government with Matteo Salvini’s Lega, a partner watching with growing concern as Fratelli d’Italia has occupied the space of the responsible, pro-European right. Meloni has gradually moderated her stance on the European Union, but in the meantime Salvini is trying to reclaim the euro-skeptic banner. The energy crisis provides an ideal opportunity to do so.
The criticisms of European fiscal rules, accusations against the “bureaucrats in Brussels,” and calls to suspend the Stability Pact are part of a strategy aimed at both Italian public opinion and internal competition within the governing coalition. For Lega, the clash with Brussels is a crucial electoral opportunity, while for Meloni it represents a political risk she cannot ignore.
Amid this intra-government dispute, comes Brussels’ response. Formally, Brussels continues to reject the main Italian demands. The activation of the general escape clause used during the pandemic is not on the table. There is also no willingness to grant national exemptions or to allow a broad relaxation of fiscal rules. The Commission insists that the European economy is not experiencing a recession comparable to the COVID-19 crisis and that there are no reasons to suspend the newly reformed fiscal framework.
But, at the same time, Ursula von der Leyen has opted for a limited concession. The proposal is to allow Member States to allocate up to 0.3% of their annual GDP, within the previously authorized flexibility for military spending, to investments aimed at strengthening European energy resilience and accelerating the reduction of dependence on fossil fuels.
The decision has an evident political logic. On one hand, it gives Meloni an argument to present to the Italian public as a result of Rome’s pressure. On the other hand, it avoids opening the door to a complete revision of fiscal rules. The Commission concedes something, but not what Italy was really asking for.
“The exception granted to finance European rearmament after Russia’s invasion of Ukraine already represented a significant breach”
From another perspective, the maneuver reflects how the European integration project has shifted. In the past, the Community’s fiscal rules aimed to be neutral regarding political priorities. The objective was to control the deficit and debt irrespective of the specific destination of public resources. However, today that conception is changing. The exception granted to finance European rearmament after Russia’s invasion of Ukraine already represented a significant rupture. For the first time, Brussels accepted that certain strategic circumstances justified differentiated fiscal treatment. Now energy security receives a similar recognition.
The consequence is that Europe is beginning to move toward a system in which certain investments deemed essential for the continent’s strategic autonomy are partially shielded from traditional budgetary constraints.
“Europe begins to move toward a system in which certain investments deemed essential for the continent’s strategic autonomy are partially shielded”
In this context, it is worth asking where the line lies. If defense can benefit from fiscal exemptions and energy as well, it becomes hard to argue that sectors such as semiconductors, artificial intelligence, digital infrastructures, or certain industrial technologies do not deserve comparable treatment. The European Union is gradually building a hierarchy of strategic priorities that is beginning to be reflected in its fiscal architecture.
As one might expect, there are reserves from the traditionally more orthodox countries. The Netherlands, Austria, Denmark, Finland, and broad swaths of German politics watch with concern the proliferation of exemptions. From their perspective, the reform of the Stability Pact approved in 2024 aimed precisely to prevent fiscal rules from being continually adjusted to momentary political circumstances. Each new relaxation increases the risk that the system loses credibility and ends up depending more on political bargaining than on objective economic criteria.
The criticisms are not directed solely at the volume of authorized spending. They also target the institutional precedent being created. If every crisis generates a new exemption, the boundary between rule and exception ends up blurred.
Even for those who advocate greater flexibility, the proposal raises important questions. The main political battle has not yet begun. Brussels will have to define now which energy investments can precisely fall under this exception. Electricity grids, energy storage, interconnections, or charging infrastructure seem obvious candidates. But controversies will quickly arise around much more sensitive issues.
Should nuclear investments be included? France will insist yes. Could certain gas-related infrastructures benefit? What about industrial electrification programs or certain public subsidy systems to accelerate the energy transition? The answers will determine which countries benefit more and which consider the reform insufficient.
“What is actually being discussed is whether the European Union is gradually abandoning a strictly accounting conception of fiscal discipline”
Thus, although the debate is formally framed as an energy issue, it could end up altering substantial—and long-standing—parts of the European project. Debating how to finance the new priorities invites a broader discussion. What is truly at stake is whether the European Union is gradually abandoning a strictly accounting conception of fiscal discipline in favor of a strategic view in which certain geopolitical priorities justify exceptional treatment.
Defense was the first chapter of this story. Energy is the second. And everything suggests it will not be the last.
