EU partially grants Italy's request for energy/defense spending flexibility

A mini-clause of 6.5 billion with a maximum ceiling of thirteen, delimited by rather rigid parameters and conditions. The European Commission will respond with a partial yes to Giorgia Meloni's request to extend the Stability Pact's derogation for defense to energy as well.

It could not have gone much differently. Ursula von der Leyen, who has cultivated an increasingly close relationship with the Italian premier in recent years, has indeed chosen to listen to the government's requests "with the utmost attention," without however downgrading some fundamental principles that Brussels has been repeating on every occasion for weeks: the need for fiscal sustainability, opposition to blanket subsidies, and fears of an increase in energy demand that would worsen inflation.

After more than two weeks of work and discreet discussions, the Commission has therefore chosen to allow Italy - and obviously any of the 27 who wish to do so - a margin of flexibility for energy-related investments equal to 0.3% of GDP annually for the three-year period 2026-28, but with a maximum ceiling of 0.6%. The distribution of this margin is not mandatory (it could be, for example, 0.2% this year and a subsequent 0.4%). Instead, the activation of the national safeguard clause for defense, which is worth 1.5% of GDP annually, is mandatory. It is within this perimeter, and only within this, that the flexibility for energy investments can be inscribed. The derogations for energy will be activated following the same procedure as the clause for defense ('National Escape Clause'): the interested states will have to submit a formal request, followed by a proposal from the Commission and the approval of the EU Council. In absolute terms and based on Istat data for 2025, for Italy, 0.3% is worth about 6.8 billion with a maximum ceiling of just over thirteen.

The Commission will certify the openness to flexibility on energy with the presentation of the European Semester package. That will be the venue for the reply to Meloni's letter and, contrary to what was suggested in recent days, there will not be a written and formal response to the Prime Minister's missive.

The impression is that Brussels has chosen not to clash with Italy, despite harboring several reservations about what the government asked for. Regarding the destinations of the resources, for example, the Commission's examination promises to be rigorous. The objective is not to broaden the scope of subsidies, but to strengthen the path towards the EU's energy independence, a goal that cannot disregard renewables. Among the examples of 'approvable' investments are incentives for the purchase of electric vehicles, batteries and solar panels, investments in electricity grids and storage systems, energy efficiency measures, and the expansion of clean energy production capacity.

The Commission's response does not exhaust the negotiation. But it is difficult for Palazzo Berlaymont to go further on the path of derogations, while maintaining the flexibility already granted on Cohesion funds and with a possible further modification of the Pnrr. Von der Leyen had already recalled in recent weeks that there is a reserve of 95 billion distributable for the 27 that is still unused and could be subject to future negotiations.

Conversely, Brussels now expects Italy to translate the emergency described in black and white by Meloni into facts and activate the clause for defense, which also includes that for energy. And, for von der Leyen, it still represents a lifeline granted by Brussels for an objective deemed non-deferrable: the strengthening of common defense. It is in this context, moreover, that the Commission awaits a response from Italy on signing for the activation of the 14.9 billion loans available from the SAFE fund. After the EU executive extended a hand to Italy despite the widespread skepticism of the 'frugals', it would be surprising in Brussels if Rome did not do the same.