Energy and Ets, high costs of life and the EU budget: Meloni's challenges to the European Council

«Act immediately in a coordinated manner». Giorgia Meloni arrives at the European Council to urge the other Heads of State and Government to demand quick decisions from Brussels against high energy prices and protection of families and businesses from galloping inflation. And to ask for flexibility again, this time on the basis of the surge in prices which also puts compliance with the spending rule at the center of the new Stability and Growth Pact to the test.

The first node is energy. The escalation in Iran and the Gulf and the instability in the Red Sea due to the Houthi incursions do not suggest any short-term solutions for Hormuz and Bab el-Mandeb. For Italy, which remains heavily dependent on imports and with an energy mix with a significant share of gas, the effect is immediate on families and businesses.

As anticipated on 14 October in his communications to Parliament, Meloni will relaunch at the top the six-point proposal on the ETS, a mechanism "that generates imbalances", developed with his Czech counterpart Andrej Babiš. Among the requests is the postponement of the entry into force of ETS2 and the European Methane Regulation, but also interventions to limit the transmission of carbon costs to electricity prices and the strengthening of transparency in monitoring the ETS quota market.

The second battle of the Italian prime minister is even more politically delicate: with inflation at the end of the year estimated at 3.3%, against the 1.8% planned when the national structural budget plans for 2024 were agreed, pensions, single allowances and other benefits are growing due to automatic indexation. Items that increase public spending, Meloni underlined, regardless of government decisions. To this request the Prime Minister adds another: the possibility of using the extra VAT revenue generated by the inflationary spiral to launch temporary measures for the benefit of families and businesses.

“Frugal” countries are cold. They fear that opening up to the correction for inflation creates a precedent for every shock and voids the rule. The Mediterranean front is more open, but apart from Greece no one has yet explicitly exposed themselves. At Med9 in Split last week, Meloni spoke about it with Ursula von der Leyen, who did not say too much. But the prime minister herself recognized that it's an uphill start: convergence still needs to be built.