ROME — Italian Prime Minister Giorgia Meloni is pressing the European Commission for more room under EU fiscal rules to cushion households and businesses from soaring energy costs, warning that persistent inflation is also pushing up public spending beyond governments’ direct control.
Why it matters: In a letter to European Commission President Ursula von der Leyen, Meloni argues that the combination of higher energy prices and inflation is exposing constraints in the EU’s fiscal framework — while stopping short of calling for the rules themselves to be rewritten.
- Meloni says governments should be able to use “at least part of the extra revenue” generated by inflation to fund “temporary and targeted” measures against rising energy costs.
- She warns that nominal expenditure ceilings may not fully account for spending increases caused by inflation rather than discretionary government decisions.
- And she wants the issue put before EU finance ministers, calling it “an urgent matter that can no longer be postponed.”
The big picture: Meloni’s intervention starts with energy. “Hopes that the crisis in the Middle East would be quickly resolved have been disappointed and the energy markets remain extremely tight,” she wrote.
- According to the figures cited in the letter, crude oil prices in Euros are nearly 80% higher than at the beginning of the year, while natural gas is 156% more expensive.
- Meloni says the impact is already spreading through the European economy.
- “Households’ real disposable income is being hit hard,” she wrote, pointing to headline inflation reaching a new high in September.
- At the same time, she warned that “the competitiveness of European firms has been severely affected by higher energy costs.”
Zoom in: The fiscal squeeze. The core of Meloni’s argument is that the EU’s agreed net expenditure paths leave governments with limited room to respond to the shock.
- Under the framework described in the letter, the additional indirect tax revenues generated by higher inflation cannot be used to finance offsetting fiscal measures unless a government already has space within its agreed expenditure trajectory.
- Meloni acknowledges the rationale behind the constraint, saying the provision is designed to make public accounts “robust over the medium term.”
- But she wants Brussels to find a way around the immediate squeeze.
- “We should still seek ways to use at least part of the extra revenue to dampen the increase in energy costs in a temporary and targeted manner,” she wrote.
The 2027 problem. Meloni then raises a second concern as governments update their budget plans for 2027.
- The ceiling on net expenditure growth is set in nominal terms. That, she argues, means it “may not fully accommodate the budgetary impact of inflation materially exceeding the projections” underpinning the agreed spending path.
- The issue is particularly sensitive when expenditure rises through mechanisms or market forces outside a government’s control.
- “The most notable example is pension payments,” Meloni wrote, noting that they are linked, with a lag, to consumer prices.
- For Italy, she says the expenditure envelope directly affected by inflation significantly exceeding the assumptions underpinning the budgetary plan is equivalent to 20.4% of GDP.
- Other spending components expected to be affected by higher inflation already in 2027 amount to another 12% of GDP.
Between the lines: Meloni is careful not to frame the request as an attempt to dismantle or rewrite the EU’s new fiscal rules. “We are mindful of the risk of amending newly introduced fiscal rules that pursue a goal we all share, debt sustainability,” she wrote.
- She also explicitly acknowledges Italy’s commitments under the ongoing excessive deficit procedure (Go deeper, read the story) and “the need to comply with the corrective net expenditure path.”
- Rome’s case is instead that the existing framework already leaves the Commission room to account for the inflation shock.
- Meloni says the Commission should consider the factors outlined in her letter when “assessing ex ante compliance with the expenditure rule” as it reviews the forthcoming Draft Budgetary Plans.
What we’re watching:; Meloni wants the debate moved quickly to the political level. “This is an urgent matter that can no longer be postponed,” she wrote, calling for the issue to be discussed by finance ministers at the forthcoming ECOFIN meeting.
- The next question is whether the Commission accepts Italy’s argument that inflation-driven pressures can be taken into account within the existing fiscal framework — without formally reopening the rules.
- For Rome, the immediate objective is clear: create room to respond to the energy shock while maintaining Italy’s commitments on deficit reduction and debt sustainability.
