Meloni and the ghost of Salvini force Brussels to rewrite the EU’s fiscal rules

Barely two years ago, the European Union wrapped up one of its most complex negotiations of the past decade: reform of the Union’s fiscal rules. After years of wrangling between countries that favored budgetary discipline and governments demanding greater room to invest, Brussels built a new framework aimed at combining fiscal sustainability with economic flexibility. Its objective was precisely to put an end to a lengthy phase of exceptionality prompted by the pandemic, to restore predictability to Europe’s economic governance.

However, geopolitical reality isn’t a natural ally of that sort of institutional design. First it was Russia’s war against Ukraine, then the race to European rearmament, and now the spike in energy prices caused by crisis in the Middle East, each forcing the European Commission to reinterpret rules of fairly recent signature. This time, Brussels will present a proposal to allow some portion of the fiscal flexibility granted to Member States to increase military spending to be used for energy investments. From an economic perspective, this change is beyond a technicality – it reflects both growing political pressure from Italy and a transformation of the continent’s economic philosophy.

"After spending much of her political career denouncing impositions by Brussels, once coming to power she adopted a remarkably pragmatic attitude"

Behind this latest initiative is a name and a particular casuistry: Giorgia Meloni and her electoral expectations, faltering since she called and lost a national referendum on Justice. For much of her tenure, Italy’s Prime Minister surprised both financial markets and her European partners. After spending much of her political career denouncing impositions by Brussels, once coming to power she adopted a remarkably pragmatic attitude. Her government reduced its public deficit from 8.1% of GDP in 2022 to 3.1% in 2025, very near the 3% threshold required by European rules. Rome avoided open confrontations with the Commission, maintained a functional relationship with Ursula von der Leyen, and projected all the while an image of fiscal responsibility that helped stabilize international perceptions of Italy.

Nonetheless, equilibrium is being lost and must be rebalanced. The current rise in energy prices has been hitting the Italian economy particularly hard. The country is dependent on energy imports and highly exposed to fluctuations in international gas and oil markets, raising great concern now that energy costs are posing a significant threat to companies and consumers. Business organizations estimate that the additional impact during 2026 could amount to between €7 billion and €21 billion. Meanwhile, transport sectors are threatening to mobilize, and fuel prices have become a politically sensitive issue.
 

The Italian perspective and a structural change within Europe

All of this has occurred with a general election on the horizon, scheduled for early 2027, which has started to condition the strategy and decisions of the coalition government led by Meloni’s Fratelli d’Italia party.

Thus the European fiscal issue has become an instrument of domestic policy. In recent days, Rome has intensified pressure on Brussels to expand the available budget margins. Giancarlo Giorgetti from the Lega party, Italy’s Minister of the Economy, has called for greater flexibility to respond to the energy crisis and its effects. Various leaders from the governing coalition have gone so far as to raise the possibility of unilateral action, should the Commission fail to offer satisfactory solutions.

"Even as Meloni has progressively moderated her discourse on the EU, Salvini has sought to recover the flag of Euroskepticism"

But Meloni’s problems aren’t only in Brussels – they’re also within her own majority. The president of Italy’s Council of Ministers is governing in partnership with Matteo Salvini’s Lega party, which has observed with increasing unease how Fratelli d’Italia has taken on the mantle of the responsible and pro-European right. Even as Meloni has progressively moderated her discourse on the EU, Salvini has sought to recover the flag of Euroskepticism. The energy crisis offers him a perfect chance to do so.

Criticism of European fiscal rules, accusations against ‘Brussels bureaucrats’, and demands for temporary suspension of the Stability Pact are parts of a strategy aimed at swaying public opinion while sparking competition within Italy’s coalition government. For the Lega party, the dispute with Brussels represents a crucial electoral opportunity; for Meloni, it’s a political risk that she can’t afford not to take.

In the midst of that dispute within Italy’s executive apparatus, a response has arrived from the Commission. In formal terms, Brussels has chosen to reject the country’s main demands: activation of the general escape clause employed during the pandemic is off the table, and there’s no willingness to grant specific national derogations, nor to permit a wider relaxation of fiscal rules. The Commission insists that Europe’s economy is not experiencing a recession comparable to the one caused by COVID-19, so suspension of the newly reformed fiscal framework is not justified.

And yet Ursula von der Leyen has chosen to make a limited concession: working within the flexibility measures already authorized for military spending, Member States would be permitted to allocate up to 0.3% of their annual GDP for investments aimed at strengthening energy resilience in the EU and speeding the reduction of dependence on fossil fuels.

That decision has an obvious political logic. On the one hand, it offers Meloni an argument to present to the Italian public, as a proof of Rome’s ability to exert pressure. On the other hand, the decision avoids the need to entertain another complete review of the fiscal rules. The Commission is conceding something, without actually granting Italy’s request.

"The exception granted to finance European rearmament following Russia’s invasion of Ukraine had already marked a significant rupture"

From another perspective, this maneuver reflects how the commitment to European integration has changed. In the past, the EU’s fiscal rules aspired to be neutral with respect to political priorities, the objective being to control the deficit and debt regardless of the exact destination of public resources. Today, that conception is changing. The exception granted to finance European rearmament following Russia’s invasion of Ukraine had already marked a significant rupture. For the first time, Brussels accepted that certain strategic circumstances could justify differentiated fiscal treatment. Energy security will now receive similar recognition.

The consequence is that Europe has started to move toward a system where certain investments deemed essential for the continent’s strategic autonomy are partially protected from traditional budgetary constraints.

"Europe has started to move toward a system where certain investments deemed essential for the continent’s strategic autonomy are partially protected"

Faced with that situation, it’s worthwhile to ask where the final limit might be. If defense can benefit from tax exemptions, and energy can benefit from tax exemptions, it becomes difficult to argue that sectors like semiconductors, artificial intelligence, digital infrastructure, or certain industrial technologies don’t deserve comparable treatment. The European Union is gradually building a hierarchy of strategic priorities that’s being reflected in its fiscal architecture.

Inevitably, countries with a traditionally more orthodox view are voicing reservations. The Netherlands, Austria, Denmark, Finland, and large political sectors of Germany are fearful of a proliferation of exceptions. From that perspective, the reform of the Stability Pact approved in 2024 was intended precisely to prevent fiscal rules from being continuously adapted to the political circumstances of the moment. Each new easing of burden increases the risk that the system will lose credibility and end up relying more heavily on political negotiations than on objective economic criteria.

And criticisms aren’t only directed at the volume of authorized spending; they also point to the institutional precedent being created. If each crisis creates a new exception, the boundary between rules and exceptions will be increasingly blurred.

Even for those in favor of greater flexibility, the proposal raises serious questions, and the main political battle has yet to begin. Brussels will now be obliged to define exactly which energy investments will be eligible for the new exception. Electricity grids, energy storage, interconnections, and charging infrastructure would seem obvious candidates. But controversies will rapidly arise around much more sensitive topics.

Should nuclear investments be included? France will argue that they should. Might certain gas-related infrastructures also benefit? What about industrial electrification programs, or schemes to accelerate the energy transition with public aid? The responses will determine which countries benefit most and which perceive the reform as insufficient.

"What’s really being discussed is whether the Union is gradually abandoning a strict, accounting-based conception of fiscal discipline in order to adopt a strategic vision where certain geopolitical priorities justify exceptional treatment"

For those reasons, although this debate has been formally presented as an energy issue, in reality it may end up modifying other substantial (and established) aspects of the European project. Considerations of how to finance Europe’s new priorities are inviting a new and broader discussion. What’s really being discussed is whether the Union is gradually abandoning a strict, accounting-based conception of fiscal discipline in order to adopt a strategic vision where certain geopolitical priorities justify exceptional treatment.

Defense of the EU was only the first chapter of this story. Energy is now the second, and by every indication, it won’t be the last.