Italy to seek more leeway on EU budget rules to tackle inflation impact

Italy Pushes for Greater EU Budget Flexibility Amid Inflation Pressures

Italy Seeks EU Budget Rule Adjustments in Response to Inflation

By Giuseppe Fonte

Rising Inflation and Government Response

ROME, Sept 30 (Reuters) - Italy wants European Union authorities to grant "additional flexibility" in the bloc's budget rules to factor in the impact of spiking inflation driven by energy costs, Prime Minister Giorgia Meloni said on Wednesday.

Italy's annual inflation rate jumped to 4.1% in September from August's 3.2%, amid rising public discontent over the cost of living ahead of general election due next year.

Government Initiatives to Address Energy Costs

"I will send a letter to (European Commission President Ursula) von der Leyen so that the issue can be discussed in upcoming meetings," Meloni said at an event organised by newspaper Il Gazzettino.

Meloni said she would spend €14 billion ($16 billion) over two years to lower energy costs for firms, by tapping the European Union's 'national escape clause' (NEC) from its budget rules.

The National Escape Clause and Its Implications

This facility has been offered to all EU countries to help them raise their defence spending and tackle soaring energy costs triggered by the war in Iran.

Italy said in August it would use the NEC to secure an extra-deficit worth 1.5% of GDP, of which 0.6% percentage points would be devoted to projects to cut energy bills.

Pressure on the EU for Further Budget Leeway

Meloni said on Wednesday her government would put pressure on the EU to secure further budget leeway, without giving details.

"Higher inflation must be taken into account when calculating the EU parameters for the permitted deficit," she said.

The government wants to make the issue a central focus of talks at October meetings of finance ministers and heads of government, Meloni added.

Upcoming Economic Forecasts and Budget Plans

Italy will unveil on Friday new multi-year economic forecasts which will form the basis for the 2027 budget in October.

Meloni is expected to confirm a commitment to bring the budget deficit below the European ‌Union's 3% of gross domestic product ceiling this year from 3.1% in 2025, potentially paving the way for Italy to exit an ongoing EU infringement procedure for its "excessive" deficit, in mid-2027.

Political Implications and Future Strategies

However, her calls for greater flexibility suggest the government aims to hike the deficit again in the next two years.

Meloni faces a national election next year and securing budget leeway ahead of the vote will allow her to offer sweeteners ahead of what is shaping up as a neck-and-neck race with the centre-left opposition.

"Other member states are moving in the same direction, and I intend to take action again with the European Commission," Meloni said, while also reiterating she intended to remain in office until the end of her term of office.

Additional Information

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(Reporting by Giuseppe Fonte, editing by Alvise Armellini and Gavin Jones)