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Budget Deficit · Energy Prices · EU Fiscal Policy · Middle East Conflict
Italy's EU Affairs Minister Tommaso Foti announced on April 1 that the European Union is evaluating a freeze on its 3% of GDP budget deficit rules for member states, a direct response to the persistent Middle East conflict which has caused European gas prices to surge over 70% since February 28.
European governments, including highly-indebted Italy, face increasing pressure to implement costly aid measures for households and businesses grappling with elevated energy costs. Minister Foti confirmed to Skytg24 that the European Council will decide on breaching the 3% limit in response to a prolonged crisis.
Italy's Giorgia Meloni government previously pledged to reduce its fiscal gap below 3% of GDP this year, aiming to exit the EU's excessive deficit procedure. The Italian Treasury stated last month that rising energy prices increase uncertainty for growth prospects, and significant downside risks exist due to the conflict.
Italy spent €417.4 million ($484 million) to cut fuel excise duties until April 7 and is now studying options to fund an extension until April 30, incurring an additional cost of €500-600 million for state coffers, as reported by Giuseppe Fonte for Reuters. Italy will update its deficit and debt targets by April 10 in its Document of Public Finance.
The EU's Stability and Growth Pact, which sets the 3% limit, was previously suspended during the COVID-19 pandemic and Ukraine energy shocks, according to Wikipedia.
