EU grants Italy fiscal flexibility for energy crisis but warns against broad fuel tax cuts

A hard-won fiscal opening

The European Commission gave its green light to Italy's request for greater fiscal flexibility to tackle high energy costs, a decision Prime Minister Giorgia Meloni called "extremely important" and one that "many considered impossible." The proposal allows member states to use up to 0.3% of GDP per year in 2026, 2027 and 2028 for energy measures, with a cumulative cap of 0.6% of GDP over the three-year period. For Italy, this translates into roughly 14 billion euros of additional spending room to cushion the impact of rising energy prices on vulnerable households and energy-intensive businesses.

It is an extremely important result that many considered impossible.

Brussels has taken up our proposals, the fruit of long, serious and confidential work.

Strict guardrails on spending

The flexibility comes with firm conditions. Commissioner for Economy Valdis Dombrovskis specified that the derogation will not cover measures that incentivise fossil fuel consumption, such as broad cuts to fuel excise duties. The Commission warned that untargeted reductions in fuel taxes risk carrying "high fiscal costs." Eligible measures include large-scale investment projects in energy networks, renewable energy deployment, and subsidies for households and businesses that abandon fossil fuels — from electric vehicle purchase incentives to grants for replacing gas boilers with heat pumps. The flexibility applies retroactively to measures taken from February 2026, the start of the war in Iran.

We propose limited fiscal flexibility to address the challenges of the energy crisis.

Six recommendations for Rome

Alongside the flexibility decision, Brussels issued six country-specific recommendations to Italy under the 2026 European Semester. The Commission urged Rome to maintain fiscal discipline, ensure any energy-cost measures remain temporary and targeted, accelerate implementation of the National Recovery and Resilience Plan and cohesion funds, support research and innovation, strengthen public administration and justice, and push forward on the energy transition while intervening on the labour market, education, healthcare and social inclusion. Italy remains under an excessive deficit procedure.

Italy's electricity price problem

The Commission's working document highlighted that Italy faces some of the highest electricity prices in the EU due to its structural dependence on expensive gas-fired power generation. The high ratio between electricity and gas prices is described as a fundamental obstacle to electrification for both households and industry. Despite significant untapped potential, renewable energy growth is too slow to meet 2030 targets. Brussels recommended accelerating renewables deployment, fully implementing the "Testo Unico" permitting reform at regional level, and investing in grid strengthening and cross-border interconnections.

Italy faces among the highest electricity prices in the EU due to its structural dependence on costly gas-fired power generation.

OECD warns of energy price shock

On the same day, the OECD released forecasts underscoring the economic headwinds. The organisation said the new energy price shock is weighing on household consumption, investment and exports, holding Italy's GDP growth to 0.5% in 2026 and 0.6% in 2027. The OECD noted that rising energy prices will push up inflation, erasing recent gains in real wages, and that Italy's outlook is relatively exposed to developments in the Middle East conflict given the high share of energy produced from fossil fuels.

Political reactions and next steps

European Parliament members from Italy's Democratic Party, Pierfrancesco Maran and Nicola Zingaretti, welcomed the flexibility decision as "good news for Italy, for families and for businesses" and called on the government to use the resources for a clear national energy plan focused on renewables, storage, grid reinforcement and structural reduction of fossil fuel dependence. They also urged Rome to immediately deploy over 9 billion euros already collected since 2022 from the ETS system, which EU rules require to be spent on decarbonisation and energy transition. The Italian government, meanwhile, is preparing a package of measures including a 100-euro energy voucher for eligible recipients, while the Economy Ministry awaits more precise details on the usage limits of the derogation.

The possibility of activating up to around 14 billion euros of additional investment offers our country the opportunity to implement a major national energy plan.