Italian Prime Minister proposes: If a new US-Iran war erupts, the EU should consider suspending budget deficit rules.

Italian Prime Minister Giorgia Meloni stated in Parliament on Thursday that if a war between the US and Israel against Iran were to break out again, EU authorities should consider temporarily suspending the budget deficit rules. She also emphasized that the Italian government is prepared to take all possible measures to curb energy price speculation, including imposing windfall taxes on energy companies. She stressed that this proposal is not about fiscal favoritism towards specific countries, but a general measure that EU member states should take together to protect economic resilience in the face of systemic economic shocks, aiming to avoid a dilemma between coping with energy inflation and complying with fiscal constraints. Meloni pointed out, "Discussing the possibility of temporarily suspending the Stability and Growth Pact should not be taboo - this is not about exemptions for individual member states, but a universal measure." At the same time as these remarks were made, the Italian government is planning to lower GDP growth forecasts for 2026 and subsequent years later this month, making it more challenging for Italy to reduce the budget deficit to below the EU-mandated 3% of GDP. The core motivation for this proposal lies in the increasing pressures of energy inflation and the real threat of slowing economic growth. Since the escalation of the US-Israel conflict with Iran in February 2026, the European natural gas market has experienced severe fluctuations, with prices soaring by over 70% at one point. In order to stabilize end-user fuel prices and alleviate the burden on households and businesses, the Italian government has allocated approximately 500 million euros for extending fuel tax exemptions. Due to the severe disruption in the global supply chain caused by the volatile situation in the Strait of Hormuz, the Italian government is facing pressure to lower GDP growth forecasts for 2026. In this context, the annual budget deficit target, originally set at below 2.8%, has become highly challenging, with the risk of breaching the 3% red line in the EU Stability and Growth Pact significantly increasing. From 2020 to 2023, the EU activated the so-called "general escape clause," suspending budget rules to allow member states to respond to the COVID-19 pandemic. However, this clause can only be used in the event of a severe economic recession in the eurozone or EU as a whole, a situation that major forecasting agencies do not currently predict. Italy can also activate a "national escape clause" to allow member states to deviate from agreed budget targets in the event of uncontrollable special circumstances. However, as Rome remains under the "excessive deficit procedure," the Italian government has so far ruled out this option. Meloni added, "Italy will continue to take all possible measures to prevent potential speculation in the energy price sector, including further actions against energy company profits if necessary." It is understood that imposing windfall taxes on energy companies by Meloni and her predecessor Mario Draghi in recent years has sparked legal disputes with related companies. In fact, the Italian Ministry of Finance has long laid the groundwork for such policy adjustments. Italian Minister of Economy Giancarlo Giorgetti has previously stated on multiple occasions that if the Middle East crisis escalates into a prolonged energy game, EU discussions on relaxing deficit rules at the EU level will become inevitable. Italy has repeatedly mentioned the "general escape clause" used by the EU during the COVID-19 pandemic, believing that this mechanism should be put into action again in the face of the risk of a major economic recession triggered by geopolitical factors. Although Giorgetti has publicly stated that Italy's public finances still have a certain resilience to absorb short-term shocks, the market generally expects that if the crisis continues, Italy will join other severely affected member states to collectively pressure Brussels to seek more lenient fiscal space.