Meloni: ‘Under EU rules, there is limited scope to curb inflation’

‘The temporary increase in indirect tax revenue resulting from higher inflation cannot be used to finance compensatory fiscal measures, unless a Member State has scope within its agreed net expenditure path. In fact, such support measures are classified as discretionary changes in revenue. Although this feature of the EU’s fiscal rules is designed to ensure sound public finances in the medium term, we should nevertheless seek ways to use at least part of the additional revenue to temporarily and selectively mitigate the rise in energy costs,” the Prime Minister states.

Against a backdrop of soaring energy prices, the Council of Ministers thus becomes the first stage in a more complex process, which will involve the Eurogroup and Ecofin, scheduled for 8 and 9 October; where, moreover, discussions are also scheduled on a European tax on energy companies’ windfall profits, again at Italy’s request (alongside Germany, Austria, Spain, Portugal and Poland). To underpin this call for action, Meloni adds that she endorses the call for the EU to ‘wake up’ issued by Confindustria president Emanuele Orsini; to wake up in order to abandon ‘ideology’ and ‘face up to the fact that some measures, rather than solving problems, risk creating them’. The most striking example? The ‘long-running saga’ of the ETS, with the revision proposed by Brussels deemed ‘totally insufficient’ – to which she contrasts the six proposals agreed on Tuesday in Prague with Czech Prime Minister Andrej Babiš. ‘We cannot continue to burden our manufacturing companies with additional environmental taxation, further undermining their ability to compete in a global market where our main competitors are not subject to the same level of carbon costs and the same constraints,’ the Prime Minister emphasised. “Failing to understand this means condemning Europe to deindustrialisation.”Meloni is focusing on the manufacturing sector as she confirms her intention to utilise the full 14 billion extra deficit (0.3 per cent of GDP in both 2027 and 2028) provided for under the national safeguard clause for Italia, in a context which, as reported in yesterday’s *Il Sole 24 Ore*, is therefore expected to focus the “sacrifices” on the defence budget in order to reach an agreement with the EU following the confirmation of the 2025 deficit at 3.1 per cent. The energy sector had, in any case, been politically more crucial (and less slippery) for the government ever since the spring negotiations, before monthly price data increasingly pushed it to the forefront of the agenda.

Meloni reiterates that the funds from this provision will be used ‘to bring about a structural reduction in energy prices for businesses’. This defines the two-pronged approach of the Government’s strategy. The first aims to help households by scrapping the car tax by 2027 and through the discounts granted, following careful moral suasion, by the major oil companies – a list which, as emerged last night, is expected to soon include Tamoil thanks to ‘very well-advanced discussions’ with the Libyan government, as reported by Palazzo Chigi. The other, however, aims to channel the additional resources from the safeguard clause towards businesses, to whom it promises, once again, at one of the forthcoming Council of Ministers meetings, the extension of the simplifications under the Single Economic Zone (ZES). The key factor for triggering the clause, despite the 3.1 per cent figure confirmed by Istat for 2025, is this year’s deficit, which in the new public finance programme could fall as low as 2.7–2.8 per cent, below the 2.9 per cent previously assumed. This is due not only to real growth heading towards 1 per cent, compared with the +0.6 per cent forecast in April, but also to inflation itself. In terms of public finances, inflation works a bit like alcohol: it has an immediate beneficial effect, as it boosts revenue, fuels tax collection and increases nominal GDP, but the initial euphoria is followed by a headache caused by index-linked items such as pensions and the universal child allowance, as well as interest on BTp bonds: another decisive factor in gauging the real possibilities of increasing the deficit without mortgaging the near future on the altar of the emergency.