MNI SOURCES: Italy To Push For EU Energy Transition Spending

Italy will press at next week’s European Union Summit for the bloc to allow member states more fiscal leeway and to significantly boost its own spending to compensate for the economic impact of the war in Ukraine, while levying up to EUR200 billion in windfall taxes on energy companies, sources close to Prime Minister Mario Draghi told MNI.

Arguing that it is heavily hit by sanctions imposed on Russia, Italy wants a partial extension of the escape clause from borrowing rules included in the Stability and Growth Pact, and for EU leaders to consider last year’s Franco-Italian call for investment spending to be excluded from deficit limits, the sources said. It also wants the bloc to pay more for the transition to greener energy and to break dependence on Russian imports, perhaps via a new instrument similar to the EUR672.5 billion post-Covid Recovery and Resilience Facility.

“Which EU country has been most harmed by the sanctions?” said one Italian official, adding that Rome expects some solidarity after its “seamless support” for retaliation against Russia in detriment to its own economy. Such support would include new momentum for developing the EU’s own fiscal capacity and measures to assist with the energy crisis, the official said.

But Italy’s push for an expansive EU response, echoing what officials told MNI was a drive by France for a fund to pay for a defence build-up and the green transition, is likely to meet with stiff opposition from so-called “frugal” northern states, diplomatic sources in Brussels told MNI. (See MNI SOURCES: Limited Support For Macron's EU Defence Bonds)

FRUGAL OPPOSITION

Italy would also be on shaky ground in arguing that it has been worse affected by the sanctions than other countries, the sources said.

“It would be a mistake to raise this indeed and I think they know this,” one diplomatic source said. “It’s the wrong approach anyway. This is a time calling for solidarity and that is what we are trying to dispense evenly.”

Draghi will meet with his Spanish and Portuguese counterparts in Rome this Friday, bringing Greece’s leader into the discussion via videocall, in order to agree a common front to obtain fiscal relief from the European Commission and changes to energy pricing systems, under which natural gas prices affect prices for green and other sources of energy, Italian sources said.

The meeting, proposed by Rome according to Italian officials, will also seek a common position on windfall taxes for energy companies, a measure already anticipated by Italy and Spain. Italian officials cited estimates that such a tax could raise EUR200 billion if levied all around the EU.

Draghi’s government aims to include a windfall tax in a package of measures due to be announced in the coming days together with cuts to retail taxes on fuel and energy, and to allow consumers to delay paying power bills, the sources told MNI.

Despite pressure from the populist Five-Stars Movement, and the right-wing League and Forza Italia, the prime minister wants to avoid boosting spending and increasing Italy’s budget deficit. The government has already announced plans to spend EUR16 billion to absorb the energy shock.