Buti: "Meloni’s request? Greater flexibility would jeopardise our exit from the inflation procedure"

 “It is very risky to call for flexibility at a time of high tension over interest rates, with yields and spreads on the rise. We risk throwing away the results of four years of fiscal prudence,” Marco Buti, former Director-General for Economic and Financial Affairs at the European Commission, told Il Foglio, commenting on the letter sent on Thursday by Giorgia Meloni to Ursula von der Leyen.

The Prime Minister argues that the cap on net expenditure growth risks failing to take account of higher-than-expected inflation, “namely the fact that public spending may rise due to market mechanisms and processes beyond the government’s control”. Meloni has therefore asked the Commission to consider this effect amongst the relevant factors it may assess in the event of a breach, and to allow part of the additional revenue generated by inflation to be used to tackle high energy costs. However, on Thursday morning, even before receiving the letter, two Commission spokespeople, Paula Pinho and Balazs Ujvari, had replied that flexibility had already been granted by extending the national safeguard clause from defence to energy. But Meloni believes the issue should be discussed by EU finance ministers at the Ecofin meeting, the next of which is scheduled for Friday 9 October.

A similar request has also come from the Greek Prime Minister Kyriakos Mitsotakis, but for Buti, now a lecturer at the European University Institute in Fiesole, “the fact that only Italy and Greece are asking for flexibility is not reassuring. The Commission has been generous in extending the national safeguard clause, and has been criticised by the ‘frugal’ countries (those most rigorous on public finances, such as Germany or the Netherlands, ed.). For this reason, it will be cautious about granting further flexibility. A deviation from the path of net expenditure based on relevant factors could be considered in principle, but subject to conditions linked to the type of measures,” observes Buti. “Using the automatic increase in revenue due to inflation for expenditure increases decided by the government is contrary to the regulation, because it would increase net expenditure, and would therefore have a negative impact on debt sustainability, as the Prime Minister herself acknowledges.”

Then there is the excessive deficit procedure, from which Italy has not been released ahead of schedule because, in 2025, the deficit was 0.1 percentage points above the 3 per cent of GDP threshold. “If the deficit falls below 3 per cent in 2026, in order to close the procedure it must remain below the threshold in 2027 and subsequent years as well, according to the Commission’s forecasts rather than the government’s. But greater flexibility now could jeopardise the closure of the procedure,” explains Buti. “The economic and financial assessment must take precedence, regardless of the regulatory framework.”

Compounding the situation is France’s fiscal crisis, which is already spilling over into Italy: yesterday, the spread between BTPs and Bunds reached 131 points – the highest level since April 2025 – before falling to 117 points, whilst the French spread exceeded 145. “The markets are very focused on France, and rightly so,” explains Buti. But in 2027, Italy will have much higher refinancing needs than France due to its different debt levels and shorter maturities. And the risk of a downward spiral must not be forgotten: the room for manoeuvre would be more than offset by the rise in interest on the debt.” And the former Director-General at the Commission warns: “There are two risks. On the one hand, fiscal flexibility would upset the balance between budgetary policy and monetary policy whilst the ECB is raising interest rates; on the other, the request will make Germany and the ‘frugal’ states even more unyielding in negotiations over the 2028–2034 European budget” – 2,000 billion in the Commission’s proposal, whilst the ‘frugal’ states are calling for a cut of hundreds of billions.

Finally, Buti seeks to dismantle the political-financial paradigm: “We must move from a logic of partial equilibrium, which responds to electoral pressures, to one of general equilibrium, which links market perceptions to the implications for other European issues. But the political discount rate (i.e. the extent to which governments prioritise immediate consensus over future effects, ed.) is rising at a dizzying pace, with seven national elections in 2027 plus the regional ones in Germany. This is precisely when geopolitics would require the opposite. Candidates should champion a path of prudence and foresight. It would also pay off electorally”, concludes the economist.