The European Commission has rejected demands from Italy and Greece for additional exemptions from EU spending rules as the Middle East energy crisis drives inflation higher, exposing renewed divisions over how much financial assistance European governments can provide.

The European Commission has rejected requests from Italy and Greece for greater freedom to increase public spending in response to the energy crisis, resisting pressure from two member states that argue existing budget restrictions are limiting their ability to protect households and businesses.

The decision, confirmed on 8 October, follows renewed appeals from Italian Prime Minister Giorgia Meloni and Greek Prime Minister Kyriakos Mitsotakis for measures recognising the exceptional financial burden imposed by higher energy prices.

Meloni wants Brussels to take greater account of unexpected inflation when assessing national budgets and to permit additional tax revenue generated by rising prices to be used for energy relief. Mitsotakis has sought the exclusion of temporary support measures for consumers and businesses from the expenditure limits agreed under the EU’s fiscal framework.

Economic Commissioner Valdis Dombrovskis rejected the argument for further concessions, maintaining that the existing arrangements already take inflation into account and provide mechanisms for responding to exceptional circumstances.

The disagreement comes as Europe’s governments confront the economic consequences of the Middle East conflict, including higher fuel costs, inflationary pressures and increased demands for state intervention.

Italy’s increasingly difficult budget choices

For Italy, the dispute adds to a fiscal problem that has been developing throughout the year.

The government expects its budget deficit to rise to 3.4 per cent of GDP in 2027, reversing an earlier objective of reducing borrowing below the EU’s three per cent reference value.

As EU Today reported earlier this month, Rome plans to use additional fiscal room for defence and energy-related expenditure, while public debt is projected to remain close to 138 per cent of GDP.

The new request concerns the treatment of inflation and the financial support required to offset its effects.

Energy inflation creates an unusual budgetary problem. Governments can receive additional nominal tax revenue as prices rise, particularly through consumption taxes, while simultaneously facing public pressure to compensate consumers for higher living costs.

Meloni argues that such unexpected revenue should be available for targeted assistance without forcing equivalent reductions elsewhere in national expenditure.

Brussels is reluctant to accept arrangements that could turn temporary increases in tax receipts into an opportunity for permanent spending expansion.

Italy’s position also reflects the political competition between defence spending and domestic economic support. Rome has accepted the need for higher military expenditure but faces immediate pressure from households and energy-intensive industries.

That competition was already apparent when the government chose to prioritise energy relief over the full use of defence-spending flexibility.

Greece seeks different treatment for emergency support

Greece’s request is more narrowly focused on the treatment of temporary assistance under the EU’s expenditure rules.

Athens argues that measures intended to help businesses and households manage exceptional energy costs should not be counted against the normal spending limits.

The Greek government faces an economic environment in which higher imported energy prices threaten household purchasing power and business profitability, particularly in sectors dependent on transport and fuel.

Excluding temporary relief from expenditure calculations would give Athens additional room to intervene without breaching its agreed fiscal trajectory.

The Commission, however, has resisted establishing further exemptions beyond those already provided in the fiscal framework.

Its objection is institutional as well as financial. If additional categories of emergency expenditure are repeatedly excluded from fiscal calculations, the system becomes increasingly difficult to enforce consistently across the Union.

The limits of Europe’s reformed fiscal rules

The EU revised its fiscal governance framework in 2024, introducing nationally agreed expenditure paths intended to provide greater flexibility while maintaining sustainable public finances.

The Commission’s rules on exceptional circumstances permit member states to depart temporarily from normal requirements under specified conditions.

Those provisions have already been used to accommodate higher defence expenditure, while the Commission has also issued guidance on their application to energy-security investments.

Temporary financial assistance intended to reduce household energy bills, however, is not necessarily treated in the same way as investment in infrastructure that reduces Europe’s long-term dependence on imported fuel.

That distinction has become a source of friction between Brussels and national capitals.

Governments argue that the immediate economic effects of an international crisis require exceptional measures. The Commission is concerned that repeated concessions could weaken the credibility of the spending framework.

A wider dispute over Europe’s economic response

The Commission’s decision also comes as France faces increasing pressure over its debt and budget deficit.

The deterioration in French borrowing conditions has reinforced concerns about the risks associated with heavily indebted governments continuing to expand expenditure.

France, Italy and Greece have different fiscal positions, but the problems confronting them originate partly in the same combination of expensive energy, weak economic growth and competing spending commitments.

The dispute will now feed into preparations for the European Council meeting on 15–16 October, where energy prices and economic competitiveness are prominent agenda items.

EU leaders are expected to consider targeted and temporary measures to reduce the burden on businesses and consumers, alongside longer-term initiatives intended to reduce dependence on fossil fuels.

The Commission’s refusal to provide Italy and Greece with further fiscal exemptions establishes the limits within which those discussions will take place.

National governments remain free to introduce assistance, but Brussels is insisting that they account for its cost within the fiscal rules already agreed.

For Rome and Athens, the question is whether those rules provide sufficient room to respond to an energy crisis whose duration remains uncertain.

Greek Prime Minister Kyriakos Mitsotakis has ruled out an agreement requiring Athens to recognise British Museum ownership of the Parthenon Sculptures, using a landmark exchange of cultural objects with Bulgaria to restate Greece’s position.

Greek Prime Minister Kyriakos Mitsotakis has said Greece will not “borrow” the Parthenon Sculptures under an arrangement requiring Athens to recognise British Museum ownership, as Greece and Bulgaria completed an exchange of historic remains and religious artefacts following decades of negotiations.

Mitsotakis made the remarks on Saturday, 3 October, during a ceremony at the Museum of Byzantine Culture in Thessaloniki attended by Bulgarian Prime Minister Rumen Radev.

Under the agreement, Greece transferred to Bulgaria human remains identified as those of medieval Bulgarian ruler Tsar Samuel, together with material recovered from four sarcophagi at the Basilica of Saint Achilleios in the Prespa region.

Bulgaria returned 48 ecclesiastical objects removed from northern Greece during the First World War.

The Greek prime minister’s office said the returned objects include icons, crosses, vestments, reliquaries and an episcopal throne. They were removed in 1917 from religious institutions in the Serres region.

The artefacts will initially be displayed at the Museum of Byzantine Culture before being returned to the monasteries and church authorities from which they originated. The Greek government said the 48 objects will remain on display until 5 November.

The remains handed to Bulgaria were discovered during archaeological excavations at Saint Achilleios in the 1960s and later identified as belonging to Samuel, who ruled the First Bulgarian Empire between 997 and 1014.

Bulgaria organised a state ceremony following their return. The Bulgarian government described the transfer as the return of one of the country’s most significant medieval rulers.

The exchange concludes negotiations stretching back decades, although both governments have agreed to continue discussions about other objects of mutual historical interest.

Mitsotakis used the Thessaloniki ceremony to link the agreement to another, far more prominent dispute over cultural property: the Parthenon Sculptures held in London.

He said cultural diplomacy had demonstrated that disputes over objects removed during earlier periods of conflict could be addressed through negotiation, referring also to previous arrangements involving fragments of the Parthenon returned from Sicily.

The Greek government continues to seek the reunification in Athens of the surviving Parthenon Sculptures.

The central obstacle remains ownership.

The British Museum states that Lord Elgin removed the sculptures between 1801 and 1805 with the permission of the Ottoman authorities then governing Athens. His actions were examined by a parliamentary committee before the collection was acquired for the museum in 1816.

Greece disputes the legitimacy of their removal and argues that surviving elements of the monument should be reunited at the Acropolis Museum.

That difference has direct consequences for any proposal based on loans.

Under the British Museum trustees’ published position, the museum is prepared to consider lending objects from its collection, including the Parthenon Sculptures, but requires a borrowing institution to acknowledge the museum’s ownership.

Successive Greek governments have refused to meet that condition.

Mitsotakis reiterated that position on Saturday, arguing that Greece cannot borrow an object which it considers its own.

The dispute has continued despite negotiations between Athens and the British Museum.

In February, the UK government told Parliament that the chairman of the British Museum remained in discussions with the Greek government over a possible partnership involving reciprocal loans.

The British government has maintained that operational decisions concerning the sculptures belong to the museum’s trustees.

EU Today has followed the dispute for several years. In 2023, then British prime minister Rishi Sunak cancelled a scheduled meeting with Mitsotakis after the Greek leader publicly raised the return of the sculptures.

The dispute subsequently produced an unusual diplomatic argument between two NATO allies, although discussions between Greek representatives and the British Museum continued.

The Greece-Bulgaria agreement concluded on Saturday differs substantially from the Parthenon case in both its legal history and the circumstances under which the objects were removed.

Athens nevertheless sees the exchange as evidence that governments can settle disputes over cultural property without abandoning their respective interpretations of history.

For Bulgaria, the return of Samuel’s remains has considerable national significance. For Greece, the recovery of the ecclesiastical objects resolves a century-old question concerning material removed during the First World War.

The Parthenon Sculptures remain considerably more complicated.

Talks continue, but the fundamental disagreement identified again by Mitsotakis in Thessaloniki has not changed: London considers the sculptures legally owned by the British Museum, while Athens considers them parts of a Greek monument which should be permanently reunited.

As long as that difference remains, a conventional loan arrangement offers no straightforward solution.

At the end of August, the Greek government signed the “Achilles Shield” agreement – a €3 billion “defense” deal with Israel. Under the terms, Israeli companies including Rafael Advanced Defense Systems and Israel Aerospace Industries (IAI) will develop and build anti-aircraft and anti-ballistic systems for Greece.

“This is the largest defense export deal in the history of Israel-Greece relations, and one of the largest in the history of the State of Israel,” the occupation’s Ministry of Defense stated. “Greece’s choice of Israeli technology as the backbone of its most ambitious air defense buildup program in the past decade reflects the depth of trust built between the two countries.”

“Under the deal, Israel will build Greece a comprehensive, multi-layered air defense array, drawing entirely on Israeli-made systems and on the extensive operational experience Israel’s defense establishment has gained during the war.”

The “war” in the statement being the genocide Israeli forces have been conducting in Gaza since October 7, 2023.

An influx of Israeli investments in Greece

According to journalist Vangelis Ilias, the new deal should be contextualized within broader trends of Greek capital and subsequent governments deepening ties with the occupation power.  While the current Mitsotakis administration did not initiate this trend, he says, it deepened it both before and since the genocide in Gaza began. “Over the past 6-7 years, we have witnessed an influx of Israeli investment funds into Greece, both in the real estate sector and through the acquisition of former public – but not exclusively public – companies in various sectors of the economy, one of which is defense.”

Israeli real estate investments in Greece have already had a notable impact on people’s everyday lives, driving up rents and making housing more unaccessible. Endeavors in the defense sector might have been more lowkey, Ilias adds, but they are widespread and expanding under the sight of NATO and European institutions. “In the south of the country, in Kalamata, there is a large Greek Air Force base that also falls under the NATO umbrella as an International Pilot Training Center,” he says, emphasizing the presence of Elbit Systems in the area.

Israeli companies have also purchased local military enterprises, including Intracom Defense, operating in electronic warfare and drone production. “Through this acquisition, the Israeli state-owned company IAI gained access to the European Defense Fund (EDF), an EU mechanism intended exclusively for financing European defense procurement programs – something that was made possible only thanks to the active support of the Greek government,” Ilias adds.

“[Achilles Shield] has been promoted by the domestic media and the elite as an agreement that shields Greece,” he adds. “[Under the claim] that the money being spent, while not going to healthcare and education, or toward supporting the incomes of citizens who are still trying to recover from the years of economic crisis, protects us from those who seek to harm the country, with Turkey always implied in this context,” he explains. 

“In this era of crises, military buildup, and preparations for a full-scale war, they are trying to present this not only as something reasonable but also as something necessary, where strategic agreements between states take precedence over the needs of the people and international law, overlooking genocides or the ethnic cleansing of an entire people.”

The deal’s Achilles’ heel: reliance on Israeli arms

While Greek officials described the deal as a breakthrough for Greek sovereignty, critics have warned of dangers on several fronts. To begin with, in the announced distribution of funds, local industry expects only €750 million of the total €3 billion. The rest goes to Israeli arms companies making the genocide in Gaza technically feasible.

And despite the amount of money being spent, parts of the agreement have been presented inconsistently to the public. “We’re talking about a complex system of sophisticated weapons utilizing artificial intelligence, with a central control unit that operates based on computer code, Ilias emphasizes. “There has been extensive debate over whether this code will belong to Israel or be controlled by Greece. So far, the government’s responses to a barrage of questions from the opposition have been neither reassuring nor consistent. This remains to be clarified.”

The expenditure has been heavily criticized by left movements, including the Communist Party of Greece (KKE), in the context of EU armament taking place at the expense of labor rights and social services. “Costing more than €3 billion, this agreement forms part of the broader ‘2030 Agenda’ arms program serving NATO’s needs, for which our people are paying dearly – tens of billions of euros – at the expense of their rights and needs,” the KKE pointed out.

Like most other EU governments, the Mitsotakis administration has announced harmful labor and social reforms just as it committed billions for Israeli arms producers. This new-old austerity agenda has met widespread resistance. Recently, tens of thousands demonstrated in Thessaloniki demanding dignified wages and pensions, efficient public healthcare, and investments in education. “Not one euro for imperialist wars,” they insisted.

The “Achilles Shield” deal also adds to the case made by academics and activists worldwide that Israel is using the Gaza genocide to market its weapons. This is apparent not only from the purchase list, but from official statements as well. The Israeli Ministry of Defense announced similar deals are part of a broader strategy “to expand defense exports as a central tool for strengthening the IDF’s force buildup, influencing Israel’s foreign policy standing worldwide, and bolstering the Israeli defense industry and economy.”

Critics have argued that Greece’s arms deal risks making the country captive to Israel’s defense industry and alienating it from other countries in the region. “In practice, strategic relations with the murderous state of Israel, together with joint military preparations, are adding fuel to the fire of imperialist rivalries in the region, as well as the conflicts between the bourgeois classes of Turkey and Israel, and of Greece and Turkey, in the Aegean and the Eastern Mediterranean, with the peoples being the victims,” the KKE emphasized.

Read more: Amid mass protests in the West, Israel’s military footprint expands in Eastern Europe

“Greece’s ruling class has made a strategic choice to align itself closely with the Western alliance,” Ilias says, referencing events since the Greek Civil War. “It is particularly worth noting that, as a result, the Greek people have borne the brunt of the bloodshed.”

And while the post-Civil War regime attempted to crush “the popular and anti-imperialist movement that existed in the country,” he concludes, they did not succeed. 

“This is partially why we still see today such a stark contrast between the ruling class and the organized, collective reactions of significant segments of the Greek people throughout the country against the genocide perpetrated by the Israeli state against the Palestinian people. These reactions are multifaceted, with segments of the working class – beyond just the youth – actively participating.