By Giuseppe Fonte ROME, April 1 (Reuters) - European Union authorities could freeze rules forcing member states to cut their budget deficits to below 3% of output if the conflict in the Middle East
EU May Freeze Budget Deficit Rules if Iran Conflict Continues, Italian Minister Says
Potential Impact of Middle East Conflict on EU Fiscal Policy
By Giuseppe Fonte
EU Budget Deficit Rules and Current Crisis
ROME, April 1 (Reuters) - European Union authorities could freeze rules forcing member states to cut their budget deficits to below 3% of output if the conflict in the Middle East persists, Italy's EU Affairs Minister Tommaso Foti said on Wednesday.
The remarks come as European governments, including highly-indebted Italy, are under growing pressure to adopt costly aid measures to help households and businesses cope with higher energy costs.
Minister Foti's Statement
"The possibility of breaching the famous 3% limit could be a decision that the European Council takes precisely in response to a [crisis] situation that is likely to persist," Foti told Skytg24.
Economic Impact of the Middle East Conflict
Europe's heavy reliance on imported fuel leaves it exposed to the Middle East conflict's impact on global energy prices. European gas prices have risen more than 70% since the U.S.-Israeli war on Iran began on February 28.
"In an emergency, emergency measures must be taken," Foti said.
Italy's Fiscal Commitments
Giorgia Meloni's government pledged to bring Italy's fiscal gap below 3% of GDP this year at the latest, paving the way for the country's exit from the so-called EU's infringement procedure for excessive deficit.
Italy is due to update deficit and debt targets, as well as growth estimates for 2026 and the following years in its Document of Public Finance to be approved by April 10.
Uncertainty and Fiscal Risks
The rise in energy prices due to the crisis in the Middle East "increases uncertainty about growth prospects, with more pronounced downside risks in the event of a continuation and worsening of the conflict", the Treasury said last month in its public debt issuance programme.
Government Measures and Future Steps
Italy spent some 417.4 million euros ($484 million) to cut excise duties on fuels until April 7, but prices have changed little and industry lobbies are pushing for more effective steps.
Foti said the cabinet would likely convene on Friday to extend the excise duty cut, without adding further details.
"We will do it in a few days' time," he said.
Funding and Extension of Excise Duty Cut
Separate officials said Rome was studying options to fund an extension of the measure until April 30, at a cost for state coffers of 500 to 600 million euros.
(Reporting by Giuseppe Fonte; Editing by Alexandra Hudson)
