European Commission Eases EU Budget Rules Until 2028 Due to Iran War

The European Commission has eased EU fiscal rules, allowing member states to spend up to 0.3% of annual GDP per year on measures to reduce their reliance on fossil fuels. This will be in effect until 2028 and will not breach Brussels' 3% budget threshold. Valdis Dombrovskis, European Commissioner for Economy, stated that the EU is experiencing an «especially difficult period» due to the war in Iran and the blockade of the Strait of Hormuz, which has led to negative consequences for inflation and economic growth.

This move marks a significant shift in Brussels' position, which previously denied that the current crisis required a relaxation of fiscal rules. It comes after the Commission lowered its EU growth forecast for 2026 from 1.4% to 1.1% and raised its inflation forecast from 2.1% to 3.1%. This is also a victory for Italy and its Prime Minister Giorgia Meloni, who repeatedly called on Brussels to mitigate the economic damage caused by soaring oil and gas prices.

Dombrovskis explained that the Commission's proposal allows «member states to extend the scope of the national exceptional clause for defense to measures that help in the transition away from our dependence on fossil fuels.» All member states will need to formally apply to Brussels. Countries that have already fully utilized the additional fiscal space may also be allowed to spend more than 1.5% subject to «additional debt sustainability assessment» by the European Commission.