EU leaders split on energy costs and budget as Italy seeks flexibility

The European Council's first day was dominated by disputes over energy prices and the EU budget, with leaders divided on short-term relief measures for industry and households amid inflation and the Hormuz crisis. Italian Prime Minister Giorgia Meloni renewed her call for budget flexibility under Stability Pact rules, backed by Greece's prime minister. Italy, Greece, Cyprus, and the Visegrad group favor delaying the ETS2 carbon market extension to 2028, while Germany rejects any move that would undermine the system. On the multi-annual budget, a rift persists between the Frugal states demanding substantial cuts and the Cohesion countries, led by Italy and Romania, seeking adequate resources and no rebates. European Council President António Costa still hopes for a budget deal by year-end, but the Frugal group, including Austria and the Netherlands, is prepared to extend negotiations into 2026. Intense discussions yielded few concrete decisions on the most contentious files.