Italy takes steps to cap fuel prices amid fiscal concerns

By Giuseppe Fonte and Gavin Jones

ROME, July 27 (Reuters) - Italy on Monday re-introduced a temporary cut in excise duties on diesel, amid wide-spread protests against soaring energy costs and mounting concerns over the fiscal impact of such moves.

The rise in energy and consumer prices due to the war in the Middle East has been a major headache for Prime Minister Giorgia Meloni, who has been trying for months to shield households' purchasing power and energy-intensive firms while keeping Italy's strained state finances in check.

Economy Minister Giancarlo Giorgetti told reporters Rome had adopted a decree that would lower the price of diesel for consumers by 17 euro cents per litre until August 6.

The measure will cost state coffers €125 million including separate tax breaks for truck drivers and farming businesses.

Giorgetti said the government could take further steps at a cabinet meeting scheduled for August 4, adding that if necessary the ruling coalition would also act to curb electricity and gas bills.

"We will assess how the situation develops," he said.

He said Italy and Germany were the European countries hardest hit by the surge in energy costs, being two strongly industrialised countries which "unfortunately depend heavily on fossil fuels."

Meloni said on X that the government had acted "quickly and responsibly, taking into account the scarce resources that we have."

EU AND IMF CRITICISM

Italy introduced a temporary cut in excise duties on diesel and petrol in March following the energy shock triggered by the U.S.-Israeli strikes on Iran at the end of February.

The measure was extended several times, and progressively scaled back, until it expired on July 3 having cost taxpayers almost €2 billion ($2.28 billion).

Both the European Commission and the IMF criticised the excise duty cut, saying Italy should have applied more targeted measures to shield the most vulnerable households, limiting the impact on its budget.

Italy has targeted its budget deficit at 2.9% of gross domestic product this year, just inside the European Union's 3% ceiling, down from 3.1% in 2025.

Giorgetti however said the government next week would seek approval from parliament to tap the European Union's "national escape clause" from the bloc's budget rules that would allow Italy to post higher deficits through 2028.

Italy's public debt, seen peaking at 138.6% of GDP this year, is set to overtake Greece's as the largest in the euro zone.

The industry ministry said earlier on Monday that the average price of fuel at self-service stations across Italy's road network is €1.982 per litre for petrol and €2.185 for diesel, up from €1.803 and €1.882, respectively, on July 3.

Prices on the motorway network are even higher and exceed €2 euros for both fuels.

Massimo Garavaglia, head of the finance committee at the upper house of parliament, said the government would try to keep both petrol and diesel prices below €2.

The cabinet on Monday also set aside $100 million to keep afloat the Ilva steelworks in southern Italy, as the government struggles to find investors interested in purchasing the company's assets.

($1 = 0.8767 euros)

(Editing by Andrei Khalip)