Italy not planning to use EU budget leeway for defence spending boost

ROME (Reuters) - Italy has no intention for now of using budget leeway allowed by the European Union to boost its defence spending, its economy minister said on Saturday, despite U.S. pressure to increase military expenditure.

The European Commission has proposed allowing member states to raise defence spending by 1.5% of gross domestic product each year for four years, without any disciplinary steps that normally kick in once a government deficit climbs above 3% of GDP.

Highly indebted Italy aims to honour its pledge to boost its domestic defence budget to at least 2% of GDP from around 1.5% in 2024 without that leeway, Economy Minister Giancarlo Giorgetti told reporters at the end of a meeting of EU finance ministers in Warsaw.

"The goal is not to activate the national escape clause," he said.

The Commission asked member states to decide by April whether to apply for the allowed fiscal room, but Giorgetti said it would be better to wait for the end of an upcoming NATO summit in June before taking any decisions.

"Some time is needed to have coordinate decisions, as ideas on the table are quite diverse in this regard," he added.

On Wednesday, Italy committed to keeping its budget deficit in check and bring it back below the 3% ceiling in 2026, even as it slashed its economic growth forecasts for this year and next, amid uncertainty due to U.S. trade tariffs.

However, Rome said the public debt - the second highest in the euro zone after Greece's - was expected to climb from 135.3% of GDP last year to 137.6% in 2026, before edging down marginally the following year.

To achieve a quick increase in security spending, Italy is considering including money spent for both military and civilian technologies and pensions paid to retired soldiers in its domestic defence budget, the Treasury said in its Document of Public Finance published this week.

(Reporting by Giuseppe Fonte; Editing by Crispian Balmer and Susan Fenton)