Italy, pressed to boost defence spending, lashes at 'stupid' EU rules

By Giuseppe Fonte and Angelo Amante

ROME (Reuters) -European Union budget rules are "stupid and senseless" and need to be changed to allow member states to boost defence spending as recommended by Brussels, Italian Economy Minister Giancarlo Giorgetti said on Thursday.

The EU Commission has introduced flexibility clauses to allow more investment in security, but Giorgetti said their current form penalises countries such as Italy, which are under a so-called EU infringement procedure for their excessive deficits.

"It is essential to find ways to bring these rules up to date with the crisis we are experiencing so that they do not seem stupid and senseless," the minister said in a statement issued by his staff on the sidelines of a meeting with euro zone peers in Luxembourg.

The title of the statement was blunter, saying Giorgetti called for changes to "stupid and senseless rules".

Brussels 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 would normally kick in once a deficit is more than 3% of GDP.

The plan came amid growing pressure in Europe to boost military spending to deter a potential attack from Russia and become less dependent on the United States.

Highly-indebted Italy is set this year to meet the NATO defence target of 2% of GDP through a series of accounting changes, but an alliance summit next week is expected to raise the goal to 5% of GDP.

Giorgetti said that, under the Commission's scheme, member states not subject to the EU's excessive deficit procedure would be allowed to use the extra leeway on defence without breaching budget rules, even if their deficits rise above the 3% of GDP ceiling.

However, "member states already in the infringement procedure cannot use the same flexibility," he added.

In this situation Italy is reluctant to use the EU flexibility clause because it would prevent it from lowering its deficit to 2.8% of GDP in 2026 from 3.4% last year, as planned.

"Italy is committed to a timely exit from the infringement procedure and accepting the invitation to increase defence spending would forever prevent this," Giorgetti said.

Rome is also wary of any move that could harm its improving reputation on financial markets, two government officials said.

Last month, credit ratings agency Moody's upgraded Italy's outlook to "positive" after rival S&P Global raised the country's rating to "BBB+" from "BBB."

Italy's preferred option would be the issuance of common EU debt to finance higher defence spending, one of the officials said, but such a plan would require support from the other bloc members.

(Editing by Alvise Armellini and Gavin Jones)