Italy to make partial use of EU budget leeway for energy and defence
By Giuseppe Fonte and Gavin Jones
Italy's Approach to EU Budget Leeway
ROME, Aug 5 (Reuters) - Italy intends to make partial use of budget leeway for energy and defence spending allowed by European Union rules, Economy Minister Giancarlo Giorgetti said on Wednesday.
Energy Spending Plans
Giorgetti said Rome would make full use of the extra deficit granted to soften energy costs - amounting to 0.6% of gross domestic product over three years - while only partially tapping the resources available for defence.
Political Context and Challenges
Hiking military spending is unpopular in Italy and a source of conflict among the ruling parties.
Prime Minister Giorgia Meloni is also wary of steeply hiking the budget deficit, which could jeopardize market confidence in Italy's strained public finances.
Government Statements
"We will certainly be calling for the maximum amount envisaged for the energy spending," Giorgetti said in parliament.
EU Rules and Defence Spending
Following Russia's invasion of Ukraine, the European Commission ruled in March 2025 that EU member states could increase defence spending by up to 1.5% of GDP per year through 2028, without triggering disciplinary action over the increase in their budget deficits.
Italy pushed for the Commission to allow part of this fiscal leeway to be used to cushion soaring energy costs.
Compromise on Fiscal Leeway
As a compromise, the Commission granted states to use 0.3% of GDP out of the 1.5% -- but not more than 0.6% over the three years -- to pay investments to help the transition from fossil fuels to green energy.
Defence Spending Limits
Giorgetti said Rome would seek deficit leeway under Brussels' so-called "national escape clause" amounting to 0.9% of GDP for defence, far below the 1.5% per year made available by Brussels.
Rome would then negotiate with the EU an overall extra-deficit of 1.5% of GDP, or around €34 billion ($39.22 billion) in absolute terms, Giorgetti said, though he was not specific on the time frame he was referring to.
"On defence, we won't reach the maximum," he said.
Risks and Future Outlook
Potential Disciplinary Procedures
Giorgetti also warned that tapping the escape clause could mean that Italy remains under an ongoing EU disciplinary procedure (EDP) for its excessive budget deficit, which came in at 3.1% of GDP last year, just above the bloc's 3% ceiling.
He added, however, that he hoped this would be avoided.
Government's Goal to Exit EDP
"I want to go home (at the end of the government's term of office next year) having brought us out of the EDP," he said.
Upcoming Data and Implications
Eurostat will publish revised data on member states' 2025 deficits in September, and Giorgetti has said for weeks that he is hoping for a downward revision to 3% or below.
A deficit inside 3% would allow Rome to exit the EDP this year, provided Brussels is convinced the improvement in its accounts is persistent.
"If the procedure is not closed early, a deterioration in public finances would mean remaining under the EDP until the deficit falls below the threshold laid down in the Treaties," Giorgetti said.
($1 = 0.8669 euros)
(Reporting by Giuseppe Fonte and Gavin Jones)
