Italy sticks with plan to bring 2026 deficit below EU 3% of GDP ceiling

Italy Confirms Plan to Lower 2026 Deficit Below EU's 3% of GDP Target

Italy's Budget Deficit Strategy and EU Compliance

By Giuseppe Fonte and Gavin Jones

Government Commitment and Budget Planning

ROME, Sept 23 (Reuters) - Italy plans to confirm a commitment to bring its budget deficit below the European Union's 3% of gross domestic product ceiling this year from 3.1% in 2025, sources said, as the government finalises a new budget plan due in early October.

This year's deficit is seen coming in broadly in line with a 2.9% goal announced in April, the sources said.

Exiting the EU's Excessive Deficit Procedure

Cutting the deficit below the EU ceiling is a key requirement for Italy to exit the EU's excessive deficit procedure (EDP), a longtime goal of Economy Minister Giancarlo Giorgetti that would set a seal on Rome's consolidation efforts.

ISTAT's Role and Deficit Data

National statistics bureau ISTAT dashed Rome's hopes of an early exit from the EDP this year, confirming on Tuesday that the 2025 deficit stood at 3.1% of GDP. The government had repeatedly said that it expected a downward revision.

ISTAT increased last year's deficit by €550 million ($628 million) instead of cutting it, data showed.

"The exit from the infringement procedure is scheduled to take place next year," Giorgetti told parliament on Wednesday.

Even if this year's deficit comes in below 3% of GDP, the European Commission will have to be convinced that Rome's fiscal consolidation is lasting before approving Italy's exit from the EDP, an EU spokesperson said on Tuesday.

Italy's current deficit-to-GDP target for next year is 2.8%.

The National Escape Clause and Fiscal Flexibility

Understanding the Escape Clause

ESCAPE CLAUSE

Normally the EDP limits governments' scope for tax cuts and spending hikes.

However, this time remaining under the procedure or exiting it is not expected to have a major impact for Meloni ahead of general elections due in late 2027.

Utilizing the National Escape Clause

This is because the European Commission has given all EU countries scope to raise spending to tackle the impact on their citizens of surging energy prices, and to boost their defence budgets through a so-called "national escape clause" (NEC) from the EU's budget rules.

Italy wants to tap the NEC to secure an extra-deficit worth 1.5% of GDP, or around €34 billion, through 2028.

Rome's stated goal of exiting the EDP next year suggests it will use the leeway offered by the NEC in 2027 and 2028.

Negotiations with Brussels and Economic Outlook

Giorgetti said he would discuss with Brussels an "interpretation" of the rules that would allow Italy to exit the EDP while also taking advantage of the escape clause.

"The NEC requires an interpretation that we have been working on for some time," he told reporters in parliament.

In its upcoming budget plan, Italy will raise its growth estimate for this year to up to 1% from the current 0.6%, Prime Minister Giorgia Meloni said this month, pointing to an improved economic outlook despite growing geopolitical tensions.

($1 = 0.8755 euros)

(Editing by Giulia Segreti and Keith Weir)