Italy Commits to Bringing Budget Deficit Below EU 3% Ceiling by 2026
Italy's Fiscal Strategy and EU Compliance
By Giuseppe Fonte
Government's Budget Plan and Deficit Targets
ROME, Sept 23 (Reuters) - Italy plans to confirm a commitment to bring its deficit-to-GDP ratio below the European Union's 3% ceiling in 2026 from 3.1% in 2025, sources said, as the government finalises a new budget plan due in the next few weeks.
The government expects this year's deficit to come in broadly in line with the 2.9% goal announced in April, the sources added.
Revised Growth Estimates
Italy will also revise upwards its growth estimate for this year to up to 1% from the previous 0.6%, Prime Minister Giorgia Meloni said this month, factoring in a slight improvement in the economic outlook despite growing geopolitical tensions.
Excessive Deficit Procedure (EDP) and Economic Implications
Cutting the deficit below the EU ceiling is a key requirement for Italy to exit the European Union's excessive deficit procedure (EDP), a long-sought goal of Economy Minister Giancarlo Giorgetti that would set a seal on Rome's consolidation efforts.
ISTAT Data and EDP Status
National statistics bureau ISTAT dashed Rome's hopes of an early exit from the EDP this year, confirming on Tuesday that the 2025 budget deficit stood at 3.1% of GDP, while the government had repeatedly said it expected a downward revision.
ISTAT increased last year's deficit by €550 million ($628 million) instead of cutting it, data showed.
Ministerial Response and EU Commission Stance
"Unfortunately, Italy will not be able to exit the excessive deficit procedure ahead of time this year, as we had hoped, but [...] this may happen in 2027," Giorgetti said in a statement issued following ISTAT data.
The European Commission will have to be convinced that Rome's fiscal consolidation is lasting before approving Italy's exit from the EDP, a spokesperson for the EU said on Tuesday.
Italy's current deficit-to-GDP target for next year is 2.8%.
National Escape Clause and Future Fiscal Leeway
ESCAPE CLAUSE
Normally the EDP limits governments' scope for tax cuts and spending hikes.
However, this time remaining under the procedure or exiting it will have no major impact for Meloni ahead of general elections due in late 2027.
Utilizing the National Escape Clause (NEC)
This is because the European Commission gave 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 in absolute value, through 2028.
Rome's stated goal of exiting the EDP suggests Italy will use the leeway stemming from the NEC in the next two years. ($1 = 0.8755 euros)
(Reporting by Giuseppe Fonte, editing by Giulia Segreti and Keith Weir)
