Italy’s Defence Spending and NATO Target

By Giuseppe Fonte and Gavin Jones
ROME (Reuters) – Italy will meet NATO’s 2% of GDP defence spending target this year through various accounting adjustments, as stated by Economy Minister Giancarlo Giorgetti during a parliamentary hearing.

Italy’s projected defence budget for 2024 stands at 1.49% of GDP, one of the lowest in NATO. The country faces pressure from the U.S. to increase defence spending. Giorgetti emphasized the need for increased expenditure in the coming years while addressing lawmakers regarding the multi-year budget framework.

To achieve the 2% target, Italy plans to adjust its accounting methods, including certain previously excluded expenditures as defence spending. This encompasses costs for specific civilian technologies and pensions for retired soldiers.

U.S. President Trump has urged NATO allies to raise military spending, suggesting figures as high as 5% of GDP, which Defence Minister Guido Crosetto deemed “unthinkable.” The European Commission has proposed allowing member states to increase defence spending by 1.5% of GDP annually for four years without penalty, but Italy does not plan to utilize this flexibility currently.

Growth Challenges
Italy’s central bank testified that defence spending should be financed by a mix of extra borrowing, budget savings, and tax increases. The government aims to maintain a controlled budget deficit amid reduced economic growth forecasts due to uncertainty over U.S. trade tariffs.

The parliamentary budget watchdog UPB predicted that Trump’s tariffs could reduce Italy’s GDP by 0.3 percentage points and lead to a loss of 68,000 jobs.

Italy’s economic growth relies significantly on billions from the EU’s COVID-19 recovery funding, but the Bank of Italy warned of potential delays and missed targets on investing this cash, which needs to be allocated by 2026. The government had spent approximately 66 billion euros ($72.81 billion) by March, which is around 34% of the available EU funds, and has ambitious plans to recover lost ground, forecasting EU COVID funds expenditures of 40 billion euros in 2025, 80 billion euros next year, and 12 billion euros in 2027.

“It is inevitable that the accounting for some spending will extend beyond 2026,” Giorgetti said.

($1 = 0.8801 euros)