Rome faces defence budget setback as economic strain deepens

Italy may be unable to proceed with its planned increase in defence spending due to worsening economic and public finance conditions, alongside the need to address rising energy costs, a government document said, Reuters reports.

Prime Minister Giorgia Meloni’s government lowered its growth forecasts and raised projections for the budget deficit and public debt, citing surging energy prices and instability linked to tensions in the Middle East.

The Treasury’s multi-year budget plan (DFP), released on April 23, highlighted increased downside risks to the economic outlook and warned that Italy now has limited fiscal room for manoeuvre due to the need to support households and businesses affected by the energy shock.

“As a result, it will be necessary to re-define our priorities and re-programme the planned spending increases in other areas, including defence,” Economy Minister Giancarlo Giorgetti said in an introductory note to the DFP.

Italy, along with most NATO European allies, has endorsed calls from US President Donald Trump for defence and security spending to reach 5% of GDP by 2035.

In the near term, Rome’s 2026 budget, approved in December, had committed to increasing defence spending by 0.5% of GDP by 2028—equivalent to around €12 billion ($14.03 billion)—a plan that has drawn criticism from opposition parties, which argue the funds should instead be directed toward public services.

Highly dependent on imported energy, Italy remains particularly exposed to disruptions linked to the Iran conflict. The country is Europe’s most gas-dependent economy, with natural gas accounting for 38% of its energy mix, according to the London-based Energy Institute. It is also the European Union’s largest importer of liquefied natural gas via the Persian Gulf.

The European Union has allowed member states to exceed fiscal deficit limits in order to increase defence spending or respond to exceptionally adverse economic conditions.

Giorgetti said that Italy may invoke this so-called “national escape clause,” although the DFP suggests it is more likely to be used to address the energy crisis rather than to expand defence expenditure.

He also warned that the government’s current forecasts, which project growth of 0.6% this year and next, may need to be revised downward. The DFP further indicates that in a worst-case scenario, the economy could contract by 0.2% in 2027.

By Vafa Guliyeva