Italy Plans to Leverage EU Accounting Strategy for Defense Spending Increase
ROME — Italy is prepared to implement a financial maneuver approved by the EU to augment its defense budget by €12 billion, approximately $14 billion, aiming to fulfill stringent new NATO expenditure goals.
Last year, a scheme was established in Brussels allowing EU nations to exclude defense expenditures from their annual deficit calculations. This adjustment permits countries to enhance their defense budgets without contravening the EU’s deficit regulations.
Under normal circumstances, the EU mandates that member countries maintain their budget deficits under 3% of GDP to avoid penal procedures.
A source from the Italian government disclosed to Defense News that the potential activation of the so-called National Escape Clause (NEC) could see an addition of €12 billion to Italy’s defense budget across three years starting from 2026.
Readiness to activate this EU provision was indicated in a budgetary document from the Italian Ministry of Finance this month. It mentioned that the clause could be triggered if the low-cost EU loans, part of the SAFE program aimed at boosting defense spending, fall short of elevating Italy to meet NATO’s requirement of allocating 5% of GDP to defense and security by 2035.
The document further stated, “The decision to activate the NEC will be deferred until the completion of the SAFE program, at which point its necessity will be evaluated.”
Italy has already submitted a request to the EU for €14.9 billion in SAFE loans. It plans to provide the EU with a list by November 30 detailing the defense products on which the loans will be utilized.
The list will prioritize “joint initiatives with other member states or third countries interested in developing defense strategies in cooperation with the European Union.” The European Commission is expected to respond to this request by December 31.
In 2024, Italy allocated €29.18 billion to defense, which constituted 1.54% of its GDP, and it aims to reach 2% this year. Government insiders have suggested to Defense News that the shortfall will be addressed by reclassifying certain units of the Italian coast guard as military entities, although no official statement has been made, and a detailed defense budget for 2025 is yet to be published.
The finance ministry document outlines a “gradual” increase in defense spending, projecting a budget of 2.5% of GDP by 2028.
It cautioned that too rapid an increase in the budget could lead to a “rush to buy,” potentially causing market prices to spike. “Based on a realistic forecast, spending as a percentage of GDP is expected to rise by 0.15 percentage points in 2026 and 2027, and by 0.2 percentage points in 2028,” the document explains.
The planners intend to first utilize the SAFE loans to reach these targets before deciding on the activation of the National Escape Clause.
The EU’s approval for the use of the NEC was part of its March 2025 ReArm initiative, designed to encourage member states to bolster military readiness in response to geopolitical threats such as Russia’s invasion of Ukraine.
“The EU’s fiscal guidelines restrict government spending, which is why the bloc is offering additional budgetary flexibility within its fiscal framework to ensure that increased defense spending does not compromise fiscal sustainability or lead to penalties typically associated with breaching EU budgetary limits,” the EU stated.
“The flexibility provided by the NEC for defense spending will be available for four years, starting from 2025, with an annual allowance until 2028 that will not exceed 1.5% of GDP,” it added.
Previously, Italy had expressed reluctance to use the NEC option as long as its annual deficit exceeded 3%, which would trigger an infraction procedure. However, it now anticipates reducing its deficit to 2.8% next year. The document hints that Italy might not need to meet NATO’s 5% spending requirement immediately.
It suggests that the 5% target is established to ensure nations achieve certain military capabilities. If Italy can attain these capabilities through “rationalization strategies and optimizing spending,” it might be possible to meet the assigned capabilities with a lower expenditure.
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Jamal Peterson reports on defense, aerospace, and tech policy. With a military background and a strategic mind, he dissects complex subjects with clarity, offering readers sharp, reliable insights.
