Italy is confronting a mounting fiscal dilemma as it strives to meet ambitious NATO defence spending targets while managing one of Europe’s heaviest debt burdens. Finance Minister Giancarlo Giorgetti, when questioned in parliament about Rome’s military expenditure plans for the coming years, offered few details—signalling the government’s caution amid tightening fiscal constraints.
NATO Commitments and Italy’s Position
In June, NATO members, under pressure from U.S. President Donald Trump, agreed to raise core defence spending to 3.5% of GDP by 2035, with an additional 1.5% annually for strategic infrastructure.
Italy, which currently spends 1.5% of GDP on defence—below NATO’s long-standing 2% target—has pledged to reach that level by the end of this year. Yet the road ahead is steep. Meeting NATO’s 2035 goals would require Italy to more than double its defence spending from today’s levels.
According to S&P Global Ratings, Italy’s public debt is projected to rise from 137.7% of GDP in 2035 to as high as 148.4% if the additional defence commitments are financed through borrowing. That would bring the debt ratio close to the record highs seen during the COVID-19 pandemic.
Meloni’s Balancing Act
Prime Minister Giorgia Meloni, who has built her reputation on fiscal prudence, insists that Italy can deliver on its NATO pledge without undermining financial stability.
“I’m convinced it’s sustainable given the scale and timeframe,” Meloni said at the NATO summit in June. She stressed that her government would not cut funding for social programmes to accommodate higher defence spending.
Instead, Meloni aims to channel increased defence budgets toward domestic firms such as Leonardo and Fincantieri, hoping to create a “virtuous cycle” that strengthens both Italy’s military capacity and industrial base.
Earlier this week, Rome ordered 21 armoured combat vehicles from a joint venture between Leonardo and Germany’s Rheinmetall, marking the first step in modernizing Italy’s aging ground fleet.
Economic Strain and European Parallels
Despite Meloni’s optimism, analysts remain sceptical. Economists warn that while some spending could stimulate local industries, much of it will likely go to imports and administrative costs, offering limited economic benefits.
Italy is not alone in this predicament. France, the UK, and Belgium also face soaring debt levels and fiscal deficits exceeding 4% of GDP, according to IMF data. A major increase in defence spending, financed by borrowing, could push these figures even higher.
“For Belgium, France and Italy, additional borrowing would worsen already fragile fiscal positions,” said Andrew Kenningham of Capital Economics. “It could raise the risk of a bond market sell-off in the coming years.”
Fiscal Tightrope and EU Options
Rome’s government plans to cut its deficit to 3% this year and 2.7% in 2026, a move intended to restore compliance with EU fiscal rules and allow access to EU-backed defence loans. These loans, part of Brussels’s “loans-for-arms” programme, are funded through borrowing against the EU budget to support member states’ defence projects.
However, such borrowing would still add to Italy’s debt load. The IMF projects that Italy’s debt ratio will surpass Greece’s by 2027 for the first time since 2006. Analysts suggest the EU may eventually consider joint debt issuance, similar to its COVID-19 recovery programme, to finance defence commitments across the bloc.
Strategic Infrastructure and Flexibility
Unlike military spending targets, the NATO requirement to allocate 1.5% of GDP to strategic infrastructure is more flexible. Italy plans to classify several ongoing port and airport upgrades as strategic projects to meet this benchmark.
“There’s going to be a lot of leeway in defining what counts as strategic,” said Alessandro Marrone, head of the defence programme at the Institute for International Affairs in Rome.
A Long Road Ahead
Experts agree that Europe’s rearmament drive will be gradual rather than immediate.
“Europe’s rearmament will test the balance between fiscal prudence and strategic urgency, but it will be a slow burn rather than a sudden shock,” said Riccardo Bellesia of S&P.
Countries with stronger finances, such as Germany, the Netherlands, Denmark, and Lithuania, are expected to increase spending faster than highly indebted nations like Italy or Belgium.
The NATO spending goals are set for review in 2029, after the end of Trump’s second term, and many analysts doubt that the most indebted countries will fully meet them.
As Andrew Hunter of Moody’s Analytics summarized: “Outside of Germany, we doubt such a significant rise in spending will materialise in most European countries.”
Summary:
Italy’s pledge to meet NATO’s ambitious defence targets underscores a growing tension between fiscal discipline and strategic responsibility. While Rome vows to meet its commitments without compromising economic stability, the combination of rising debt, sluggish growth, and limited fiscal space means Italy—and much of Europe—faces a delicate balancing act in the years ahead.
