Prime Minister Giorgia Meloni's budget aims to finally bring Italy's deficit below the European Union's limit this year, thanks to faster-than-expected growth.
The deficit will shrink enough to fall below the bloc's 3%-of-GDP cap in 2026, Finance Minister Giancarlo Giorgetti told reporters in Rome on Friday. It would be the first time the country complies with EU rules since before the pandemic.
Although the deficit will rise again in the following two years, it will remain within the margin allowed by the bloc for additional spending on defense and energy, before falling to 2.4% in 2029.
The Council of Ministers also approved the additional borrowing needed for these areas, totaling €28 billion ($31.5 billion) over two years. That figure is lower than initially planned. Defense spending was cut to €14 billion — down from the €21 billion or €22 billion previously envisaged — while energy spending will remain at €14 billion over that period.
The changes to the plans reflect concern about tensions in the bond market. The spread between the yields on Italy's and Germany's two-year bonds nearly doubled on Thursday to 55 basis points, the biggest daily jump since 2020 at the close of the session…
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Prime Minister Giorgia Meloni asked the European Commission for more fiscal room to deal with rising energy prices. (Reuters)Prime Minister Giorgia Meloni's budget aims to finally bring Italy's deficit below the European Union's limit this year, thanks to faster-than-expected growth. The deficit will shrink enough to fall below the bloc's 3% of GDP cap in 2026, Finance Minister Giancarlo Giorgetti told reporters in Rome on Friday. It would be the first time the country complies with EU rules since before the pandemic. Although the deficit will rise again in the following two years, it will remain within the margin allowed by the bloc for additional spending on defense and energy, before falling to 2.4% in 2029. The Council of Ministers also approved the additional borrowing needed for these areas, totaling €28 billion ($31.5 billion) over two years. This figure is lower than initially planned. Defense spending was cut to €14 billion — down from the €21 billion or €22 billion previously envisaged — while energy spending will remain at €14 billion over that period. Italy's public debt will peak at 138.6% of gross domestic product next year before declining gradually. (Reuters)These changes to the plans reflect concern about tensions in the bond market. The spread between the yields on Italy's and Germany's two-year bonds nearly doubled on Thursday to 55 basis points, the biggest daily jump since 2020 at the close of trading. This is mainly due to contagion from neighboring France, whose bond spread against German equivalents has reached its highest level since the eurozone debt crisis in 2011. Meloni's decision to cut military spending comes at a time when the EU is warning countries against requesting greater budgetary flexibility. Earlier this week, the prime minister herself did precisely that by asking the European Commission for more fiscal room to cope with rising energy prices. The budget plan presented by Giorgetti foresees a reduction of Italy's enormous debt, but only after a further increase that will almost certainly make the country stand out for having the region's largest debt, as Greece cleans up its own public finances. It will peak next year at 138.6% of gross domestic product, before gradually declining to 136.3% in 2029. This is the last budget before next year's elections, at a time when the prime minister is facing a new ultranationalist rival: former general Roberto Vannacci. Support for his party has risen to around 8% in the most recent polls. Bloomberg