Italy says to meet NATO spending goal this year by accounting changes

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By Giuseppe Fonte and Gavin Jones

ROME (Reuters) -Italy will meet NATO’s 2% of gross domestic product (GDP) target on defence spending this year through a series of accounting changes, Economy Minister Giancarlo Giorgetti said at a parliamentary hearing on Thursday.

Italy’s projected defence budget for 2024 was 1.49% of GDP, according to NATO figures, one of the lowest levels among the countries in the military alliance, and it is under pressure from the United States to raise its outlays.

“We are acutely aware of the need to increase this expenditure in the coming years,” Giorgetti said, addressing lawmakers on Italy’s multi-year budget framework.

On paper, hitting the 2% goal would require about 11 billion euros ($12.50 billion), but Italy wants to adjust its accounting criteria to align them to NATO’s rules and list as defence spending items which were previously excluded, Giorgetti said.

These include money spent for certain civilian technologies as well as pensions paid to retired soldiers.

U.S. President Donald Trump is pushing NATO allies to lift military spending as high as 5% of GDP, something which Italy’s Defence Minister Guido Crosetto said this week was “unthinkable.”

The European Commission has proposed allowing member states to raise defence spending by 1.5% of GDP each year for four years, without any disciplinary steps that normally kick in once a government deficit climbs above 3% of GDP.

But highly indebted Italy does not intend to make use of this leeway for now, Giorgetti said.

GROWTH PROBLEMS

Italy’s central bank, also giving testimony to parliament on Thursday, said defence spending should be raised partly through extra borrowing and partly through other savings in the budget and tax increases.

In its latest economic targets released last week, the government committed to keeping the budget deficit in check even as it slashed its economic growth forecasts for this year and next amid uncertainty over U.S. trade tariffs.

Italy’s parliamentary budget watchdog UPB forecast on Thursday that Trump’s tariffs could lower Italy’s GDP by 0.3 percentage points and lead to 68,000 fewer jobs. It did not give a time frame.

A significant part of Italy’s GDP growth depends on billions of euros from the EU’s COVID-19 pandemic recovery funds, but the Bank of Italy warned of delays and possible missed targets in investing the cash, which is supposed to be allocated by 2026.

The government had spent around 66 billion euros ($72.81 billion) through March, around 34% of the available EU funds, and has set itself ambitious targets to recover lost ground.

The budget framework forecasts EU COVID funds expenditure of 40 billion euros in 2025, 80 billion euros next year and 12 billion euros in 2027.

“It is inevitable that the accounting of part of the spending will have to go beyond 2026,”, Giorgetti said.

($1 = 0.8801 euros)

(Editing by Gavin Jones)