Italian government and industry leaders are rushing this week to figure out how to spend a European Union-backed windfall of billions of euros in defense cash as Italy seeks to reach new NATO spending targets.
In a week when most Italian politicians were heading for the beach, Italian Prime Minister Giorgia Meloni summoned the CEOs of state-controlled defense firms Leonardo and Fincantieri on Tuesday to discuss how to spend the cash.
The talks followed Italy’s decision to apply for low-cost loans to be issued by the EU under its new SAFE, or Security Action for Europe, plan, which will see the creation of a €150 billion ($174.2 billion) pot to be used for defense spending loans.
A source at Italy’s finance ministry told Defense News that Italy may procure loans worth €5 billion over five years to beef up defense spending and help push it towards the 5% of GDP spending that NATO members committed to in June.
At the meeting, which was also attended by Italian Defense Minister Guido Crosetto and Italy’s finance and foreign ministers, Meloni asked the CEOs to “create a strategy to identify the principal ways to invest.”
She asked them to “maximize dual-use investments” that provide benefits both inside and outside the defense industry, and “seek compatibility between our investments and those made by our European partners,” suggesting a focus on joint EU defense programs.
The EU has already specified that spending based on SAFE loans should invest in fields including air and missile defense, artillery, missiles, drones and cyber warfare.
As well as discussing the possibility of Italy signing up to the SAFE scheme, Meloni cited a second EU-backed plan launched this year to allow member states to ramp up defense spending even if it drives their national deficit spending over the EU limit of 3%.
The government source told Defense News that Italy would not take advantage of the plan immediately since its overall spending has already pushed its deficit over 3%.
“Italy may drop under 3% in 2026 and could at that point take advantage of the EU plan on deficit defense spending,” said the source, who spoke on condition of anonymity.
Leonardo, meanwhile, is already planning how to deal with the massive influx of revenue coming its way when Italy takes the SAFE loans. In a presentation to analysts on July 30, CEO Roberto Cingolani said Italy’s finance ministry had told him the loans could total €18-20 billion, more than the €15 billion suggested by the government source.
He said the result could be a €4 billion top-up to Italy’s defense spending budget every year for five years, helping push Italy from its current 2% of GDP spending towards NATO’s new 5% target.
With every percentage point hike in Italy’s defense budget, Leonardo would see extra revenue of €2-2.5 billion, he said.
In his presentation, Cingolani said new orders already meant that Leonardo’s 2024 revenue of €17.8 billion was due to rise to €24 billion by 2029. Adding in the extra revenue thanks to the EU loans could boost revenue by another €4-6 billion, he added.
To get ready for the sudden growth, Leonardo had already created a panel of seven industry experts to manage a “Capacity Boost” program covering engineering, manufacturing, procurement, supply chain, human resources and project management issues.
The key, Cingolani said, was flexibility rather than focusing on just new hires and building new facilities.
“We don’t want to find out in five years that we have gigantic installations and don’t have demand anymore,” he said.
Tom Kington is the Italy correspondent for Defense News.
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