ROME — Italy is ready to use an EU-devised accounting trick to help boost its defense budget by €12 billion, or $14 billion, as it tries to meet tough new NATO spending targets.
The plan devised in Brussels last year allows EU member states to exempt defense spending when they calculate annual deficit spending, allowing them to raise defense budgets without breaking EU deficit rules.
The EU normally requires member states to keep their budget deficit below 3% of GDP or face infraction procedures.
An Italian government source told Defense News the so-called NationalEscape Clause (NEC), if used, could result in Italy adding €12 billion to its defense budget over three years starting from 2026.
Rome’s readiness to use the EU rule was signaled in a Ministry of Finance budget document issued this month, which stated it could be triggered if low-cost EU loans to boost defense spending – dubbed the SAFE program – were not enough to get Italy up to NATO requirement that members spend 5% of GDP on defense and security by 2035.
“The decision on whether to activate the NEC is postponed until after the completion of the SAFE program, when its actual need will be assessed,” the document stated.
Italy has already applied to the EU for €14.9 billion in SAFE loans. The document stated that Rome will give the EU a list by Nov. 30 of what defense products it planned to spend the loans on.
It said the list would focus on “joint programs with other member states of third countries interested in developing defense strategies in collaboration with the European Union.”
The document added the European Commission would issued a response to the request by Dec. 31.
Italy spent €29.18 billion on defense in 2024, equaling 1.54% of GDP, and has said it will reach 2% this year. Government sources have told Defense News that the gap will be made up by reclassifying parts of the Italian coast guard as military units, but no formal announcement has yet been made, and a proper defense budget document breaking down spending for 2025 has yet to be published.
Looking ahead to 2026, the finance ministry document says a further “gradual” rise in spending will see Italy budgeting 2.5 percent of GDP by 2028.
The document warns that hiking budgets too quickly would prompt a “rush to buy” which would result in the market hiking prices.
“Based on a realistic projection, spending in relation to GDP would rise by 0.15 percentage points in 2016 and again in 2017 then by 0.2 percent points in 2028,” the document states.
Planners would first use the SAFE loans to achieve that, then decide on whether to use the National Escape Clause.
The permission to use the NEC by the the EU was part of its March 2025 ReArm scheme to push member states to increase military readiness in light of Russia’s invasion of Ukraine.
“The EU’s fiscal rules limit how much member states’ governments can spend. That’s why the EU is allowing additional budgetary flexibility within the fiscal framework to ensure that rising defense expenditure does not jeopardize fiscal sustainability or trigger penalties normally associated with breaching EU budgetary limits,” the EU has said.
“The flexibility under the NEC for defense expenditure would be available for four years, starting from 2025, with an annual excess through 2028 that will not exceed 1.5% of GDP,” it has said.
Italy has previously said it did not want to use the NEC option as long as its annual deficit was already over 3%, meaning it was facing an infraction procedure. But it now predicts it will drop to 2.8% next year. The document contains one paragraph hinting that Italy may not yet need to achieve the 5% spending demanded by NATO.
Its logic is that the 5% target has been established to ensure countries reach specific military capabilities. If Italy can achieve those capabilities through “rationalization strategies and optimizing spending, it could yet be possible to deliver the capabilities assigned to each country with a smaller outlay.”
Tom Kington is the Italy correspondent for Defense News.
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