Italy seeks €28.8B deficit deviation for energy and defense as budget tensions rise

Fiscal framework and the deficit deviation

The Italian cabinet approved the Documento Programmatico di Finanza Pubblica (DPFP) and transmitted a 143-page report to Parliament requesting authorization for 28.8 billion euros in additional borrowing across the 2027–2028 biennium. The executive activated the European Union safeguard clause to permit the deficit deviation, citing energy market pressures and geopolitical conflicts. Under the plan, Italian public debt is projected to rise to 138.5% of GDP in 2027 from 138.1% in 2026, driven partly by residual building bonus expenditures from prior years. Economy Minister Giancarlo Giorgetti urged fiscal caution due to interest rate pressures and inflation risks, even as the government raised its 2026 GDP growth forecast to 1.0% and placed the 2026 deficit at 2.9%. Italian officials project that the country will exit the European Union excessive deficit procedure in spring 2027, aiming for a medium-term deficit of 2.3%.

Energy relief and defense allocations

The planned borrowing is split evenly across both years, directing 14.4 billion euros to energy policy and 14.4 billion euros to defense. In both 2027 and 2028, the government plans to disburse 7.2 billion euros to each respective sector. Energy funds will support renewable electricity production, subsidize student public transit, finance corporate decarbonization programs, and establish an energy release mechanism for vulnerable businesses. Defense allocations will fund personnel and procurement aligned with NATO commitments, following earlier ministerial proposals that had considered up to 22 billion euros for military spending before fiscal limits narrowed the figure.

Coalition tensions and the EU deficit ceiling

The budget blueprint brought internal policy friction within the governing coalition regarding European fiscal rules. League senator Claudio Borghi stated that Prime Minister Giorgia Meloni should disregard the European Union 3% deficit ceiling to insulate the domestic economy from future downturns. Borghi insisted that the executive prioritize key party proposals, including the Quota 64 pension reform and flat tax expansions. He argued that several European peers under excessive deficit procedures run higher shortfalls, pointing to France's deficit at 5.4% and elevated figures in Poland.

When we say that a courageous budget is needed, it does not mean being reckless, but moving ahead of possible future recessions.

Opposition backlash and European review schedule

Opposition parties and trade union leaders criticized the decision to allocate 14.4 billion euros to defense while public services face financial constraints. CGIL confederation secretary Christian Ferrari criticized the defense budget as the largest increase in military spending to date while social and economic pressures persist. Democratic Party leader Elly Schlein announced that her party will oppose the defense expansion, proposing instead to raise national health spending toward 7% of GDP.

With healthcare exhausted and low wages eaten away by 4% inflation, it seems that for Giorgia Meloni the priority is breaking the historical record for defense spending increases. We will not accept it, and we will oppose it.

Five Star Movement leader Giuseppe Conte condemned the defense allocations while household living costs remain elevated, urging the government to tax excess profits of banks and energy providers instead.

The shopping cart is increasingly expensive, utility bills and fuel are skyrocketing, tax pressure is at a record level, and Italy's growth is minimal. And what does the government do? It conducts a deviation and finds 14 billion in extra spending for arms. It is madness.

The fiscal timetable requires European and parliamentary approvals through autumn. European finance ministers will review Italy's flexibility request at the Ecofin meeting on 9 October, followed by an Italian parliamentary vote on the deviation scheduled for 13 October.