Italy's deficit goes below 3 per cent for one year, then back above it on defence and energy

Italy's Council of Ministers approved the government's public finance planning document, the DPFP, on 2 October. It holds the 2026 deficit below 3 per cent of GDP, the threshold Rome has been chasing since 2024, and then lets the deficit rise again in 2027 and 2028 on the strength of deviations the EU allows for defence and energy spending. Economy Minister Giancarlo Giorgetti's argument is that the rise does not count. The question is whether the European Commission will agree, and close an excessive deficit procedure on a path whose headline numbers go the wrong way for two years.

The year that was supposed to close the procedure

The Council opened the procedure against Italy on 26 July 2024 and adopted its corrective recommendation on 21 January 2025, according to the Commission's case page; Italy is one of ten member states still in the corrective arm. Rome's plan was to leave early, on the 2025 numbers.

That failed by a decimal. Istat confirmed on 22 September that the 2025 deficit was 3.1 per cent of GDP, the same as its April provisional figure, ANSA reported. Giorgetti's response was unusually flat: "We take note, not without sadness, of the definitive data released by Istat regarding the 2025 deficit-to-GDP ratio." He added that early exit would not happen this year but might in 2027. Il Sole 24 Ore reported that Eurostat validated the figure in its 22 April notification, against 3.4 per cent in 2024 and a 2025 debt ratio of 137.1 per cent, and that officials had tried to reach exactly 3 per cent through the accounting treatment of the Superbonus and tax credits, falling short by roughly a billion euros.

A deficit that falls, then rises

The DPFP therefore makes 2026 the compliance year and 2027 the exception. ANSA, reporting Giorgetti after the Council of Ministers, gives a deficit below 3 per cent in 2026, 3.5 per cent in 2027, 3.3 per cent in 2028 and 2.4 per cent in 2029. Il Sole 24 Ore's tables from the same document show 2.9 per cent in 2026 and 3.4 per cent in 2027, with 3.3 and 2.4 after that. The two accounts of 2027 differ by a tenth and cannot be reconciled from the material available; the direction is the same.

Giorgetti's case for compliance is explicitly arithmetical. "The deficit figures for 2027 and 2028 are above 3%, but they must be adjusted to account for the deviations related to defence and energy; consequently, if you adjust them by 0.6%, you will find a figure below 3%," he said, as reported by ANSA. He also conceded how little margin there is, saying that "decimals make the difference."

That is a claim about how the rules are read, not about the cash deficit. Nothing in the Commission's published position on Italy says an adjusted figure will be accepted as the basis for closing the procedure, and no assessment of the DPFP has been issued. The 2027 exit rests on an interpretation the institution that decides has not confirmed.

Defence is the item that gave way

The deviation itself has been trimmed. Il Sole 24 Ore reported the total sought at about EUR 29 billion, against EUR 36 billion originally planned, divided into roughly EUR 7 billion a year for defence and EUR 7 billion a year for energy measures, each equivalent to 0.3 per cent of GDP for 2027 and 2028. Defence was cut by EUR 7 billion from the initial projection. Reuters described Italy as using leeway the EU granted all member states to raise defence spending and to deal with the energy price shock, and put the previous 2027 deficit target at 2.8 per cent.

The order of priorities is visible in that split. Energy relief takes the full allowance; defence takes less than the government had intended. Scaling back a deviation does not reduce the NATO commitment; it reduces the near-term cash behind it.

The deviation is not yet law. Parliament votes on it on 13 October, according to Il Sole 24 Ore, the first hard test of whether the coalition will put a 2027 deficit above 3 per cent on the record.

Debt, the spread and the banks

Growth was revised up, which is what makes the ratios work: the DPFP puts 2026 GDP growth at 1.0 per cent against 0.6 per cent forecast in April, then 0.8 per cent in 2027. Debt is projected at 138.1 per cent of GDP in 2026 and then rises: ANSA reports 138.6 per cent for 2027, Il Sole's tables give 138.5 and 138.4 in different renderings. All versions then decline to roughly 136 per cent by 2029, which means the debt ratio peaks in the same year the deficit does.

Markets moved against that timing. Il Sole 24 Ore reported the BTP-Bund spread at 128 basis points on 2 October, the widest in about eighteen months, with the ten-year BTP at 4.69 per cent and the Bund at 3.43 per cent, attributing the move to a flight to quality favouring German paper. Giorgetti said he would not hide "the close attention with which we are monitoring the situation regarding inflation and interest rate trends."

The revenue side is unresolved. Reuters reported on 8 September that the League wanted banks to contribute up to EUR 3 billion to the 2027 budget, possibly through a 5 per cent levy on profits, on top of some EUR 12 billion already sought from banks and insurers through 2028. Giorgetti, a League figure, framed it as a competition problem: "Is there competition among them? Or is it that the struggling entrepreneur can no longer find anyone offering competitive terms for loans?" Forza Italia has resisted a new levy, preferring advance tax payments agreed with the firms concerned.

What to watch

• Whether the Commission's assessment of the DPFP accepts deficits adjusted for the defence and energy deviations as a basis for closing the excessive deficit procedure.
• The parliamentary vote on the deviation scheduled for 13 October, and whether the coalition holds on a 2027 deficit above 3 per cent.
• Whether the bank contribution is settled as a levy or as advance tax payments, and at what size, when the budget bill is tabled.
• Whether the BTP-Bund spread stays near 128 basis points once the deficit path is formally filed, given that debt peaks in 2027 on the government's own numbers.

Rome's position is that it has met the 3 per cent rule once and intends to be credited with meeting it while exceeding it. That may be how the rules work; it is not yet how the Commission has said they work.

Sources

• ANSA — Istat confirms Italy's 2025 deficit of 3.1% of GDP
• ANSA — Deficit below 3% in 2026, rising to 3.5% in 2027 says Giorgetti
• Il Sole 24 Ore — Council of Ministers approves the DPFP and a 29 billion extra-budgetary deficit for energy and defence
• Il Sole 24 Ore — DPFP: Giorgetti says deficit-to-GDP ratio will fall below 3 per cent in 2026, with GDP growing by 1 per cent
• Il Sole 24 Ore — Eurostat confirms: Italy deficit at 3.1%. Out of EU procedure only in 2027
• Il Sole 24 Ore — BTPs: flight to quality boosts the Bund, spread jumps to 128 points
• European Commission — Excessive deficit procedures: overview
• European Commission — Excessive deficit procedure: Italy
• Reuters, via AOL — Italy's League says banks should contribute up to 3 billion euros to state budget