Italy remains under the European Union’s excessive deficit procedure after official data confirmed the country’s budget deficit stood at 3.1% of gross domestic product in 2025, narrowly missing the Maastricht Treaty threshold of 3%. The figure, released by Italy’s national statistics institute Istat and later confirmed by Eurostat, dashed hopes that the Meloni government could exit the procedure this year and activate fiscal safeguards tied to increased defence spending.
The deficit result complicates the government’s plans as it prepares its upcoming Document of Economy and Finance (DEF), a key policy document outlining fiscal strategy. With the 3.1% figure confirmed, Italy cannot yet access the so-called “defence clause” introduced under the EU’s reformed fiscal framework, which would have allowed higher military expenditures to be excluded from calculations of net primary spending under the Stability and Growth Pact.
According to Eurostat data verified on April 22, 2026, Italy’s deficit-to-GDP ratio for 2025 was finalised at 3.1%, matching earlier provisional estimates from Istat released in March. This represents a slight improvement from the 3.4% deficit recorded in 2024 but falls short of the government’s own forecast, which had projected a return to the 3% ceiling in its October 2024 Documento Programmatico di Bilancio.
The outcome means Italy will remain subject to enhanced surveillance by the European Commission for at least another year, delaying potential access to preferential borrowing conditions and structural funds tied to compliance with fiscal rules. Economists note that even a 0.1 percentage point deviation from the 3% threshold carries significant procedural consequences under the EU’s preventive arm of the Stability and Growth Pact.
Defence spending plans face latest constraints
The deficit result directly impacts the government’s ability to meet its pledge to increase defence spending to 5% of GDP by 2028, a target aligned with NATO expectations. In its October 2024 fiscal planning document, the Meloni administration had earmarked an additional €12 billion in defence investments over the 2025–2028 period, contingent on exiting the excessive deficit procedure and activating the EU’s defence-related safeguard clause.
Economy Minister Giancarlo Giorgetti had previously indicated that the additional funding could be sourced through domestic bond issuance (BTPs) or via the EU’s Security Action for Europe (SAFE) programme, which facilitates joint procurement in defence among member states. However, activation of the SAFE mechanism remains conditional on Italy’s compliance with fiscal benchmarks, including the deficit ceiling.
With the deficit confirmed above 3%, the government must now pursue its defence investment goals within the constraints of the excessive deficit procedure, limiting flexibility to deviate from the agreed adjustment path toward fiscal sustainability. This may require rephasing defence expenditures or seeking alternative financing mechanisms that do not rely on the fiscal safeguards tied to procedural exit.
Market reaction: Energy stocks rise on Milan exchange
Despite the fiscal developments, trading activity on Milan’s stock exchange, Piazza Affari, showed resilience in certain sectors. Energy-linked equities recorded gains during the session, reflecting broader European trends in commodity markets and investor sentiment toward energy transition investments.
Shares of major Italian energy companies, including those involved in renewable infrastructure and traditional hydrocarbons, advanced amid fluctuating crude oil prices and expectations of continued EU investment in energy security. Analysts note that while sovereign fiscal constraints may influence broader market sentiment, sector-specific dynamics — particularly in energy and defence — can diverge based on contract pipelines, regulatory support, and international demand.
The performance of energy stocks on the Borsa Italiana contrasts with more cautious movements in financial and utility shares, which remain sensitive to interest rate expectations and sovereign risk perceptions. Market observers suggest that the persistence of the deficit procedure may maintain risk premiums on Italian government bonds elevated, indirectly affecting valuation multiples across rate-sensitive sectors.
Fiscal outlook and next steps
Italy’s general government debt remains among the highest in the eurozone, exceeding 140% of GDP, though the primary balance — which excludes interest payments — has shown improvement in recent years. The 2025 deficit figure reflects a combination of lingering effects from pandemic-era measures, including tax credits related to building renovations, and subdued growth in certain regions.
Officials from the Ministry of Economy and Finance have stated they will continue to pursue structural reforms aimed at improving long-term fiscal sustainability while maintaining social cohesion. The next official update on Italy’s fiscal position is expected with the release of the full Document of Economy and Finance, typically published in April each year, which will detail revised forecasts and policy measures for 2026 and beyond.
As of now, there is no confirmed date for when Italy might retest the 3% deficit threshold, though analysts widely anticipate that a sustainable exit from the excessive deficit procedure will require not only a single year of compliance but also demonstrable progress toward medium-term budgetary objectives under the EU’s preventive arm.
For ongoing updates on Italy’s fiscal compliance, defence spending plans, and market reactions, readers are encouraged to consult official publications from the Italian Ministry of Economy and Finance, the Bank of Italy, and Eurostat.
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