Italy hits EU deficit target at 3%

Italy’s cabinet has adopted a budget based on a deficit of only 3% of GDP this year, giving Premier Giorgia Meloni’s government leeway to allocate extra funds for tax cuts and defense.

Rome’s 2026 budget framework, signed off at an evening cabinet meeting, noted that the deficit would fall to 2.8% of gross domestic product (GDP) next year, maintaining the target set in April.

“We are confirming the line of firm and prudent responsibility that takes into account the need to maintain public finance stability,” in compliance with European rules, Economy Minister Giancarlo Giorgetti said in a statement.

The deficit is projected to further shrink to 2.6% in 2027, then to 2.3% in 2028, the government said on Thursday. Economic growth is expected to be modest, at 0.5% in 2025 and 0.7% in 2026, while public debt is forecasted to reach 136.4% of GDP by 2028.

Exiting EU oversight could strengthen Meloni’s fiscal agenda

Hitting the European Union’s 3% deficit ceiling this year could pave the way for Italy to exit the bloc’s Excessive Deficit Procedure (EDP), the EU’s monitoring system that flags countries with high deficits.

Exiting the EDP would strengthen Premier Giorgia Meloni’s government’s fiscal position and give Italy room to increase defense spending, especially as it aims to meet NATO’s target of 5% of GDP for military outlays—a commitment underscored by US President Donald Trump.

According to the finance ministry, the funds it has set aside for defense in the budget are conditional on leaving the EDP. Finance Minister Giancarlo Giorgetti confirms that the new fiscal plan “confirms our firm and prudent approach.”

The budget “takes into account the need to maintain public finances in compliance with the new European rules and the essential safeguards for the economic and social growth of workers and families,” he said in the statement.

With cabinet approval secured, the focus now moves to parliament for ratification. Credit rating agencies may also respond, with S&P Global Ratings expected to provide an update next week and Moody’s Ratings in November. Fitch Ratings, meanwhile, issued its first upgrade for Italy since 2021 last month.

The deficit figures form part of a broader 2026 budget plan aimed at delivering tax cuts for the middle class, supporting businesses that hire and invest, and assisting young families, all while maintaining a solid fiscal position. Since 2019, Italy hasn’t run a deficit at or below 3%. Hitting that level in 2025 — which nobody had predicted — contrasts markedly with France, where the deficit is set to remain above that limit for years to come amid ongoing political turmoil.

As earlier reported by Cryptopolitan, Italy had earlier criticized the EU’s fiscal rules, describing them as “old and outdated,” arguing they are unfair at a time when countries feel compelled to spend more on defense.

Italy’s economy minister, Giancarlo Giorgetti, called the bloc’s current budget system “stupid and senseless” and noted it needed to be overhauled to give member states more leeway to boost military spending without fear of facing penalties.

Investor confidence elevates Italy amid a fragile economic outlook

Italy’s improved fiscal position is being pushed by considerably lower borrowing costs, partly fueled by investors’ enthusiasm for the unusual stability of her premiership and her government’s steady efforts at fiscal repair.

Spreads between 10-year Italian bond yields and those of Germany stand near 80 basis points, less than a third of the level when Meloni assumed office in 2022.

On the downside, the economy remains fragile, with the potential impact of US tariffs hard to calculate at this time. Italy is also hurt by the challenges experienced by the German economy, which is the country’s key trading partner.