International Market Assessment (Brought to you by Janes) – Italy

Italy's Defence Reckoning

The NATO pledge agreed at The Hague in June 2025 reset expectations across the alliance. Members must now target at least 3.5% of GDP on core defence by 2035, with up to 1.5% more on security-related items such as infrastructure protection and industrial base strengthening. For Italy, a consistent low spender at 1.49% of GDP in 2024, the shift arrived just as the Meloni government reclassified pensions and other items to declare a 2% figure for 2025.

Sustained procurement continues across domains. Naval modernisation remains central given Italy's Mediterranean exposure, while advanced air programmes and land upgrades feature in the multi-year planning document that allocates over $60 billion across 2025-26 alone. European cooperative schemes provide industrial partnerships and shared costs but lock Rome into allies' timelines and priorities.

The concrete stakes are fiscal and strategic. Lifting spending toward even 3% of GDP would require an extra 30-35 billion euros over four years, likely through borrowing that could push debt higher and lift Italian bond yields already the highest in the euro zone. Rating agencies are watching; any trajectory that derails the slow debt decline threatens Italy's creditworthiness and euro-zone stability. Inaction carries equal risks: diminished influence in NATO decisions, weaker deterrence along the southern flank against hybrid threats, migration flows and rival influence in North Africa.

Less discussed are the domestic trade-offs. Italians consistently rank defence low among spending priorities, favouring health, pensions and social cohesion in a coalition that includes fiscal conservatives. The defence industry stands to gain—Leonardo's order backlog has grown 10% in the past year—but personnel costs from the newly floated 60% force expansion could crowd out equipment buys. Reliance on EU instruments such as the 150 billion euro Security Action for Europe fund offers partial relief yet underscores how much Rome depends on Brussels to ease the burden.