Italy: Election could reshape Rome’s defense-spending momentum

Rome: A right-wing coalition tipped to take power in Italy next month has committed to raising defense spending but may only manage a slight increase next year if it focuses on flagship tax cuts or pension increases, a leading analyst has said.

The three-way coalition teaming Giorgia Meloni’s Brothers of Italy, Matteo Salvini’s League party and Silvio Berlusconi’s Forza Italia is expected to win elections on Sept. 25 following the collapse of a national unity government headed by Mario Draghi.

The change in government comes at a delicate moment for Italy as it seeks to rebuild its economy after the Covid pandemic while weathering energy price hikes triggered by Russia’s invasion of Ukraine.

The country has managed a series of hikes in defense spending in recent years, with outlays on procurement alone reaching €7.85 billion ($7.98 billion) in 2022, up from €5.45 billion ($5.54 billion) in 2020.

But in a budget document issued in July, the government warned that spending would dip in the next two years, with procurement slipping back to €6.18 billion ($6.28bn) in 2023 and €6.43 billion ($6.53bn) in 2024.

Since then, the Draghi government has imploded and as polls point to a clear victory next month for the right-wing parties, they issued a 15 point manifesto this month which commits to pushing up spending to reach the target of two percent of GDP set down by NATO.

The manifesto says the parties will “respect the commitments made to the Atlantic Alliance, including in regard to adjusting defense spending.”

The question is, therefore, whether the coalition will abide by July’s existing forecast for a dip next year, made by the outgoing government, or push on with a hike, as per its manifesto.

Timing could be crucial, said analyst Alessandro Marrone. “We are having the election in the autumn, which is rare and leaves little time to the new government to issue the annual state budget,which must be completed by year end,” said Marrone, who heads the defense program at Rome-based think tank IAI.

“The new parliament will convene in mid-October, the government may not be formed until November and they will then have just a month to complete the budget,” he said.

“My assumption is the conservatives would want to include a flagship measure such as raising pensions or cutting taxes,” he added.

In the rush, defense could be overshadowed, he said. “Defense will not be a flagship measure,” he added. “That means a likely scenario is only a slight increase in 2023,” he said.

The manifesto also gives a pointer about the right wing coalition’s views on international alliances.

Questions have previously been raised about the parties’ continuing commitment to sending weapons to Ukraine given the close ties in the past between both the League and Berlusconi with Russia.

But the manifesto stresses Italy’s ties to NATO and the West and its “support for Ukraine with regard to the invasion by the Russian Federation.”

The claim that Italy will focus on its western ties over Russian links has been attributed to Giorgia Meloni, who has hitherto backed Italy’s dispatch of weapons to Ukraine while Salvini has opposed it.

As her party leads the polls in Italy on 24 percent, while Salvini slips to 14 and Berlusconi takes about seven percent, Meloni is now seen as being in the driving seat in the coalition, able to call the shots and counter any pro-Russian tendencies within the coalition.

Should the alliance win in September, Marrone said he expected to see continuity in defense policy.

“Giorgio Mule, a current defense junior minister, is a member of Berlusconi’s party, who may continue to take a role in defense,” he said.

Guido Crosetto, a former defense junior minister and former member of Berlusconi’s party, went on to co-found Meloni’s party before becoming head of AIAD, Italy’s defense industry association. “Crosetto may return to government after the election,” said Marrone.

Based on the past views of the parties, there could be less appetite when it comes to finding international partners or buyers for Italian defense firms under a right-wing government.

When Alessandro Profumo, the CEO of Italian defense giant Leonardo, sounded out French-German joint venture KNDS about buying Italian firm Oto Melara last year, he was met with hostility from the three parties.

“The idea of a sale of Oto Melara by Leonardo, which is drawing strong interest overseas, appears to be being handled in a superficial and shortsighted way, as if this was just an industrial choice, while it is a strategic choice by the nation,” the three parties said at the time in a statement.