Public debt: Gulf crisis jeopardises exit from EU procedure

The path towards Italy's exit from the excessive deficit procedure now seemed to have been mapped out, but the crisis in the Middle East threatens to complicate the situation and further put a spoke in the wheels of our country's path to return to public finances. The possibility of bringing the virtuous path forward by a year is still clearly conditioned by Europe's decisions. The succession of events that has unfolded this past week on the international geopolitical chessboard, however, poses further uncertainties and, should it trigger permanent consequences on the financial markets, risks casting doubt on the necessary descent of the deficit/GDP ratio below the 3% set by the Maastricht Treaty, which is its essential prerequisite.

The confirmation also comes from Scope Ratings, which just this morning published a study on Italian public finances updated to the most recent events. "The exit from the excessive deficit procedure," note Alessandra Poli and Carlo Capuano, analysts at the rating agency and authors of the text, "is still possible in 2026, despite the fact that last year the deficit recorded by Istat remained slightly above the 3% threshold. The outcome will therefore depend on the 2025 data that Eurostat will publish in April, on the European Commission's assessment, and on the final decision of the EU Council, but to this is added a new unknown, and certainly not a small one.

"A prolonged escalation of the crisis in the Middle East could weigh on the economic and fiscal outlook," Scope warns about our country, which despite the steps taken to diversify its energy supply after the Russian invasion of Ukraine continues to depend on gas imports. Beyond the flare-up we witnessed in the markets last week (with quotations at the Ttf in Amsterdam doubling in the space of a few days), the latter are likely to remain expensive and rising energy prices could drive up inflation again, thus reducing Italian consumption and net exports.

A prolonged escalation of the conflict could in other words put a sudden and unexpected brake on the already fragile economic growth and thus bring down the entire house of cards of fiscal consolidation. "Should economic growth slow to 0.3 per cent from the current estimate of 0.7 per cent, we expect the deficit to remain above 3.0 per cent in 2026, complicating Italy's exit from the excessive deficit procedure," Poli and Capuano note, thus adding a new, certainly not insignificant, stone guest to the negotiating table with Brussels.

The issue becomes even more complex when one considers that the exit from the infringement procedure does not represent a purely formal objective for Italia, but also the key to unlocking a series of necessary investments, including (and not without a certain paradox) those linked to the defence chapter. Any favourable outcome could in fact be followed by a request to activate the national safeguard clause to increase military spending through a temporary deviation from the net primary spending path agreed with the European authorities. The introduction of costs to get closer to the NATO target of 2.5 per cent of GDP by 2028 would not materially alter the deficit in the immediate term, according to Scope, thanks also to the Safe (Security Action for Europe) loans 'unless the crisis in the Middle East has a prolonged effect'.