Why Italy will struggle to meet Nato’s higher defence spending target

Good morning. News to start: The EU plans to target two Chinese banks for facilitating illegal trade with Russia under its new Moscow sanctions, officials told us, in what would be the first move against third-country lenders as part of Brussels’ crackdown on sanctions evasion.

Here, our Rome bureau chief previews today’s meeting between Mark Rutte and Giorgia Meloni, and our trade correspondent explains what yesterday’s UK-Spain deal over Gibraltar means.

Numbers game

Nato secretary-general Mark Rutte visits Italy’s Prime Minister Giorgia Meloni today, as Rome faces growing pressure to commit to higher military spending ahead of this month’s Nato summit, writes Amy Kazmin.

Context: Italy is one of Nato’s biggest defence spending laggards, allocating less than 1.5 per cent of GDP to defence in 2024, well below Nato’s existing 2 per cent target. US President Donald Trump has demanded allies pledge to spend 5 per cent at the summit in The Hague, or risk losing American protection.

Rome has announced it will meet the 2 per cent target this year, which analysts say might include the reclassification of some security expenditure as defence-related. Rutte has proposed a split target of 3.5 per cent spending on core defence capabilities, plus another 1.5 per cent on related areas such as cyber security and infrastructure.

Alessandro Marrone, a defence analyst at Rome’s Institute for International Affairs, said even that will be a tall ask for Meloni, who is likely to press for a long phase-in period for her highly indebted country.

“Moving to 3.5 per cent on core defence — personnel, equipment and technology, operational costs — will be a big challenge for Italy,” he said. “Italy will push not to change the target. It’s in the making and it’s hard to change it . . . But it will seek to set a timeline.”

Marrone said Rome would reach the target to spend 1.5 per cent of GDP on security and infrastructure more easily.

Defence minister Guido Crosetto has said repeatedly that Italy must do more on defence in light of Russia’s challenge, while Meloni is eager to maintain fiscal discipline and avoid unsettling bond markets.

Many Italians oppose higher defence spending, a view also espoused by deputy prime minister Matteo Salvini of the far-right League. All that means Meloni faces a tough balancing act to satisfy domestic demands while satisfying Nato allies and avoiding alienating Trump, with whom she has forged a warm rapport.

“Italy has long lived with the idea that it didn’t really need to bother about defence,” said Francesco Galietti, CEO of Policy Sonar, a political consultancy. “This is when Italy finds out what the new normal looks like.”

Chart du jour: All that glitters

Gold has overtaken the euro as the world’s second-most important reserve asset for central banks after the US dollar, driven by record purchases and soaring prices, according to the ECB.

Rock on

The UK Labour government removed another stumbling rock in its relationship with the EU yesterday when it finally clinched a deal to allow free movement between Gibraltar and Spain five years after Brexit, writes Andy Bounds.

Context: The territory near the southern tip of the Iberian peninsula, ceded to the UK in 1713, has been a point of tension given its border with Spain, which claims sovereignty.

Madrid has sometimes deployed passport and customs controls to exercise pressure, leading to long queues. But it also has some 15,000 citizens who commute to work in the British territory every day.

To guarantee an open border, the UK finally yielded to Madrid’s demand to allow Spanish police to check passports at Gibraltar’s port and airport, and a future customs union with the EU will remove checks along the land border.

After yesterday’s talks in Brussels, UK foreign secretary David Lammy dodged a press conference, while his Spanish counterpart José Manuel Albares and EU Brexit commissioner Maroš Šefčovič milked the moment.

Albares said with a poetic flourish that the “last wall in continental Europe is disappearing”. (The one keeping migrants out of the Spanish enclaves of Ceuta and Melilla is just across the Strait of Gibraltar, in Africa).

He hailed a “process of tax convergence that guarantees fair competition for everyone in the area”, eliminating Gibraltar’s low rates on tobacco, for example.

The airport “will benefit the entire region”, with flights now possible to other EU destinations. “It is also a new beginning of the relationship between Spain and the United Kingdom.”

Lammy, already attacked by the conservative opposition for the concessions, will be hoping that they ensure Spanish support for an EU agreement on veterinary rules with the UK and other measures improving access to the single market.

What to watch today

1. Nato secretary-general Mark Rutte visits Rome, meets Prime Minister Giorgia Meloni and attends a “Weimar plus” meeting of European foreign ministers.

2. Meeting of EU justice ministers in Luxembourg.

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