Italy - Military Spending

Italy will further lower its defense spending in 2019, its foreign minister said. Rome currently spends 1.15 percent of GDP on defense, lagging far behind the two percent benchmark sought by Washington from its NATO allies. Italy’s defense spending is set to slightly fall next year, Foreign Minister Enzo Moavero Milanesi said on 26 July 2018. As of 2018, Italy spent 1.15 percent of its GDP on military. Minister Milanesi’s statement appeared to contradict earlier signals sent by the new Italian government. Late in June 2018, Italy’s Defense Minister Elisabetta Trenta told the Defense News in an interview that she affirmed to US national security adviser John Bolton that Rome aimed to reach NATO’s target spending of two percent of GDP. Trenta, however, did not give any time frame for reaching the envisioned target. Italy, one of the largest defense industry spenders in Europe and tenth largest spender in the world, was projected to spend US$147.2 billion on its armed forces during the period 2015-2019. In 2014, the Italian government allocated US$27.67 billion for the total defense budget which recorded a CAGR of 5.18% during 2010 to 2014. Defense expenditure is inclusive of the expenditure on the defense function, homeland security, and other expenses. Italian defense expenditure was primarily driven by increasing terrorist threats, participation in peacekeeping initiatives, replacing the ageing military equipment, and the modernization of defense forces with advanced technology equipment.

The defense function stood at US$19.13 billion in 2014 and was expected to increase at a CAGR of 3.09% during the forecast period, to reach US$22.32 billion in 2019. Capital expenditure would also see a marginal increase which is anticipated to grow at 5.16% due to the country's heavy procurement pattern during the 2015-2019 period. The Italian defense industry expected to focus on modernization of the armed forces by implementing various procurement programs that include F-35 Joint Strike Fighter project, Typhoon multirole combat aircraft, FREMM frigates, NH 90 helicopters, and Medium Extended Air Defense System (MEADS) program.

It was expected that additional funds will be allocated from the budget of the Italian Ministry of Industry. At the end of December 2014 published data showed that the size of the defense budget of Italy in 2015 had been reduced by € 1 billion ($ 1.52 billion), and will be € 13,58 bn (USD 16.57 billion). According to these data, in 2015 on personnel would be allocated € 9,74 bn (USD 11.88 billion) for the purchase of arms and military equipment (AME) and military products (HRP) - € 2,67 billion (USD 3,29 billion) for operations and maintenance - € 1,17 ???? (1.42 billion).

In order to mitigate the cuts in late December, the military has been allocated an additional € 100 million ($ 152 million) for the purchase of arms and military equipment, the official representative of the Italian Ministry of Defence. This money is partially offset the reduction in the volume of € 400 million ($ 608 million), which were made in the middle of 2013. Most likely, these changes were included in the final draft of the defense budget for 2015, published in the spring.

The country's defense budget declined during 2010 to 2014 due to various austerity measures implemented by the government, however, the country's procurement plans still remain ambitious and the government is keen to continue modernization albeit at a slower pace. For example: In 2012, Italy's initial procurement of 131 F-35 fighter jets was reduced to 90 aircraft. The country is anticipated to spend US$16 billion over the procurement of the aircrafts which include F-35 fighter and Eurofighter Typhoon over 45 years starting in 2015. Further; the Italian Navy has also obtained funding for building 10 naval vessels consisting of eight multipurpose ships, one amphibious ship and a logistics vessel over the next decade. The multipurpose ships are procured for combat purposes and to support humanitarian relief operations. Additionally to replace its ageing Fincantieri-built Lupo and Maestrale-class ships, Italy has undertaken the FREMM multi-mission ship program in collaboration with France to build 10 frigates to be delivered by 2022. The vessels will be equipped with the SAAM Aster 15 missile system, Teseo Mk2 sea-skimming anti-ship missiles to support anti-submarine warfare and anti-air warfare missions.

In early 2012 Italy planned to cut defence spending by 28 percent, and troop strength from 183,000 to 150,000. In February 2012 Defense Minister Giampaolo Di Paola said the country needed to cut the military’s size by about 30,000 troops and 10,000 civilians over the next decade. Civilian staff will be reduced from 30,000 to 20,000. The number of tanks, artillery, navy ships and helicopters is also being trimmed.

Italy is facing economic constraints due to high fiscal debt, forcing the government to reduce its expenditure. This has led to constraints in the defense budget and reduced spending on the procurement of defense equipment. The economic crisis in Italy, and across Europe, led to reductions in the defense budgets of many countries, including France, Greece and Poland, which are some of the top importing countries of Italian defense products. The cuts will decrease the procurement expenditure of these countries and have a negative impact on the order book of the Italian defense industry. However, the Italian MOD's gradual modernization of its armed forces has helped to minimize budget cuts. Furthermore, Italy's membership of NATO, the UN, and the EU, and subsequent participation in peacekeeping operations, also require financial input.

While the Minister of Defence has often mentioned spending 1.5 per cent of GDP on defence as the target for maintaining a credible military instrument, in fact, total defence spending has declined from a high of 1.47 per cent of GDP in 2002 to a low of 1.21 per cent in 2006. The 2007 and 2008 budgets appeared to have arrested the slide at around 1.3 per cent of GDP level but since then the percentage steadily declined and projections were it could reach 1.2 per cent by 2013. However, the exact figure is open to some debate. If one includes only the 'defence function' portion of the budget, military spending as part of GDP has been consistently below one percent.

During the Cold War, the Ministry of Defense, within the limits of its budget, continued to make every effort to improve defensive efficiency, making decisions that properly consider the cost-value ratio and the possibilities offered by the five year development plan for the modernization of the three services. In 1968, the Ministry of Defense was voted a budget of Lit. 1,311,000, equal to about 3.13% of the gross national income for 1967. In view of the fact that "fixed expenditure" (consisting of cost of personnel, pensions, maintenance of equipment, infrastructure and training) absorbed about 84% of the total, approximately Lit. 185,000 million were spent on modernization and expansion.

Although Italy assumed a heavy burden of defense spending in the years immediately after joining NATO in 1949, it had been unwilling to do so since the mid 1950s. In the mid 1960s the Italians opposed moves with NATO to increase military expenditures for member states. In the 1970s military appropriations were approved only after long, contentious parliamentary debates. A series of 10 year modernization programs were approved, but much of the funding was delayed because of domestic inflation. Public and political concern about defense issues seemed to diminish in the face of a growing economic crisis.

In 1985 it was uncertain whether the Italian government was fully prepared to provide the armed forces with budgetary increases that would be essential to the completion of modernization programs. Nevertheless, any sharp reductions in defense spending seemed unlikely because of domestic political constraints. The armed forces were a source of jobs in a country with chronic unemployment, and cuts in defense spending would adversely affect the domestic aerospace, shipbuilding, and electronics industries. According to the 1985 White Paper, a new 10 year budget plan would be retroactively implemented, lasting from 1982 to 1991, and would contain a projected annual increase in the defense budget of 3 percent, in line with NATO guidelines for an annual increase in defense spending.

During the 10 year period from 1974 to 1984, the Italian defense budget accounted for 5 percent of state expenditures and 2.7 percent of gross domestic product (GDP see Glossary). According to NATO calculations, this represented a net drop in defense spending of 0.6 point as a percentage of GDP. This still represented, however, an increase in defense spending of 21.3 percent since 1974 when measured in 1983 constant dollars.

From 1991 to 2001 Italy’s defense budget, in real terms, declined steadily. This led to decreases in R&D and delays in nine major armaments programs including the EH-101 heavy helicopter, the second batch of A-29 attack helicopters, the Sicral military communications satellite, and the Ariete main battle tank. Available funding was concentrated on programs that are more advanced or for which there are international obligations (Eurofighter 2000, the Horizon air defense frigate, and the Future Anti-Air Missile System under joint development with France).

Italy's real defense spending declined by 3.0 percent between 2001 and 2002, and as a proportion of GDP, fell from 2.0 to 1.9 percent. The draft 2003 defense budget called for a 3.1-percent increase in defense spending, but this represented only a modest increase over 2002 after projected inflation was taken into account. The ongoing transition to a smaller, fully professional military of 190,000 troops by the end of 2005 promised to create more proficient and deployable forces, but placed additional pressure on the defense budget, and was being impeded by continuing shortfalls in recruiting regular personnel. However, Italy was nonetheless pursuing significant military acquisition and modernization programs, including procurement of Eurofighters and aerial refueling aircraft, leasing 34 ex-U.S. F-16 fighters, constructing a new class of submarines, and enhancing amphibious capabilities by refitting its two LPDs, buying new helicopters, and enlarging the San Marco marine group. Italy provided the fourth largest shares of total NATO naval combat and mine countermeasures tonnage and tanker aircraft fuel offload capacity.

Italy ranked third (after Germany and France) in personnel contributions to multinational peace support operations, with nearly 6,300 military and carabinieri troops deployed abroad in such operations (including in Afghanistan) at the end of 2002. There were 4,350 Italian troops deployed in Kosovo and Albania with KFOR, of which Italy took command for a six-month period starting in October 2002, and approximately 1,200 serving with SFOR in Bosnia. A further 200 personnel were deployed in Macedonia as part of NATO's Operation ALLIED HARMONY, and about 250 were serving in Albania under the auspices of bilateral military assistance programs. Finally, at year's end, Italy was contributing about 200 military and carabinieri personnel serving in UN operations in The West Bank, Congo, Kosovo, Lebanon, Western Sahara, and on the Iraq/Kuwait, India/Pakistan and Eritrea/Ethiopia borders.

Italy's foreign assistance spending in 2001 was about $2 billion, or 0.16 percent of GDP. This falls considerably short of the agreed OECD target of 0.24 percent of GDP, and of all the nations covered in this Report, Italy ranks sixth from last among the net aid donors.

Italy is active in a number of initiatives that complement U.S. efforts to strengthen collective security arrangements both in Europe and globally. The Army's Julia Mountain Brigade forms the framework of the Multinational Land Force, a brigade-sized tri-national formation incorporating Italian, Hungarian, and Slovenian units. Italy also contributes signals and C3I assets, and an infantry battalion to the Multinational Peace Force South-Eastern Europe, which is dedicated to enhancing regional security in the Balkans. (Albania, Bulgaria, Greece, Romania, Turkey and the Former Yugoslav Republic of Macedonia also contribute.) Finally, Italy contributes troops to the 14-nation Stand-by Forces High Readiness Brigade (SHIRBRIG), which gives the United Nations a rapid-reaction peacekeeping capability. It was deployed as the core peacekeeping element of the UN Mission to Ethiopia and Eritria (UNMEE) in 2000.

Italy contributed $324 million in 2001 to offset the costs of maintaining U.S. military forces on its soil, representing about 34 percent of U.S. non-personnel stationing costs in Italy. Almost all cost sharing was in the form of indirect contributions(i.e., waived taxes).

From 2001 to 2008, the Italian total defense budget (excluding pensions, Carabinieri and some external functions) ranged from $17.2 billion to $21 billion. For 2008, this represents about 0.98 percent of Italian GDP — one of the lowest levels of spending among major European countries and roughly half the amount requested by NATO (i.e., about 2 percent of GDP). The personnel portion of that Italian budget has ranged from €5.8 billion to €9.1 billion. By way of comparison, the 2007 French Defense Budget was about $50 billion, or nearly 2.5 percent of GDP (about 1.7 percent pensions and Gendarmerie), while the United States spends about 4 percent of its GDP on defense.

Some additional defense R&D funds, as well as some procurement funds, are provided for by the Ministry of Economic Development, the Italian domestic economic development department. This funding is allocated more on the basis of industrial and technological logic than of defense operational requirements. Development funds provided by the Italian Ministry of Economic Development (approximately $1.5 billion a year), must be placed into Italian industry; some of the funds for JSF are from this source. These additional funds have been instrumental to the start-up of new programs or upgrade of old capabilities, thus relieving in part the burden on the defense budget. A large portion of Eurofighter procurement comes from this budget.

Several developments have negatively influenced Italy’s defense spending: the negative GDP growth and subsequent lower than expected level of tax revenues, the expense of establishing an all-volunteer force, the strong internal and external pressure to “buy European,” and the simultaneous acquisition of the Eurofighter Typhoon and participation in the Joint Strike Fighter program, which places an enormous strain on the defense budget.

While the size of the annual defense budget is a limiting factor and leads to intense debate over funding priorities, in the end, the Italian MoD historically invested wisely. Evidence of this is seen by decisions to purchase a sizeable transport aircraft fleet, to include a potential lease or purchase of two C-17 transport aircraft, lease F-16 fighters that bridged the air defense gap until the multi-role Eurofighter is fielded, invest in the system design and development of the Joint Strike Fighter, form a rapidly deployable all-volunteer army, replace aging maritime patrol aircraft, purchase CH-47F logistic helicopters, purchase EH-101 and NH-90 helicopters and replace aging air refueling tankers with new B-767 aircraft that will be capable of refueling NATO aircraft. In recent years Italy has also purchased the intelligence gathering Predator UAVs.

Italy planned to field a new main battle tank, an updated attack helicopter, two new howitzers (cooperation with the U.S and U.K. for a new lightweight 155mm and the P2H200 self-propelled howitzer), personnel carriers, heavy equipment transport, jet trainer, jet fighter, new anti-radar missiles and a new line of UAVs produced by Galileo. It is also about to deploy an improved air combat maneuver instrumentation system, new anti-armor systems, an advanced command and control system, improved communication systems and the latest global positioning system (GPS) equipment. These projects would require an average annual investment of $4.5 billion up to 2010. Investment in defense modernization is rather modest, but this does not reflect the significant contribution to new weapons programs via the Ministry of Economic Development. To optimize resources, the Italian Government is concentrating on a few highpriority programs:

• Substituting Tornado air defense fighter aircraft with 121 new Eurofighter Typhoon aircraft (long term solution); the short term solution is an F-16 lease with the U.S. for 34 aircraft until the end of 2011.
• Developing and building the FREMM frigate with France.
• Participating in the Medium Extended Air Defense System (MEADS) cooperative program with Germany and the United States.
• Acquiring two ORIZZONTE class frigates in cooperation with France.
• Acquiring U-212 new generation submarines from Germany.
• Buying FSAF anti-missile defense systems for the Army and Navy.
• Purchasing EH-101 and NH-90 helicopters.
• Acquiring Sicral/post Sicral satellite communication systems.
• Investing in JSF as level II partner ($1.028 billion for development, another $1 billion for advanced development and Sustainment, plus up to an additional $6.5 billion to purchase 131 aircraft.
• Investing in Multi-Mission Aircraft ($2 billion over the life of the program).
• Purchasing 16 CH-47F aircraft.
• Participating in the NATO C-17 Strategic Airlift Consortium, including investment in aircraft procurement, and Operations and Maintenance steady-state costs for flying-hours.
• Purchasing the indigenously produced C-27J Spartan (12 aircraft).
• Purchasing Signals Intelligence (SIGINT) air platforms and ground stations ($300M).

Future weapons systems must be capable of a variety of roles and functions, especially deploying in support of NATO and coalition operations, while being reliable and easy to maintain. In the coming years, the MoD will seek to expand communications and spacebased capabilities,and improve crew protection and system survivability in more conventional systems. GPS, electro-optical and laser-related systems are in demand to improve weapons delivery and battlefield identification systems. There is also strong political will for peacekeeping and standoff precision strike capabilities.

Italy maintains a close security relationship with the United States, both through NATO and bilaterally, and is an active participant in efforts to protect shared security interests around the world. Italy is a major staging and logistics base for operations in and beyond the immediate region. Italy hosts American military forces at seven major and many minor bases that contribute significantly to the United States' power projection capability. NATO air bases in Italy, for example, were essential in the bombing campaign against Yugoslavia during the 1999 Kosovo crisis, and continue to provide essential staging and transportation points for NATO peacekeeping missions in the Balkans.

The All-Volunteer Force required important resources particularly for personnel whose incidence on Defense spending has grown progressively over ten years to reach 58% in 2005, notwithstanding a parallel reduction in numbers to reach the projected total of 190,000. As a consequence, in a general framework of reduced resources, there was a corresponding decline in Defense investments (for the acquisition of new systems and the modernization of existing ones) and in running costs (to maintain current forces, training, transportation, maintenance, etc.).

This imbalance – inherently dangerous because it touches upon two sectors vital to proper functioning of the military - is further aggravated by the intense attrition of the equipment committed in international operations, which in turn demands maintenance and replacement that cannot be faced with yearly appropriations and are only partly covered by ad-hoc provisions issued from time to time to finance missions abroad.

A reasonable and acceptable - if not yet optimal - balance between personnel expenditure and the summary of running costs and research and development can be placed at 50-50, along with most European and NATO nations. In other words, within long-term planning, resources for running costs and R & D at least equal to those for personnel must be made available. With no perspective of rebalancing the entire project could fall short, as prerequisites for transformation, that is, its effectiveness and sustainability, would be missing.

Italy has the world’s seventh largest market economy with a GDP of about $2.35 trillion. GDP in 2008 decreased by 0.9 percent, and in 2009 is expected to further decrease by about three percent. The 2009 defense budget is $27.4 billion ( down 4 percent compared to the previous year). Under the draft budget, there is a 2.8 percent increase in domestic security spending and a 6.9 percent decrease in “defense function”, which includes the budgets for the Army, Navy and Air Force, but excludes domestic security and other nonessential budget functions.

Italy has the world’s ninth largest defense budget and the fourth largest among NATO members (based on its 2007 budget of $33.1 billion, including military police and other paramilitary functions). However, defense spending has never been particularly appealing as a political choice for any of the many governments that have held power in Italy. Hence, Italy’s defense spending remains chronically low as a percentage of GDP (approximately 1 percent for 2008 as compared to some 2.5 percent for France and the UK). This reflects Italy’s weak overall economic performance since the late 1980s: Italian GDP growth was 1.7 percent in 2007, 1.9 percent in 2006; 0.1 percent in 2005.

In May 2010 Italy's government slashed 10 percent off its defense budget. Italy's 10 percent cut capped defense budget reductions initiated in 2009. The country's 2010 defense spending stood at around $16 billion, down 0.4 percent from 2009. The 10 percent cut was additional to defence budget reductions executed in 2009 and 2010 and those planned for 2011. Maintenance and operations spending was already planned to decline by 20 percent in 2011. Funding for the Frecia (armored vehicle) expires in 2011, yet funds are required through to 2014. FREMM (frigates) funding from the ministry also expired in 2011 yet was needed until 2016 or 2017. Eurofighter funds from the Industry Ministry expire in 2012 but are required until 2017.

The annual defense budget of Italy in 2011 stood at US$27.34 billion, which includes homeland security, defense function and other non-essential expenditures of the military. The defense function budget of Italy's armed forces recorded a CAGR of -2.41% during the 2008-2009 period. The Italian defense expenditure as a percentage of GDP averaged at 1.3%. However, at that time, in the period to 2017 the country was expected to increase its expenditure in an effort to increase its defense capability. The Italian defense budget was expected to increase 4.46% to value at 1.1% of GDP, by 2016.

Total defense expenditure as a percentage of GDP was expected in 2011 to decrease from an average of 1.3%, to 1.1% by 2016 due to cuts to the budget. The defense function budget is also expected to decline from 0.9% of GDP in 2011 to 0.8% by 2016. The Italian government is keen to continue to modernize its military and equip its forces with the latest technology. Over the forecast period, government efforts to restore the competency of its forces lost during the period of lower spending will support the national military budget. Furthermore, the Italian government had awarded high priority to the peacekeeping operations of its armed forces, including UN and NATO missions. Italy was one of the leading contributors to global peacekeeping operations, and is the sixth largest contributor to the UN peacekeeping budget.

Italian defense imports fell continuously during 2008-2010 before recording a strong growth of 326% in 2011. The huge increase in imports in 2011 is mainly due to funding of F-35 aircraft imports from the US. Italy has a competitive domestic defense industry. The state-owned defense company, Finmeccanica, is an internationally renowned group capable of delivering advanced technology equipment such as fighter aircraft, defense technology, and helicopters. The advanced capability of the domestic defense industry and proposed defense budget cuts are expected to have a negative impact on imports.