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Italy Proposes a European Guarantee Fund to Stimulate Private Investment in Defense.
Italy has submitted a proposal to its European partners aimed at establishing a common guaranteed mechanism to attract private investment in the defense and aerospace sectors within the European Union. This initiative, which could generate up to €200 billion in investments, is based on a €17 billion guarantee fund designed to limit the impact on public finances. Presented by Italy’s Economy Minister Giancarlo Giorgetti during a meeting of EU finance ministers in Brussels, this approach seeks to strengthen Europe’s defense capabilities without increasing national debt burdens.
French and Italian Marine Regiments Join Forces During Amphex 2024 (Picture source: Italian MoD)
The Italian proposal comes as the EU explores various options to increase defense spending in response to potential security threats, particularly from Russia. Ongoing discussions include the possibility of new joint borrowing, the use of existing EU funds, and an expanded role for the European Investment Bank. A decision on these measures is expected by June. According to Giorgetti, Italy is willing to contribute to this collective effort but is committed to doing so without reducing funding for healthcare and public services. With a public debt amounting to approximately 135% of GDP—the second highest in the eurozone after Greece—Italy has limited fiscal flexibility and is seeking mechanisms that do not further increase national debt.
The European Union is pursuing an extensive defense investment plan to enhance military capabilities and address emerging threats. Against the backdrop of the war in Ukraine and growing instability at Europe’s borders, several member states are advocating for increased defense expenditures and greater integration of the defense industry. The European Commission is considering mobilizing funds through various mechanisms, including the European Investment Bank and public guarantees, to modernize military equipment, develop new technologies, and expand production capacity. The aim is to reduce dependency on external partners and strengthen Europe’s strategic autonomy.
Europe’s rearmament efforts are primarily driven by evolving security challenges and the need for greater independence in crisis management. The Russian invasion of Ukraine has exposed critical gaps in ammunition stockpiles and production capacities, underscoring the urgency of revitalizing the defense industry. Additionally, China’s growing military influence, tensions in the South China Sea, and persistent instability in the Middle East and North Africa are prompting the EU to reassess its strategic priorities. The objective is not only to deter potential threats but also to safeguard critical infrastructure and improve resilience against cyberattacks and hybrid warfare.
To achieve these goals, the EU is coordinating efforts among member states, combining public investment with private capital to maximize financial impact without significantly increasing national debt. Strengthening the European Defense Fund, establishing a common market for military equipment, and advancing joint programs such as the MGCS main battle tank and the SCAF air combat system exemplify the commitment to collective defense initiatives. This shift is accompanied by discussions on increasing military budgets, with some countries advocating for a minimum defense spending target of 2% of GDP. While this raises concerns over budgetary implications, it reflects a broader recognition of the need for reinforced defense capabilities.
The Italian proposal aligns with established financial practices such as InvestEU and the European Fund for Strategic Investments. According to Giorgetti, the proposed guarantee fund would optimize the use of both national and European resources while ensuring more effective private-sector participation. He also emphasized that under EU accounting rules, public guarantees only contribute to national debt if they are utilized by beneficiary companies, thereby mitigating immediate fiscal pressure.
Italy currently plans to increase its defense spending to 1.61% of GDP by 2027, a level below the NATO target of 2%. Former U.S. President Donald Trump has proposed raising this threshold to 5%, a suggestion that has generated debate within the alliance. Acknowledging these discussions, Giorgetti stressed the importance of identifying industrial sectors that could be repurposed for defense production. In this context, underutilized automotive factories across the EU have been identified as potential sites for expanding military production while revitalizing struggling industries.
As the EU seeks a unified approach to financing its defense initiatives, Italy’s proposal offers a pragmatic alternative focused on mobilizing substantial private investment while maintaining fiscal constraints. This mechanism could play a crucial role in industrial transformation and the expansion of European defense capabilities, aligning financial considerations with strategic security objectives.