Italy's public deficit hit 3.1% of GDP in 2025, exceeding the European Union's critical 3% threshold for the first time in years, official data shows. This unexpected outcome, revealed by statistics agency Istat, marks a setback for Prime Minister Giorgia Meloni's government, which had projected a smaller shortfall. The 137.1% debt-to-GDP ratio also reached a three-year high, reflecting the lingering fiscal impact of the pandemic-era superbonus tax credit scheme for home renovations.

Finance Minister Giancarlo Giorgetti attributed the overshoot to provisional data and emphasized that the government remains committed to fiscal discipline. However, the superbonus—introduced by a previous administration and ended by Meloni's coalition in 2022—continues to weigh on public finances. Meloni herself acknowledged the deficit should be below 3% but ruled out austerity measures that could compromise growth, stating: 'We haven’t implemented an austerity policy to achieve this goal.'

This breach raises immediate concerns for Italy's borrowing costs and EU relations, as Brussels may initiate excessive deficit procedures. The government now faces pressure to outline concrete measures for 2026, when it targets a smaller deficit. The episode underscores the fiscal challenges of unwinding pandemic-era stimulus programs while balancing growth objectives.

Why this matters: Investors are watching for potential rating agency downgrades and increased borrowing costs, while the EU may demand corrective actions that could constrain future spending.

Expert