Fiscal outlook
Italy recorded a 3.4% deficit and a debt-to-GDP ratio of 134.9% in 2024. It’s on a corrective path underneath the EU’s extreme deficit process (launched in July 2024). On 21 January 2025, the Council of the European Union adopted a suggestion that Italy ought to put an finish to the extreme deficit scenario by 2026. Officers say Italy is near exiting if targets maintain.
Deficit measures the extent of borrowing in a given yr. Debt-to-GDP compares the entire public debt to the dimensions of the financial system. Each are presently used to find out how a lot borrowing a member state is allowed to undertake. Nevertheless, neither measure in itself determines a authorities’s capability to maintain greater ranges of public funding. Fiscal sustainability will depend on progress, the multiplier results of funding, rates of interest, inflation, the construction of the financial system and exterior dangers akin to local weather change. NEF advocates shifting away from strict numerical debt targets.
Rising local weather prices
Local weather shocks maintain biting. Summer time 2025 heatwaves fuelled high-impact wildfires — together with Sardinia’s late-July blaze that compelled seaside evacuations by boat, including stress on civil safety, infrastructure, and well being companies. Furthermore, EU Solidarity Fund cash was granted following the 2023 flood disasters in Emilia-Romagna and Tuscany. A minimum of 38,000 lives have been claimed by local weather change within the final 30 years because of the elevated prevalence of utmost climate occasions, akin to extreme heatwaves and heavy flooding. The impacts of utmost climate occasions have grow to be painfully evident. In early 2026 cyclone Harry introduced down an extended part of hillside in Niscemi, Sicily, with 1,500 folks needing to evacuate their houses whereas worries persist that it may swallow the city’s historic centre.
What NEF’s modelling exhibits
Organisation for Financial Co-operation and Growth (OECD) projections present Italy’s GDP declining by 12% by 2050 and 17% by 2070 underneath present insurance policies. Our modelling exhibits the next:
- Below present insurance policies (BAU – enterprise as standard), Italy’s debt is 99 pps greater than the climate-agnostic baseline in 2050 and 286 pps greater in 2070.
- With early EU mitigation and adequate adaptation spending, debt is 55 pps greater in 2050 and 94 pps in 2070.
- Delayed EU investments and inadequate adaptation ends in greater debt ranges of 72 pps in 2050 and 129 pps in 2070.
- EU early motion mixed with international cooperation ends in 1 pps greater debt ranges than the climate-agnostic baseline in 2050 and 21 pps decrease ranges in 2070.
- Progressive taxation, akin to a wealth tax mixed with EU early motion would improve debt by 11 pps in 2050 and by 7 pps in 2070 in comparison with the climate-agnostic baseline.
Picture: iStock
