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Italy May Cut $6.6 Billion in Defense Spending This Year

Italy may save as much as 5 billion euros ($6.6 billion) this year by cutting defense spending as the recession-hit country needs to tame its public finances and cannot raise taxes further, a Finance Ministry official said.

“We don’t want to penalize the military staff, but faced with a dramatic economic situation they need to realize that unfortunately cuts may be necessary if there is room for them,” Finance Undersecretary Gianfranco Polillo said late yesterday in an interview in Rome. About 5 billion euros in spending could be saved, including the country’s investment in the F-35 fighter-plane program, he said.

The Rome-based Parliament passed a bill in December to cut defense spending and the size of the military to shore up the public finances. Italy aims to to reduce the number of military personnel by about 16 percent to 150,000 and civil staff by about a third to 20,000 by 2024.

Italy last year said it will reduce its planned order for Lockheed Martin Corp. (LMT) F-35 jets by about 40 planes to 90 units. The cuts were a blow for the F-35, the world’s costliest defense project, which sees Finmeccanica SpA (FNC), Italy’s top military contractor, contributing parts.

The euro region’s third-biggest economy is mired in its longest recession in more than two decades as tax increases to face the debt crisis pushed the country deeper into the slump.

Global Trend

Global defense spending contracted for the first time in 15 years last year as the U.S. and much of Europe curtailed military spending as commitments in Afghanistan wind down and governments cut budgets to reduce debt, according to a report from the Stockholm International Peace Research Institute published yesterday.

The 5 billion-euro figure “is a rough estimate,” Polillo said in his Rome office at the Treasury. “The defense spending is marked by an opacity which is due to secrecy reasons that we need to maintain, but in future we can set up institutional tools that may allow for a more effective control.”

Italy spent 25.3 billion euros on defense in 2011, according to the most recent data available. The country can only afford to spend the equivalent of 0.84 percent of gross domestic product on defense, about half the European Union average of 1.61 percent and down from 1.01 percent in 2004, the government said in an April 2012 report. The North Atlantic Treaty Organisation wants members to contribute 2 percent of GDP to defense.

Photographer: Andreas Solaro/AFP/Getty Images

Former United Nations official and newly elected speaker of the Chamber of Deputies Laura Boldrini speaks to the press after a meeting with Italian President Giorgio Napolitano in Rome. Close

Former United Nations official and newly elected speaker of the Chamber of Deputies... Read More

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Photographer: Andreas Solaro/AFP/Getty Images

Former United Nations official and newly elected speaker of the Chamber of Deputies Laura Boldrini speaks to the press after a meeting with Italian President Giorgio Napolitano in Rome.

24 Missions

Still, in November the Superior Council of Defense chaired by President Giorgio Napolitano “agreed on the need for the Italian army to stand ready to provide fresh contributions to any military mission by the international community” even amid “stricter budget constraints.”

Italy’s forces are currently participating in 24 missions in places including Afghanistan, Lebanon and Kosovo as part of NATO, United Nations or European Union operations, according to the Defense Ministry’s website.

“The economic crisis prompted to look at the defense spending in a different way,” Laura Boldrini, speaker of the Parliament’s Lower Hose said in an April 12 speech in Turin. “Do we want some more fighter jets or use the same funds for the welfare spending?”

To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net; Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Jerrold Colten at jcolten@bloomberg.net

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