Meloni said she regrets nothing after a public clash with Trump at NATO. The episode puts Italy's defense spending and trade risks back on the table for investors watching the BTP-Bund spread and September budget.
Italian Prime Minister Giorgia Meloni does not regret her strategy of building ties with President Donald Trump, even after a public clash at the NATO summit this week. In a video interview published by the Economic Times, Meloni said she stood by her approach. The confrontation centered on defense spending commitments and trade.
The encounter reintroduces a risk that had been dormant: transatlantic friction that hits Italian assets hardest. The spread between Italian and German 10-year bonds widened 4 basis points Wednesday. The move was small, traders said. The real concern is whether Meloni can balance EU demands with a Trump administration pushing NATO members to hit a 5% GDP defense target.
Italy currently spends about 1.5% of GDP on defense. Moving to 2% would require an additional €10–12 billion a year, a stretch for a government with a debt-to-GDP ratio above 130%. The European Commission may object to counting higher military spending toward deficit targets, which would complicate the budget draft due in September.
On trade, Trump has threatened tariffs on European goods. Italy exports luxury goods, wine, and machinery to the U.S., its second-largest export market outside the EU. A trade dispute would hurt companies like Luxottica, Prada, and Ferrari. None of these stocks have moved sharply on the news.
Italian defense stocks, such as Leonardo, rose 2.3% Wednesday on speculation that any spending dispute would increase procurement. The broader market reaction has been muted. The FTSE MIB index slipped 0.4%.
What would reduce the risk: a clear commitment from Meloni to meet the 2% target within a defined timeline, backed by a credible fiscal plan. What would make it worse: a public spat that spills into trade talks, especially on tariffs. The budget draft in September is the next concrete test.
The BTP-Bund spread sits near 130 basis points, roughly where it was before the summit. The clash shows that Italy's political alignment with the U.S. is not guaranteed. Defense spending is a live issue that could resurface during budget season.
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