The late decision marks a step back from original plans to tap the scheme for €14.9 billion euros in loans for defense procurement.

Italy’s right-wing government led by Giorgia Meloni has hesitated over the low-cost loans, which are being offered by the EU to help member states beef up military readiness in the wake of Russia’s invasion of Ukraine and President Trump’s demands that NATO members spend more on defense.

Meloni herself suggested Italy would not take out the loans as the League party – a member of her ruling coalition – said public spending should be prioritized over defense spending.

That view is shared by opposition parties as well as a sizable number of Italian voters ahead of national elections next year.

The decision to apply for €8 billion in loans was confirmed to Defense News on Wednesday by a source knowledgeable of talks with the EU.

When Italy first considered applying for loans from the bloc’s €150 billion SAFE warchest it planned to spend cash on programs including new Lynx armored fighting vehicles and Panther tanks that local defense firm Leonardo is building for the Italian army with Germany’s Rheinmetall.

The deal envisages the delivery of 1,050 Lynx vehicles and 272 Panther tanks as part of a €23 billion euro deal.

In July, Italian defense minister Guido Crosetto said Italy would however cut 18% in costs from the program, suggesting possible delays and order number reductions.

Speaking at last month’s NATO summit in Turkey, Meloni said, “Today, what we are seeing in Ukraine is that a tank worth millions can be destroyed by a drone worth 20,000 euros, and that a person trained to fly drones remotely can be more lethal than a sniper. A reflection is therefore needed on how we invest.”

Last year, Italy said it pushed defense spending from 1.54% of GDP to around %, albeit by reconfiguring existing expenditures as defense spending.

Speaking at the NATO summit, Meloni said spending rose to 2.8% in 2026, although the rise is mainly accounted for by spending on domestic security rather than defense programs.

Rheinmetall now expects sales in the range of €13.7 billion to €14.2 billion ($15.8 billion to $16.4 billion), down from €14.0 billion to €14.5 billion previously, based on a €300 million hit to its naval division.

It also cut its order book guidance to more than €100 billion, from roughly €135 billion previously, and lowered its capital expenditure target to 8%-9% of sales from 16%.

The company left its free cash flow conversion ratio and margin targets unchanged and said it remained on track for record growth.

JPMorgan analysts said they had expected the canceled frigate program to have made more of an impact beyond 2026 and said the downgrades could signal slower growth in 2027-28.

Rheinmetall had reported a nearly 70% jump in second-quarter sales to about €3.3 billion, with all business segments contributing to the rise, in an unscheduled release last month.

Its shares fell as much as 4% in early trading before paring losses to trade 1.2% down by 0745 GMT.

DENTED AMBITIONS

Rheinmetall has seen its fortunes soar with Europe’s renewed interest in building up its defenses after Russia invaded Ukraine in February 2022, with Europe’s largest ammunition maker targeting annual sales of up to €50 billion by 2030.

The company completed the acquisition in March of the warship division of German shipbuilder Luerssen as part of its ambitions to become a bigger player in the naval sector.

It has also been considering acquiring German Naval Yards Kiel and promised to reach a final decision within weeks after a rival bidder withdrew from the process last month.

The German government’s decision in June to scrap a delayed frigate program for which Rheinmetall had looked likely to secure the contract tempered the company’s upward momentum.

“In the naval business, too, we are looking to the future and are working hard to fulfil our current maritime orders as a reliable partner with a high level of expertise, and to secure new ones on the international stage as well,” said Chief Executive Armin Papperger on Thursday.