Battle Over New EU Budget: Merz Pushes for Cuts

At the same time, Merz urged that a decision be reached before the end of this year. “I believe this is also important for the predictability of the European Union’s entire budget.”

Positions Far Apart

However, reaching an agreement among EU member states on the size of the new EU budget by the end of the year is considered extremely ambitious, as the positions of the 27 member states are very far apart. Last year, the European Commission proposed a significant increase compared to the current seven-year budget—to a total of 1.76 trillion euros, adjusted for inflation. The latest compromise from Cyprus calls for a reduction of about two percent from the Commission’s proposal. That amounts to approximately 32.8 billion euros. Berlin has described the proposal as “absolutely disappointing.”

Germany Is Not Alone

In addition to Germany, the largest contributor, other countries that, on balance, pay in more than they receive are also in favor of a smaller budget. These include the Netherlands, Sweden, and Denmark. So-called net recipient countries are generally opposed to further cuts to the existing proposal. The budget, officially known as the Multiannual Financial Framework (MFF), must be approved unanimously.

Irish Prime Minister Micheál Martin said in Brussels that it would be very difficult to “resolve the fundamental question of how large the budget should be and whether it is sufficient to meet all the various demands.” The budget funds all EU projects—such as agricultural policy, structural funding, and defense procurement. Ireland will assume the rotating presidency of the EU member states in July and will then be responsible for driving the negotiations forward. Ireland is expected to present a new compromise proposal in October.

What should the money be used for?

The dispute over the new budget for 2028–2034 is not just about how much money should be in this massive pot—but also about what it should be used for. According to the latest proposal from the Cypriot Council Presidency, cuts should primarily target funding for Europe’s competitiveness and defense, with hardly any cuts to funding for agriculture and structural support in the member states.

Dutch Prime Minister Rob Jetten said it is very important to focus the budget on the priorities of security and competitiveness. “If we want to build an economy for the coming decades, we can’t do that with a budget from the 1990s.”

Discussion on New Revenue Sources

This massive fund is financed primarily by a share of the member states’ gross national income (GNI). As the economically strongest member state, Germany contributes just under a quarter of the funds. To date, Germany has never questioned the fact that it must make the highest national contributions. Officials in Berlin point out that, as a major exporting nation, Germany also benefits the most from the single market.

In addition, so-called own resources—such as customs duties on imports from non-European countries—contribute to the budget and flow directly to Brussels. Whether there should be new own resources and, if so, what form they should take, is also part of the debate among EU member states.

Last year, the European Commission recommended, among other things, a levy on large companies with annual revenue exceeding 100 million euros and a levy on electronic waste not collected for recycling. Its proposal also calls for a portion of the revenue from tobacco taxes to flow from the capitals to Brussels. At the end of April, the European Parliament came out in favor of a levy on large digital corporations and online gambling, as well as a levy on capital gains from cryptocurrencies. It was reported that the heads of state and government were open to considering these ideas.