Costa launches capitals tour to salvage €2 trillion EU budget deal before 2027 elections

European Council President António Costa will begin a diplomatic circuit of EU capitals on 25 August, seeking to break a deadlock over the bloc's next seven-year budget before a crowded 2027 electoral calendar makes agreement politically impossible. The €2 trillion Multiannual Financial Framework (MFF) for 2028-2034 remains stuck between a coalition of net contributors demanding deep spending cuts and a larger grouping of recipients insisting that cohesion, defence and competitiveness programmes cannot be reduced.

Costa told journalists that agreeing the MFF "stands above all others" as the key decision facing the Union this year. His itinerary starts in Slovakia before moving north through Central Europe and the Baltic states. Sweden is the only member state omitted from the initial leg, a deliberate choice given its parliamentary election next month. The Council president framed the tour as an effort to understand "the priorities of Europe's leaders and the citizens they represent," but the underlying purpose is to test where compromise might be found before Ireland, holder of the rotating Council presidency, tables a fresh negotiating box at the October European Council.

The two camps and the numbers between them

On one side stand the self-described frugal countries. Germany has signalled it wants hundreds of billions of euros removed from the Commission's initial proposals, while the Netherlands dismissed the "negobox" circulated by Cyprus during its Council presidency in June as a "no-go box" because of its spending levels. Austria, Denmark and Sweden generally align with this camp, arguing that national budgets are under strain and that the EU must do more with less.

Arrayed against them is the "Friends of Cohesion" alliance, now numbering 16 member states including Italy, Poland, Greece, Spain, Portugal and most of Central and Eastern Europe. Their position is that cuts would undermine the European economy precisely when the Union has committed to higher defence outlays, a competitiveness agenda and the green transition. Poland and Romania, the two largest net beneficiaries, have been especially vocal: any reduction in cohesion funding would, they argue, breach the political bargain that underpinned their accession.

The arithmetic is unforgiving. The Commission's reference scenario for the 2028-2034 period hovers around 1.1% of EU gross national income, roughly €2 trillion in current prices. Germany's demand for "hundreds of billions" in cuts would imply a reduction of 10-15%, a figure the cohesion group treats as existential. Ireland's presidency team is expected to present a landing zone closer to 1.05% of GNI, but even that would require the frugal four to accept higher contributions than they have publicly countenanced.

Ireland's presidency and the October deadline

Thomas Byrne, Ireland's Minister for European Affairs, described the coming months as a chance to "strengthen that partnership" between the Council and Parliament while delivering "the strongest possible EU-U.K. relationship" in parallel. His more immediate task is the MFF. Irish officials have indicated they will circulate a revised negotiating box in late September, aiming for a substantive discussion at the European Council on 16-17 October. That summit is now expected to run for two full days, a sign that leaders anticipate a protracted session.

The Irish presidency has also been quietly sounding out capitals on the revenue side. The current MFF relies heavily on national contributions (GNI-based resources) and a modest basket of own resources: a plastic packaging levy, a carbon border adjustment mechanism and a statistical own-resource. The Commission has proposed expanding this with revenues from the Emissions Trading System, a digital services tax and a corporate tax base. None of these have been agreed.

Parliament's red line: own resources before consent

The European Parliament's consent is legally required for the MFF regulation, and its lead negotiator for the centre-right European People's Party, Siegfried Mureșan, has made the chamber's position explicit. Parliament will refuse to sign off on any budget that does not include adequate new own-resources, he said. A digital economy levy is viewed as the "most promising" candidate, alongside the Commission's proposals on carbon emissions, tobacco and electronic waste.

Mureșan's stance reflects a broader parliamentary consensus that the EU's fiscal architecture cannot remain dependent on national vetoes over contributions. The 2021-2027 framework was only unblocked after a rule-of-law conditionality mechanism was attached; this time, the leverage is revenue. Without new own-resources, the Parliament argues, the Union cannot finance the borrowing authorised under NextGenerationEU, nor can it credibly claim strategic autonomy in defence or technology.

The electoral clock is ticking

The urgency Costa projects is driven by a calendar that leaves almost no margin. National elections are scheduled or expected in 2027 in France, Spain, Greece, Estonia, Italy, Poland and Slovakia, seven of the 27 member states, including four of the five largest economies. A change of government in any of them could reopen positions that have taken months to negotiate. In Poland, a potential return of Law and Justice would likely harden the cohesion line; in France, a Rassemblement National breakthrough would complicate both the revenue and spending sides.

Officials involved in the preparations speak of a "cliff edge" if the framework is not adopted before the summer recess of 2027. The MFF regulation must be transposed into national law, sectoral programmes must be negotiated, and managing authorities designated. That implementation chain takes at least six months. A delay into 2028 would mean the new programmes start late, disrupting research grants, regional projects and agricultural payments across the Union.

Defence and competitiveness as the new spending drivers

What distinguishes this MFF negotiation from previous rounds is the explicit linkage to defence and competitiveness. The Commission's competitiveness compass, the European Defence Industrial Strategy and the forthcoming European Defence Fund all presuppose budgetary headroom that the current ceiling does not provide. Germany's insistence on cuts clashes directly with its own government's public commitment to raise defence spending to 2% of GDP and to support a European pillar within NATO.

This contradiction has not gone unnoticed in Paris or Warsaw. French officials argue that a budget frozen at 1.0% of GNI would make the Strategic Compass a paper exercise. Polish diplomats point out that the European Peace Facility, which reimburses military aid to Ukraine, has already required top-ups outside the MFF; bringing such spending inside the framework would demand a higher ceiling, not a lower one.

The revenue options on the table

The own-resources debate has narrowed to three workable candidates. A digital economy levy, modelled on the OECD's Pillar One agreement, could yield €5-7 billion annually once fully phased in. Extending the EU Emissions Trading System to maritime and buildings sectors, with a portion of revenues assigned to the budget, might generate €10-12 billion. A statistical own-resource based on a harmonised corporate tax base (BEFIT) remains technically complex but politically attractive to the Parliament because it creates a direct link between the single market and the Union's finances.

The frugal countries have historically resisted any own-resource that resembles a federal tax. The Netherlands and Germany blocked a financial transaction tax for a decade. Their willingness to accept a digital levy may depend on whether it is framed as a contribution to the single market's integrity rather than a transfer mechanism. Ireland, as a major beneficiary of digital investment, has been cautious but has not ruled out a narrowly designed instrument.

What happens next

Costa's tour concludes in late September. The Irish presidency then tables its compromise box. The October European Council will test whether leaders can agree on a headline figure and a revenue package simultaneously. If they cannot, extraordinary summits are pencilled in for November and December. The Parliament's committee vote on its negotiating mandate is scheduled for early November, with a plenary endorsement before the year end. The only certainty is that the current stand-off, Germany demanding cuts, the cohesion group demanding protection, the Parliament demanding revenue, cannot hold. Something breaks before 2027.