EU budget battle lines harden as member states reject Commission's €1.76 trillion plan

The fight over the European Union's next seven-year spending plan has moved from positioning to open confrontation. The European Commission's €1.76 trillion proposal for the 2028-2035 Multiannual Financial Framework, unveiled last July, has been met with a demand for more money from the European Parliament and a flat refusal from the two largest net contributors, Germany and the Netherlands. The gap between what the institutions want and what capitals will pay is now the defining faultline in Brussels.

Institutions ask for more, capitals say no

Ursula von der Leyen, president of the European Commission, framed the budget as a strategic necessity when she presented the plan: "In a time of geopolitical instability, the budget will allow Europe to shape its own destiny, in line with its vision and ideals." The Commission's figure, adjusted for inflation, represents a significant step up from the current 2021-2027 framework. On Tuesday the European Parliament voted to push the ceiling higher still, arguing that the Union's expanded ambitions in defence, industrial policy and support for Ukraine require deeper pockets.

That argument found no traction in Cyprus last week, where EU leaders gathered for an informal summit. Friedrich Merz, the German chancellor, spoke for the sceptics: "At a time when nearly all member states are undertaking the most rigorous fiscal consolidation efforts at home, a massive increase in the EU budget, as proposed by the Commission, does not fit the picture." The Netherlands echoed that position. Both countries are preparing difficult domestic budgets and see no political space for a larger EU contribution.

The contributor-recipient divide remains structural

The split maps almost perfectly onto the net contributor versus net recipient divide. A study by the Cologne-based German Economic Institute identified Greece, Poland, Romania, Spain and Hungary as the largest net recipients in 2024, meaning they receive more from the EU budget than they pay in. Those capitals argue the Commission's proposal is already too low for the tasks assigned to the Union. Janis Emmanouilidis of the European Policy Center told DW that the largest net contributors, Germany, France, Italy, the Netherlands and Sweden, simultaneously have an interest in keeping their own payments as low as possible.

Emmanouilidis added that during negotiations both small and large member states focus primarily on what their citizens will effectively receive from the EU budget, while the question of how to jointly derive the greatest benefit plays a lesser role. That dynamic has stalled every MFF negotiation since the first one in 1988, and there is little evidence this round will be different.

Spending priorities: agriculture and cohesion in the crosshairs

The Commission's proposal does not simply ask for more money; it tries to redirect what exists. Funding for the Common Agricultural Policy and for regional cohesion, the two largest budget lines, together accounting for roughly 60 per cent of current spending, would be reduced. In their place, the Commission wants larger envelopes for competitiveness, defence and external action, including continued aid to Ukraine. The logic is that the Union's strategic environment has changed since the last MFF was agreed in 2020, before Russia's full-scale invasion of Ukraine and before the US Inflation Reduction Act forced a European industrial response.

Nils Redeker, acting co-director of the Jacques Delors Center, doubts the political feasibility. He said that while all member states have understood the necessity of investing more in defence, industry and economic development, some will find it difficult to accept fewer funds for agriculture and regional development. The French farm lobby and the cohesion-dependent regions of eastern and southern Europe have already signalled resistance. Any cut to direct payments or structural funds triggers immediate domestic pushback that national leaders cannot ignore.

Revenue side: new own resources and the COVID debt trap

The other half of the equation is how to pay for it. The Commission has proposed five new own-resource streams: a levy on large companies, a tobacco tax, increased revenue from the EU Emissions Trading System, a financial transaction tax and a contribution from the corporate sector. On Tuesday the European Parliament added a digital tax on big technology companies to the list. Redeker warned that agreement on new own resources will be just as difficult as the debate over repaying the €750 billion COVID-19 recovery fund, which has dragged on for years without resolution.

That debt repayment question is now entangled with the MFF talks. Emmanuel Macron recently called it "idiotic" to pay back the recovery funds immediately and repeated his push for more joint debt issuance through Eurobonds. Germany rejects any expansion of common borrowing. The disagreement is not merely technical; it goes to the heart of whether the Union moves toward a fiscal union or remains a collection of sovereign budgets with a small common pot.

Electoral calendar adds a hard deadline

The political calendar is compressing the negotiation window. Elections are due next year in France, Italy and Poland, three of the Union's six largest member states. Emmanouilidis said the prospect of a nationalist party winning the French presidency in 2027 is concentrating minds in Brussels and national capitals. The calculation is that a deal must be sealed by the end of 2026, before the French campaign dominates the agenda and before a potential Eurosceptic administration in Paris could block or unpick any agreement.

That deadline is ambitious. The last MFF, for 2021-2027, was only agreed in December 2020 after a marathon summit and a veto threat from Hungary and Poland over rule-of-law conditionality. This time the substance is harder: defence spending, industrial policy, enlargement preparation and the revenue side are all on the table simultaneously. The June European Council will be the first moment leaders see concrete numbers from the Council presidency. That meeting will reveal whether the gaps are bridgeable or whether another year of shadow-boxing lies ahead.

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