Costa's EU budget proposal receives cold shower in Berlin

Berlin and Brussels are on a collision course over the European Union’s next long-term budget, as German Chancellor Friedrich Merz pushed back against a proposal brought by the visiting European Council president. 

The German leader stood up for substantial spending cuts while António Costa seeks to build support for an ambitious financial framework to cover the bloc’s priorities from 2028 onward, as German media outlets note.

Costa is currently touring EU capitals to gather national positions on the next Multiannual Financial Framework (MFF) and find enough common ground for a compromise before the end of the year. The negotiations are expected to enter a decisive phase in October, when the Irish presidency of the Council is due to present a new “negotiating box” — a draft compromise intended to narrow the differences between member states — before handing the discussions over to Costa at a leaders’ summit later that month.

The first signs of a major confrontation have already emerged. In late August, Germany, Denmark, the Netherlands, Austria, Finland and Sweden, all of which contribute more to the EU budget than they receive from it, issued a joint call for cuts amounting to several hundred billion euros from the European Commission’s proposed long-term spending plan.

The six countries said the Commission’s proposed budget of almost €2 trillion for 2028-2034 should be reduced “in a balanced manner”, with every major area of spending contributing to the savings. Their position was agreed at a meeting of the countries’ leaders in Berlin as Costa was travelling around European capitals in an effort to secure support for a deal.

Germany had already made clear in June that it wanted the proposal reduced by around €400 billion, arguing that the Commission’s plans would place an unacceptable burden on national budgets. Merz reinforced that position during his meeting with Costa in Berlin, making clear that Germany does not see additional EU borrowing as an acceptable way of closing the funding gap.

“Europe needs both realism and reform,” Merz said after meeting Costa, pointing to the Commission’s proposal for the next MFF and noting that it represents a 60% increase compared with the current seven-year budget period.

“At a time of budget cuts in all member states, that is simply unaffordable,” Merz said of the proposed budget.

The 60% figure was used by Merz as a comparison with the current seven-year framework in support of his argument for reductions, rather than as a newly agreed spending ceiling. Germany, which traditionally accounts for roughly a quarter of EU spending, is therefore seeking to exert considerable influence over the size as well as the composition of the next budget.

Merz has argued that savings should be made across all policy areas, while also calling for a fundamental change in the way EU money is allocated. In particular, he wants a greater share of spending directed toward competitiveness and defence, arguing that a “20th-century budget” would be inadequate for the challenges facing the bloc today.

Costa has acknowledged that any agreement will have to take into account the financial constraints confronting national governments, but his approach places greater emphasis on finding additional sources of revenue for the EU itself — a position that puts him at odds with Berlin’s preference for a smaller budget and opposition to new common borrowing.

Divided Union

The disagreement reflects a broader divide within the EU over how much money the bloc should have at its disposal and what that money should be used for, as highlighted by the Financial Times. Countries such as Spain and Italy, along with several net recipients of EU funding, generally favour a larger budget that would allow the bloc to maintain financial support for farmers, poorer regions and other beneficiaries that depend heavily on EU programmes.

France occupies a more complicated position. Although it is also a net contributor to the EU budget, Paris has argued that the bloc should increase its revenues through so-called “own resources” — new EU-level taxes and levies that would flow directly into the Union’s coffers rather than coming primarily from national contributions.

The European Commission has proposed several possible sources of such revenue, including a levy on carbon-intensive imports and non-recycled electronic waste, a contribution from large corporations, higher tobacco taxes and additional revenue linked to the EU’s cap-and-trade carbon market.

However, Merz dismissed the proposed “own resources” as insufficient during the latest meeting in Berlin, according to people briefed on the discussion. Most of the proposed revenue streams do not have Germany’s backing, and the chancellor reiterated Berlin’s preferred formula: a smaller overall EU budget and no new common debt.

The disagreement is likely to become increasingly difficult to resolve as the October negotiations approach. Costa must find a compromise acceptable to all 27 member states, as the proposal requires a unanimous decision.

By Nazrin Sadigova