Five points of contention in the next €1.2 trillion EU budget

The EU's long-term budget, which is due to come into force in 2028, needs to be comprehensively revised – and is facing corresponding resistance.

The current Multiannual Financial Framework (MFF) was designed for times of no major change. However, those days are over, and with them the EU budget as we know it . The challenges are now greater than ever: On the one hand, Europe faces an investment gap of at least €750 billion per year, while on the other, it is building up its defense capabilities with a new €800 billion arms buildup plan.

The Commission will present the bulk of its new budget proposal on July 16, ushering in more than two years of difficult negotiations. The outcome is likely to radically redefine both the EU's spending priorities and its understanding of what matters.

Below are the five key debates that will shape the next EU budget.

Scope: How much money?

Starting in 2028, EU member states will begin repaying the EU's €650 billion Corona recovery fund. They will have to raise around €30 billion annually, which corresponds to about one-fifth of their annual budget.

This could undermine the EU's ambitions, especially for countries already struggling to balance their budgets. Austria, Belgium, France, Italy, Malta, Poland, Romania, Slovakia, and Hungary have deficits so large that they could trigger EU sanctions.

France and Spain have called for a doubling of the MFF, and even traditionally frugal Denmark is open to an increase.

Technically, the simplest approach would be not to ask EU countries for more money, but to create its own revenue streams for the EU, for example, in the form of an EU-wide carbon tax. In practice, however, a corresponding proposal to tax emissions and corporate profits based on EU revenues has been blocked in the Council since 2023 .

New revenue does not automatically mean that the EU will spend more overall. Germany, for example, sees "no basis" for increasing the MFF, but is open to new proposals for raising funds.

In any case, discussions over the amount will be "bloody," said Danish EU Ambassador Carsten Grønbech-Jensen shortly before taking over the Council Presidency in July. If EU countries cannot agree on an increase through new EU funds, the fight for existing funds could become even fiercer.

Even though negotiations on the overall size of the next EU budget may not be concluded under the Danish Presidency, Grønbech-Jensen said the main focus will be on the structure.

Cohesion: Reforms against money and defense as a focus

The Cohesion Fund, which accounts for almost a third of the current EU long-term budget, is intended to help poorer regions in Europe catch up economically.

Now, however, the Commission wants to fundamentally change both the distribution of the funds and their use.

The first change is political in nature. Regions will receive funding if they implement reforms approved by Brussels. These reforms will be coordinated through new regional and national "partnerships."

In October, an internal document was revealed revealing the Commission's plan to copy the COVID-19 recovery fund model and combine agricultural funds, the CAP, and cohesion funds into 27 national, reform-oriented budget pots. This would have drastically disempowered the regions and increased Brussels' influence over poorer countries.

Although this idea met with massive resistance , it lives on, at least in part, through the new regional-national partnerships. The crucial question is whether the regions will be marginalized in favor of top-down negotiations between Brussels and the national capitals.

The second change is strategic in nature. The EU Commission wants to redirect cohesion funds to defense and strategic technologies such as AI and biotechnology.

This would mark a break with the current "smart specialization" approach, which encourages each region to invest in areas tailored to its strengths.

The reallocation of cohesion funds to EU-wide priorities “without restrictions on geographical location or the size of companies,” as the Commission describes it, is likely to dilute the core task of the funds: reducing regional disparities.

CAP: Reform and cut?

The Common Agricultural Policy (CAP), which accounts for almost one-third of the EU budget and is the largest item, is the EU's support for farmers. It is currently divided into direct payments (79 percent) and aid for rural areas (21 percent).

Influential agricultural lobbies across Europe strongly oppose the merging of these two pillars, the integration of the CAP into broader cohesion funds, or a reduction in overall aid.

Yet that seems to be precisely what the Commission is aiming for. The share of the agricultural fund in the EU budget has steadily declined, and according to Euractiv, insiders expect a 15 to 20 percent cut in subsidies in the next cycle.

This would trigger fierce resistance from countries like France, where the CAP is politically sacrosanct. Meanwhile, German farmers have recently achieved success in their national budgets and are now turning their attention to Brussels.

Given the national controversies, any reform is likely to be controversial line by line.

Competitiveness Fund: The Draghi Reform

The European Competitiveness Fund (ECF) is Ursula von der Leyen's new flagship project to promote the entire innovation chain – from applied research to start-ups. This move would pool hundreds of billions of euros from more than ten dedicated budget lines into a flexible pot.

The Commission President stated that the current Horizon research programme, with a volume of 94 billion euros, would remain independent but would be “closely linked” to the ECF.

This commitment is a partial victory for the scientific community, which fears that long-term, grassroots, and expertise-based funding under von der Leyen's strategic leadership could give way to short-term, top-down political priorities. However, the EU Commission has already put forward a proposal to open "Horizon" to defense-related research.

In terms of size, Draghi and the Horizon expert assessment called for more than double the budget for Horizon, but Research Commissioner Zaharieva said this was not realistic.

Health and climate programs that currently benefit from predictable, earmarked funding could see their budgets reduced or reallocated as part of broader competitiveness.

While countries are striving to strengthen Europe's competitiveness, they will also be judged on their willingness to invest money, abandon old programs and priorities, and give the Commission more decision-making power.

Flexibility: How much power for Brussels?

Von der Leyen is aiming for fewer budget lines overall, with more flexibility within and between individual items, and possibly a five-year budget cycle instead of the current seven-year one.

However, unallocated funds are often considered politically unreliable, especially for long-term priorities such as basic research.

At the same time, EU countries could view the proposed reform as a power grab, and MEPs will push for full control over future spending decisions.

There is broad consensus that the EU needs a leaner, more agile budget to address new priorities such as defense and competitiveness. But the EU is a cumbersome machine and always in danger of taking the path of least resistance.

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