A group of donor countries led by Germany and the Netherlands is pushing for drastic spending cuts, which is irking Southern and Eastern European countries that fear funding for agriculture will be slashed to make way for increased defense spending.
Although spending on agriculture and regional development remains the largest budget items, their share will decrease significantly: from the current approximately 60% to 44%.
“Friends of Cohesion” and “Fiscal Discipline Countries”
In late May, a group of 16 countries signed a document calling for an increase in these funds, calling themselves the “Friends of Cohesion.” The document was signed by Bulgaria, Croatia, Estonia, Greece, Italy, Latvia, Lithuania, Malta, Poland, Portugal, the Czech Republic, Romania, Slovenia, Slovakia, Spain, and Hungary.
Meanwhile, the “frugal countries”—Germany, the Netherlands, Denmark, Sweden, Finland, and Austria—state that any increase in spending is unacceptable to them.
The updated draft proposes cutting the overall budget by 32.8 billion euros. This is described as a compromise between the “Friends of Cohesion” and the “frugal” countries. Negotiations among EU leaders will begin with this proposal.
Meanwhile, the European Parliament has rejected it, deeming it insufficient, particularly regarding spending on agriculture and regional development.
Budget Revenues and Debt Rollover
The question of how the budget will be financed remains unresolved. Initially, the European Commission proposed funding it through revenues from the EU Emissions Trading System (EU ETS), the Carbon Border Adjustment Mechanism (CBAM), unutilized electronic waste, excise taxes on tobacco products, and corporate income tax.
During the negotiations, the European Parliament proposed additional sources of revenue. According to EU diplomats cited by Euronews, these include the introduction of a gambling tax, a digital levy, and a tax on crypto-assets.
However, “fiscal-conservative” countries, particularly Sweden, remain cautious about such measures. In their view, they would bear a disproportionately high financial burden.
Meanwhile, a number of countries, including Italy, France, and Greece, have proposed repaying NextGenerationEU debt through debt restructuring—a mechanism known as a “debt rollover.” Germany and the Netherlands, in particular, are strongly opposed to this, rejecting any form of new joint borrowing.
EU leaders hope to reach an agreement on the budget by the end of 2026, without dragging out negotiations until 2027, when elections will be held in several countries, including France, Italy, and Poland.
