In a world where predicting even next week’s headlines is a challenge, crafting a budget meant to span most of the next decade is an act of faith.
Last summer, the European Commission unveiled its proposal for 2028 to 2034, designed to meet the bloc’s looming needs — from bolstering its long-underfunded armies and responding to climate disasters to rejigging a sluggish economy. Commission chief Ursula von der Leyen billed the blueprint as the “most ambitious ever proposed.”
On paper, the draft would lift the EU’s long-term budget to 2 trillion euros, up from 1.2 trillion euros in the previous cycle. According to the Commission, the new cash pot would amount to 1.26% of the EU’s gross national income. But economists and policy experts say the headline figures mask a more modest reality.
For one, repayments linked to the EU’s pandemic-era NextGeneration EU loans — with the first installment due in 2028 — will eat into the available funds, bringing the real amount closer to 1.13% of GNI, said Iain Begg, a professorial research fellow at the European Institute of the London School of Economics. In addition, higher interest rates could further strain the spending plan.
“It’s a lot of things that look shiny at the first look,” said Philipp Lausberg, a senior policy analyst at the European Policy Centre think tank. “But if you look a bit deeper, they are less substantive.”
Europe's competing priorities
To make better use of the bloc’s limited resources, von der Leyen’s preliminary plan proposes shifting funding away from traditional recipients towards strategic sectors that can help the EU overcome its industrial malaise.
The result is a 409 billion euro envelope to bolster industrial competitiveness.
Most experts lauded the intent to align spending with political rhetoric. At the heart of the proposal sits a 234 billion euro Competitiveness Fund, better known as the ECF, complemented with a 175 billion euro Horizon research program with an emphasis on early-stage funding.
But even that could prove too little, critics say. The new fund is expected to support a vast range of priorities, including industrial decarbonization, health and biotech, agriculture and the bioeconomy, digital leadership, defense and space.
“If you reduce it to the hard numbers, the net increase for competitiveness-related things is not that enormous,” said Begg, noting that what has been presented as a gamechanger only amounts to 0.2% of the bloc’s GDP. He added: “It’s a problem of arithmetic.”
Industry lobbies, meanwhile, are keen to preserve the fund’s size during negotiations between the European Parliament and the Council. Keeping the figure intact “would demonstrate a clear political commitment to strengthening Europe’s industrial base and technological leadership,” said Stefan Pan, vice president of Business Europe, arguing that doing so would be “in line with the recommendations of the Draghi and Letta reports.”
To Lausberg, the EPC analyst, the bigger issue lies not with the headline amount but with the lack of strategic focus.
“What you do is the decisive point and that’s not clear,” he said, flagging that the plan currently features more than 140 policy goals, including sustainable tourism. “If you want to spend money on all of that, you don’t spend proper money on any of them.”
EU farms vs funds
At least on paper, the push to free up cash for competitiveness comes at the expense of two historically major recipients of the EU budget: the Common Agricultural Policy and the Cohesion Policy.
Currently, CAP absorbs a little over 30% of the bloc’s joint budget, down from more than 70% in the early 1980s. Under the new proposal, it would fall to 25% — a drop difficult to digest for the politically influential farming communities.
Cohesion policies, aimed at narrowing economic and social gaps between European regions, have consistently accounted for roughly a third of the EU’s budget. Brussels now wants to funnel the lion’s share of such funds into a single instrument — the National and Regional Partnership Plans, giving national capitals greater sway over how the money is spent. Analysts say this could sideline regional priorities.
“The region of Puglia may find it more difficult to put its priorities forward if Rome is the principal recipient and decision-maker of the fund,” explained Begg. Still, he pushed back against the notion that von der Leyen’s reforms amount to a wholesale break with the past, noting that the CAP and cohesion spending would remain the budget’s largest components.
Subsequent political concessions have reinforced that point.
Last month, in a last-ditch bid to revive a long-stalled trade deal with Latin America, Brussels agreed to grant an additional 45 billion euros in farm subsidies, allowing countries that had opposed the Mercosur deal to present themselves as defenders of domestic farmers.
Before that, in November, the Berlaymont had moved to placate anger from farmers, mayors and regional governments by backing a new target to ensure a minimum of funds flow to rural areas and by granting regions a say in how national plans are designed.
EU budget faces northern pushback
But even as most analysts agree the overall increase in spending would be negligible, northern countries have nonetheless lambasted the MFF proposal as “unacceptable.”
Germany, Finland, Denmark, Austria, Sweden and the Netherlands have all voiced opposition. It’s hardly surprising, given the twin pressures of rising defense costs and mounting public debt at home.
“Every member state is facing its own struggle with public financing, not least because of the imperative of defense spending,” said Begg, pointing to the bloc’s ambition to wean itself off American security dependence. He added: “The headline total is heavily constrained by political processes and the alternative demands within member states.”
Lausberg, however, sees limited room for a major downsizing of the Competitiveness Fund during negotiations. With post-Covid repayments looming, any reduction would translate into EU countries receiving less — a politically explosive prospect.
An ideal solution, he said, would be to roll over the debt. However, he noted that fiscally conservative countries see this as a gateway to permanent fiscal capacity, which clashes with the insistence that joint borrowing is a one-off.
For now, however, neither of the two camps has much of an advantage, especially as Germany, once the standard-bearer of fiscal restraint, has eased its stance on borrowing.
“They're in a much worse industrial and economic situation themselves,” said Lausberg. “They can't dictate as easily [as in the past.]”
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