BRUSSELS (Realist English). The European Union is entering a critical phase in designing its next long-term budget — a €1.2 trillion financial plan set to begin in 2028. What was once a routine exercise in fiscal planning is now emerging as a high-stakes political contest, reflecting the bloc’s shifting strategic ambitions and mounting economic pressures.
The European Commission will unveil its draft proposal on 16 July, launching what is expected to be more than two years of intense negotiations between member states. From military spending to climate finance, the new Multiannual Financial Framework (MFF) will determine not only how the EU allocates resources but also how it defines its future as a geopolitical actor.
Here are the five major disputes that will shape the outcome.
1. Budget size: How much money is enough?
Starting in 2028, EU member states will begin repaying the €650 billion borrowed for the post-COVID recovery fund — at a pace of about €30 billion per year. That repayment alone could consume roughly 20% of the annual EU budget.
The financial strain comes at a time when Europe is also committing to a sweeping €800 billion rearmament initiative and faces a persistent investment shortfall of at least €750 billion annually. Countries such as Austria, France, Italy, and Poland are already in breach of EU deficit rules, further complicating consensus on expanding spending.
2. Revenue sources: Can the EU raise its own money?
One widely supported but politically stalled idea is to equip the EU with autonomous sources of income — for example, a carbon border tax or levies on corporate profits tied to the EU single market. Yet these measures remain blocked in the Council since 2023, mainly due to opposition from low-tax and export-driven economies.
Even if new income streams were approved, it’s unclear whether they would translate into a larger budget. Germany has firmly opposed any blanket increase in overall EU spending but is open to discussing new funding instruments.
3. Defence versus social spending: What are the priorities?
The EU’s pivot toward defence investment — especially after Russia’s escalation in Ukraine — is expected to squeeze traditional spending areas such as cohesion policy, agriculture, and green transition funding. Southern and Eastern European states worry that structural support could be sacrificed in favour of defence and border security initiatives.
4. Cohesion and fairness: Who gets what?
Inevitably, the question of allocation will become central. Net contributors like the Netherlands, Sweden, and Germany are pressing for “value-for-money” criteria, while poorer member states seek to preserve redistributive elements of the budget.
This divide could fuel a wider debate over what kind of union the EU wants to be: one focused on collective resilience, or one returning to strict national cost-benefit logic.
5. Political control: Who decides?
Finally, a fight is brewing over the governance of the new financial instruments. Some capitals argue the Commission is wielding too much discretion over funds like the Recovery and Resilience Facility. Others want greater parliamentary oversight or stricter rule-of-law conditionality for disbursement.
Denmark’s EU ambassador Carsten Grønbech-Jensen, whose country assumes the rotating Council presidency in July, warned that budget talks will be “bloody” — particularly if leaders fail to agree on expanding the pie and are forced to fight over the slices.
While no final deal is expected under Denmark’s presidency, officials say groundwork will be laid this year on structure and strategy, setting the stage for the final showdown in 2026.
