Shifting money towards defence and competitiveness makes sense, analysts say. But Europe cannot cut its way to closing the investment gap.
German Chancellor Friedrich Merz united the EU’s six “frugal” net contributors last week behind a call to cut several hundred billion euros from the European Commission’s proposed €2 trillion budget for 2028–2034.
Germany, Austria, Denmark, Finland, the Netherlands and Sweden have agreed to enter negotiations with a common position, insisting that cuts should affect all areas of EU spending. “The EU budget must remain financially viable.” The agreement is a further step in an already bruising negotiation over the EU’s next seven-year budget.
“The group (…) agrees that the budget must be cut by several hundred billion euros compared to the Commission’s proposal,” Merz said after hosting the leaders in Berlin on Thursday. “And these cuts will have to affect all areas,” he added.
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The group also wants spending to be redirected towards what it considers strategic priorities, including defence, competitiveness, migration and European sovereignty. It opposes new joint EU borrowing and wants stricter rule-of-law conditions attached to EU funding.
The six countries account for around 40 per cent of EU budget contributions, giving their common position considerable weight as member states negotiate over the Commission’s proposal.
A bigger fight over a smaller budget
The overall size of the budget has been one of the main fault lines in the negotiations since the Commission presented its proposal for the 2028–2034 budget in July 2025. Net contributor countries, led by Germany, are seeking deeper cuts than those proposed under the Cypriot presidency.
On the other side, countries including France, Italy and Spain, backed by the European Parliament, argue that the EU’s growing responsibilities require a larger budget.
Zsolt Darvas, a senior fellow in EU governance and macroeconomics at Bruegel, a Brussels-based economic think tank, call the consistent push for budgetary cuts by the frugals “unfortunate”: the central question should not be the overall amount of EU spending, but rather what and how much would be sensible to spend on from common resources.
“Our own research shows that the EU budget could play an important role in addressing Europe’s investment gap, as identified in the Draghi report, and closing that gap would require a larger budget than the one proposed by the European Commission in July 2025, not a smaller one,” Mr Darvas said.
What should the money fund?
The dispute is not only about the size of the budget, but also about what the EU should prioritise once the money is allocated. The six “frugals” want to shift resources towards areas such as competitiveness, innovation and defence.
Many other countries, including Portugal, Italy and the Czech Republic, want to protect traditional spending on cohesion policy and the Common Agricultural Policy, which they argue remain important for regional development and rural communities.
Mr Darvas underlines there is a benefit in “reallocating a greater share of spending away from traditional policy areas, particularly agriculture and cohesion policy, towards measures that strengthen Europe’s competitiveness”. However, reallocations alone will prove to be insufficient, he said. “And there are clear political limits to how far existing resources can be redirected”.
Kurt Deketelaere, secretary-general of the League of European Research Universities and a professor at KU Leuven, similarly argued that this debate should begin by identifying where action at EU level brings more value than 27 countries acting separately. “We should first ask where acting together at European level genuinely makes more sense than 27 countries acting separately,” he wrote in a post on LinkedIn. “Where the answer is clear, we should be prepared to provide the means to do it properly.”
The tension is particularly acute because many of the EU’s new priorities are expensive. Defence spending has become a central concern since Russia’s full-scale invasion of Ukraine, while governments are also calling for greater investment in European industry, technology and energy security.
At the same time, reducing spending on cohesion or agriculture would have consequences for member states and regions that rely heavily on EU funding.
The race for a 2026 deal
Mr Merz reiterated the target of reaching an agreement by the end of 2026 after the Berlin meeting, although he stopped short of saying it was essential. “That doesn’t have to happen, but it would be good if we could achieve it,” he said.
The comments come as Ireland, which holds the rotating Council presidency, tries to keep negotiations on track for a deal before the end of the year.
The talks have repeatedly proved difficult, with agreements often reached only at the eleventh hour. The French presidential election in April 2027, however, may provide an added political incentive to reach a deal before then, as a new president could bring additional demands that further complicate a compromise.
According to Mr Darvas, both the “Friends of Cohesion” and the “Friends of Agriculture” groups are likely to put forward positions opposing the frugals’ demands. “The eventual compromise is therefore likely to involve some reduction in the overall size of the proposed budget. At the same time, I would not be surprised if the compensation mechanisms, or ‘rebates’ from which the frugal countries have long benefited are retained, despite the European Commission’s proposal to abolish them,” he said.
EU ministers responsible for European affairs will discuss the MFF at the General Affairs Council in Dublin on 3–4 September, providing the next opportunity for member states to test how much common ground remains.
