Revolution has no beginning: Germany has expanded the EU budget
The European Commission (EC) has proposed a revolutionary new draft budget for the EU, in which pan-European spending will almost double at once. It is assumed that by increasing total spending, not only will the fulfillment of many tasks (including military ones) be ensured, but also the "unity" of the European Union will be strengthened. However, this initiative by EC President Ursula von der Leyen has met with fierce resistance, including in her homeland, Germany. As a result, the draft budget may fail. Izvestia investigated why European countries are dissatisfied with the ideas of Brussels.
A mini-budget for a macro-state
In "ordinary" states, the budget is a key part of national finances, providing a large share in the economy. In the USA, it accounts for about 20% of GDP, in Russia — 30%, in European countries like France and Germany with their expensive social services and high taxes — up to 40%. The EU, as a supranational entity, cannot boast of this. The funds for the pan-European budget account for only a small part of the expenditures of individual countries. For example, in 2025, all budget expenditures in Brussels should amount to about 190 billion euros, which is less than 1% of the union's GDP.
EU budgets are adopted for a period of seven years at the conceptual level, and then updated before each year, depending on the current economic situation and other circumstances. But, as a rule, the approved expenses do not change radically. The financial law for 2021-2027 is currently in force, respectively, the budget that is currently being considered falls on the period 2028-2034. Unlike the budgets of individual States, the EU budget is not comprehensive. It is usually aimed at fulfilling several tasks, in particular the common agricultural policy (numerous subsidy payments relate to this), ensuring the functioning of the common market, equalizing the socio-economic picture in different countries of the union, foreign policy objectives, etc.
The total budget proposed by the European Commission headed by von der Leyen is about €2 trillion. This is more than one and a half times more than the previous seven-year version. It is important that this amount is much higher not only in "raw" terms, but also adjusted for expected inflation. Even taking into account the price increase in the above seven years, the increase will be about 25%. Quite a radical increase in expenses — at first glance.
If we count in gross national income (a metric other than GDP), then the growth becomes much less impressive. If the current budget was about 1.13% of GNI, then the next one was 1.26%. Of course, the real GNI figures may turn out to be lower than expected, and this is a fairly realistic scenario — but so far they have not been realized, the increase in costs looks relatively small. There is one more important caveat. Starting in 2028, the EU will begin paying off debts raised for the pandemic recovery fund, which is about €25 billion per year. With this correction, the difference will be even smaller.
Spending priorities in the next seven-year budget will undergo quite serious changes. The key cost item, subsidies to agriculture, will be drastically reduced, totaling about 300 billion euros. At the same time, €590 billion has been reserved for the fund for the development of competitiveness, prosperity and security, of which approximately 450 billion will go to support European companies that are currently having a hard time competing with foreign players. Finally, €100 billion will be allocated to help Ukraine. Considering that the expenses will be split over seven years, this amount is not as significant as it looks. Nevertheless, it has become the basis for the discontent of a number of EU members.
They traded farmers for Ukraine
For example, Hungarian Prime Minister Viktor Orban bluntly stated that the EU had decided to sacrifice its farmers for Ukraine. Indeed, the cost of maintaining Ukrainian statehood is only slightly higher than the reduction in spending on agriculture. The latter, by the way, will sink even more if you keep inflation in mind — the euro should depreciate by at least 10% in seven years.
However, Hungary, which often behaves contrary to the European mainstream, including in matters of Ukraine, is not entirely indicative. It is much more interesting that the budget has met fierce resistance from key EU states. First of all, we are talking about Germany. Chancellor Friedrich Merz was unhappy with von der Leyen's proposals (Merz is not only her compatriot, but also a member of the same party — they both represent the Christian Democratic Union (CDU), which currently rules in Germany). Merz stated that a comprehensive increase in the EU budget is unacceptable at a time when all member states are making significant efforts to consolidate their national budgets.
Brussels probably should have anticipated Berlin's sharp reaction, as the German government clearly outlined its "red lines" in the position paper for the EU last month. The German authorities stressed that it was impossible to increase the budget. In addition, Germany rejected the continuation of EU joint borrowing introduced during the pandemic, which means that any additional costs for new projects will have to be covered by reducing other budget items.
Criticism of the budget was not limited to Germany. Dutch Finance Minister Elko Heinen said the EU should focus not on how to spend more, but how to spend what it has more efficiently. In general, the bill was criticized in the European Parliament by representatives of literally all factions. The increase in costs is actually not that big, but European countries are not even ready for this.
This is not surprising at all. Almost all the countries of the union are going to increase borrowing themselves. Germany, for example, is preparing to increase spending (including military spending) by hundreds of billions of euros, which can only be financed by increasing debt. France is suffering from a chronic budget deficit that cannot be reduced in any way. Government debt levels may reach dangerous levels in the coming years. Italy has already been subsidized by the countries of Northern and Central Europe for many years, which causes dissatisfaction among the latter. But budget problems are also growing there — Izvestia recently wrote about the situation in Finland.
As a result, yields on European countries' bonds are heading towards multi—year highs, and this is in the context of a gradual easing of the ECB's monetary policy. That is, to bring the ends together, EU states will have to borrow a lot and expensively anyway — and this trend is likely to continue for years to come. They have absolutely no intention of fulfilling Brussels' wishes to increase spending in this situation.
Most likely, in the coming weeks or months, the budget will lose a lot of weight and will appear much more "fat-free" so as not to annoy anyone. Accordingly, von der Leyen's program for greater cohesion and federalization of the European economy will also be torpedoed. However, it was difficult to expect the opposite, given the growing tensions in the union.
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