Five fights that will shape the EU’s next €1.2 trillion budget

The bloc's long-term budget, set to start in 2028, is heading for a major overhaul.

The current Multiannual Financial Framework (MFF) was designed for stable times. But that era is gone, and with it, the EU budget as we know it. The stakes are now higher as Europe faces an investment gap of at least €750 billion a year, and is ramping up its  defence capabilities with a new €800 billion rearmament plan. 

The Commission is set to present the bulk of its new budget proposal on 16 July, kicking off more than two years of difficult negotiations. The outcome is likely to radically redefine both the bloc's spending priorities and its sense of what matters. 

Here are the five main debates that will shape the next MFF.

Size: How much cash?

From 2028, EU countries will begin repaying the bloc’s €650 billion COVID-19 recovery fund at a rate of around €30 billion per year, or roughly one-fifth of the annual budget.

That risks undermining the EU's ambitions, especially for countries already struggling to balance their books at home. Austria, Belgium, France, Italy, Malta, Poland, Romania, Slovakia, and Hungary are all running deficits large enough to warrant EU sanctions.

France and Spain have called for doubling the MFF, and even Denmark, traditionally frugal, is open to an increase.

Technically, the easiest way to avoid asking EU countries for more money is to give the EU its own sources of income, such as a bloc's carbon tax. In practice, however, a proposal for taxing emissions and company profits based on EU incomes has been blocked in the Council since 2023.

Having new income also does not automatically mean the EU will spend more overall. Germany, for example, says there’s "no basis” for increasing the MFF, although it's open to discussing new proposals to raise money.

Either way, size discussions will be “bloody,” said Denmark’s ambassador to the EU, Carsten Grønbech-Jensen, ahead of taking over the Council presidency in July. 

If EU countries cannot agree to increase the size through new EU resources, the battle over existing funds may be even bloodier.

While talks on the overall size of the next EU budget may not be finalised under Denmark’s watch, Grønbech-Jensen said the focus will mostly be on structure.

Cohesion: Reform-for-cash and defence pivot

Cohesion funding, nearly one-third of the current EU’s long-term budget, is designed to help poorer European regions catch up economically.

But now, the Commission is looking to fundamentally change both how money is handed out and what it should be used for. 

The first change is political. Regions would get cash upon implementing reforms approved by Brussels, coordinated through new regional-national “partnerships.”

In October, a leaked internal document revealed the Commission's plan to replicate the COVID-19 recovery fund model by merging the agriculture funds, CAP, and Cohesion money into 27 national, reform-driven cash pots. This would have drastically disempowered regions and increased Brussels' clout over poorer countries.

While the idea faced massive backlash, it still lives on, at least partially, through the new regional-national partnerships. The key question is whether regions will be sidelined in favour of top-down negotiations between Brussels and national capitals.

The second shift is strategic. The EU executive wants to redirect cohesion funds to defence and strategic technologies, like AI and biotech.

This would mark a break from the current 'smart specialisation' approach, which encourages each region to invest in areas tailored to its strengths.

Redirecting cohesion funds towards bloc-wide priorities "without restriction in terms of geography or size of the enterprise,” as described by the Commission, is likely to dilute the Cohesion funds' core mission: reducing regional disparities.

CAP: Reform and reduce?

CAP, also nearly a third of the budget, is the EU's farmer support, currently split between direct payments (79%) and support for rural areas (21%).

Influential farmer lobbies across Europe staunchly oppose any merging of these two pillars, integrating CAP into broader cohesion funding, or cutting overall support.

Yet that is precisely where the Commission appears to be heading. CAP’s share of the EU budget has been steadily declining, and insiders are bracing for a 15-20% reduction in subsidies in the next cycle, they told Euractiv.

That would trigger intense pushback from countries like France, where CAP remains politically untouchable. Meanwhile, German farmers have recently secured wins in their national budgets and are now turning their attention to Brussels.

Given that the topic is nationally divisive, any reform is likely to be contested line by line.

Competitiveness Fund: The Draghi reform

The European Competitiveness Fund (ECF) is Ursula von der Leyen’s new industrial flagship to support the full innovation pipeline, from applied research to start-ups. The move would melt three-digit billions across more than 10 cause-specific budget lines into one flexible cash pot.

The Commission president said the current €94 billion Horizon research programme will remain self-standing, but be “tightly connected” to the ECF.

That assurance is a partial win for academia, which fears that the long-term, bottom-up, expertise-based funding will yield to short-term, top-down, political priorities under von der Leyen’s strategic steer. The EU executive, though, has already tabled a proposal to open Horizon to defence-related research.

Size-wise, Draghi and Horizon’s expert review called for more than doubling Horizon's next budget, but Research Commissioner Zaharieva said that is not realistic.

Health and climate programmes, which currently benefit from predictable, ring-fenced funding, could see their budgets diluted or redirected under the broader competitiveness umbrella.

Countries are keen on revamping Europe’s competitiveness, but will be tested on their willingness to commit money, ditch old programmes and priorities, and hand more discretion to the Commission.

Flexibility: How much power to Brussels?

Overall, von der Leyen wants fewer budget lines with more flexibility within and between them, and possibly a five-year budget cycle instead of the current seven.

But money that is not pre-allocated is often seen as politically unreliable, especially for long-term priorities like fundamental research.

At the same time, EU countries may also see the proposed overhaul as a power grab, and MEPs are set to fight for full oversight on future spending decisions.

There is a broad consensus that the EU needs a leaner, more agile budget to address new priorities like defence and competitiveness. But the EU is a heavy machine – and always at risk of taking the path of least friction.

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