EU budget pits farms against defence

EU leaders know what the next seven-year budget is meant to pay for: defence, Ukraine's route towards membership, and the competitiveness agenda meant to stop Europe falling behind. When they met in Brussels on 18-19 June, the harder question was left sitting on the table: who gives up money to make that happen?

The first compromise text pleased nobody. Net contributors said it cost too much. The European Parliament said it was too small. Eastern member states said it did not take seriously enough the Russian threat on their borders (EUobserver, European Parliament).

This is more than the usual late-night EU budget quarrel. The Commission's proposal for the 2028-2034 Multiannual Financial Framework, or MFF, would cut the combined share of farm subsidies and regional development from roughly 62% of the current budget to about 44%. The MFF is the EU's seven-year spending ceiling, the framework that shapes every annual budget. Defence, enlargement and competitiveness would take the space now occupied by agriculture and cohesion funding (ECA, European Times).

Every euro moved into a new priority is a euro taken from an old constituency.

Who blocks what

The Cyprus presidency tried to slow that shift. Its draft protected agriculture and cohesion, while pushing deeper cuts onto defence and external action (Euronews). Germany rejected the result as unacceptable and ruled out fresh EU-level borrowing. The European Parliament, which cannot rewrite a unanimous Council deal but can refuse to approve it, rejected the direction of travel altogether (2EU Brussels).

The alliances are more tangled than a tidy north-south fight over money.

Denmark and a group of net-payer states, including the Netherlands, Sweden and Austria, circulated a non-paper on 14 May that dressed fiscal restraint in the language of "modernisation." Their argument is that older spending on agriculture has to shrink if the EU is serious about defence and innovation.

Their most pointed demand concerns rule-of-law conditionality. They want reverse voting, meaning funding suspensions would apply automatically and remain in place unless enough governments, weighted by population, voted to lift them. Under the current system, a majority is needed to impose conditionality. Under their proposal, a majority would be needed to remove it. Countries already under rule-of-law scrutiny, above all Hungary, would face funding freezes that are much harder to unwind.

France wants to defend the Common Agricultural Policy, the EU's farm-subsidy programme, while also expanding defence financing. To pay for both, Paris is pushing for new EU-level revenues and common borrowing, returning to the pandemic-era model that produced the Recovery Fund. Berlin says both routes are closed.

Poland supports Ukraine's accession and takes a hard line on Russia, but it does not want security spending to come out of farm payments or regional development. Commission estimates put Ukraine's accession cost at between €85 billion and €96.5 billion over the budget period. Existing members could face Common Agricultural Policy payment cuts of roughly 20% as a large new agricultural economy enters the subsidy system (EUobserver, Euronews). Poland, the largest net recipient of both farm and cohesion money, would take the biggest blow.

The eastern states most committed to European security are also among those most reliant on EU transfers. Romania wants stronger border defence and faster accession for Ukraine and Moldova, but its own budget deficit limits what it can fund nationally. These governments want defence spending and cohesion funding at the same time. That arithmetic only works with higher contributions or new revenue.

The unanimity trap

The MFF requires unanimity in the European Council, where heads of state and government set the EU's direction. Any single country can block the deal. That is why the opening positions are so hard. No capital wants to put its real fallback position on the table first.

The negotiation will run for months, probably well into 2027. If governments fail to agree before the current MFF expires, spending falls back to the final year's ceilings and no new programmes can begin. Defence and enlargement investment would freeze just as Europe says it needs more of both.

The European Court of Auditors said the Commission's redesign moves in the right direction, but warned that major questions are still unresolved. These include rebates, own resources, which are new EU-level revenue streams such as carbon border levies or financial transaction taxes, and debt servicing from past pandemic borrowing (ECA). No public document yet shows how enlargement, defence and traditional spending can all fit under one ceiling.

Europe has named defence and enlargement as strategic priorities. The budget does not fund either at the scale implied. Closing the gap means cutting farm subsidies and regional transfers, and no government facing elections wants to be first to say so.