Trillion-euro EU budget pits farms against defence

EU leaders broadly agree on the bill coming due: defence, Ukraine's path towards accession and economic competitiveness all need money in the next seven-year budget. When they met in Brussels on 18-19 June, the real problem was where that money should come from. The first compromise text pleased nobody: net payers said it cost too much, the European Parliament said it did too little, and eastern member states said it failed to match the Russian threat on their borders (EUobserver, European Parliament).

For Malta, this is the sort of EU argument that looks distant until the numbers reach national budgets, farmers, infrastructure projects and Castille. The Commission's proposal for the 2028-2034 Multiannual Financial Framework, the MFF, would cut the combined share of farm subsidies and regional development from roughly 62% of the current budget to about 44% (ECA, European Times). The money would move towards defence, enlargement and competitiveness. In EU budgeting, a priority becomes real only when someone else loses a line item.

Who blocks what

The Cyprus presidency's draft tried to slow the shift by protecting agriculture and cohesion, the EU's regional development money, while pushing deeper cuts onto defence and external action (Euronews). Germany rejected the text as unacceptable and ruled out new EU-level borrowing. The European Parliament cannot rewrite a unanimous Council deal, but it can refuse to approve it, and it rejected the direction altogether (2EU Brussels).

The dividing lines are not a clean 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 framed fiscal restraint as "modernisation." Their argument is that older spending on agriculture must shrink so the EU can fund defence and innovation.

Their toughest demand concerns rule-of-law conditionality. Funding suspensions would start automatically and remain in place unless enough governments, weighted by population, voted to lift them. Today, a majority is needed to impose conditionality. Under their proposal, a majority would be needed to remove it. Countries already facing rule-of-law concerns, most obviously Hungary, would find EU funding freezes much harder to escape.

France wants to protect the Common Agricultural Policy, the EU farm-subsidy programme, while expanding defence financing. Paris wants new EU-level revenues and common borrowing to pay for both, drawing on the pandemic-era model that created the Recovery Fund. Berlin says both routes are closed.

Poland backs Ukraine's accession and wants a hard line on Russia, but it does not want security spending to come out of farm payments or regional development. Commission estimates put the cost of Ukraine's accession at between €85 billion and €96.5 billion over the budget period. Existing members could see CAP payments cut by roughly 20% once 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 hit.

The eastern states most committed to European security are also among those most dependent on EU transfers. Romania wants stronger border defence and faster accession for Ukraine and Moldova, but its own budget deficit limits what it can put in nationally. These countries want higher defence spending and continued cohesion funding. That only works if contributions rise or new EU revenue is found.

The unanimity trap

The MFF needs unanimity in the European Council, where heads of government set the EU's direction. Any one country can block the deal. That is why the opening positions are maximalist: no capital wants to reveal its final compromise first.

The negotiation will run for months and probably deep into 2027. If governments fail to agree before the current MFF expires, spending falls back to the previous year's ceilings and no new programmes can start. Defence and enlargement investment would then freeze at the same moment Europe says it needs both.

The European Court of Auditors said the Commission's redesign points in the right direction, but it also flagged unresolved questions: rebates, own resources such as carbon border levies or financial transaction taxes, and debt service on past pandemic borrowing (ECA). No public document yet shows how enlargement, defence and traditional spending fit inside one ceiling.

Europe has named defence and enlargement as strategic priorities. The budget does not yet fund them at that scale. To close the gap, governments must cut farm subsidies and regional transfers, raise more money, or borrow together again. No government facing voters wants to move first.