Brussels faces resistance from frugal European capitals as it seeks an additional €66bn for the bloc’s common budget to cover rising interest costs, migration-related expenses and commitments stemming from the war in Ukraine.
As part of an overhaul of the EU’s seven-year budget proposed on Tuesday, the European Commission seeks support for a €50bn package for Ukraine until 2027, of which a third would be grants and the remainder loans, as well as cash reoriented from other areas of the budget. The commission also plans to set up a dedicated mechanism to handle interest cost overruns, with an indicative value of just under €19bn over the four-year period.
Ursula von der Leyen, the commission president, called the extra cash request a “very targeted and limited proposal” that aims to respond to a world that has radically changed since the inception of the EU’s latest seven-year budget in 2021.
But countries including Germany and the Netherlands have made it clear that while they are supportive of extra funding for Kyiv, they expect the commission to take a disciplined approach to its budget at a time when national finances are also under pressure.
Christian Lindner, the German finance minister, warned on Friday that EU capitals were facing “very difficult budget negotiations” at home, and so “this is not the time to ask member states for more funding”. He added, however, that the attitude towards support for Ukraine was different.
Any demands for fresh cash in areas other than Ukraine will be a “very tough sell”, said one northern EU diplomat on Tuesday as the commission prepared to unveil its budget proposals. On Monday, France’s finance minister Bruno Le Maire said Paris would save “at least €10bn” to rebalance French public spending by 2027.
The interest repayments instrument would be designed to handle rising costs stemming from the common borrowing under the €800bn Covid-19 recovery programme agreed by member states in 2020. Those costs have spiralled as central banks have raised interest rates in response to record eurozone inflation, with the budget commissioner Johannes Hahn telling MEPs earlier in June that debt-related costs are set to double in 2024 alone from €2.1bn to €4bn.
But any proposals to ask for fresh funds from member states to deal with the rising debt costs will face tough questions from frugal member states, as they urge the commission to find savings elsewhere.
“We didn’t see the extent of interest rate increases coming,” acknowledged one EU diplomat. “We have an interest in being the most credible possible and showing that we are a reliable debt issuer.”
The commission also unveiled plans to create new so-called own resources — mostly stemming from bloc-wide taxes and levies — which could be used to repay recovery fund debts in the coming decades. They include a new levy linked to member states’ business sectors, but attaining unanimous support for these new revenue lines will be very difficult.
Brussels made additional funding requests in other areas, including €15bn for migration and support for neighbouring countries and a €10bn plan to support investments in technology.
A key goal of the budget review is to put financial support for Ukraine on a firmer footing. This entails the creation of a funding mechanism that would guarantee low-cost loans underpinning Ukraine’s public finances over the next four years, extending an EU programme worth €18bn this year.
The four-year support mechanism for Kyiv would be comprised of €33bn in fresh loans and €17bn in grants aimed at unlocking investments in the war-torn country.
Diplomats said the commission’s demand for fresh support for Ukraine should prove the least contentious element of the budget discussions, given the EU’s shared goal of backing Kyiv and its defence against the Russian invasion.
The €50bn package would “give visibility to the Ukrainians and send a signal to the US and UK that there is a ceiling and we’re not going to pay for everything”, one EU diplomat said.
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