Summit: few countries willing to pay for bigger EU budget

Three main culprits are to blame.

First, Europe's continued military aid and technical support to Ukraine is draining public coffers. The Covid-19 pandemic has also impacted the 2021-2027 budget. And finally, the European Central Bank's interest rate hikes have increased the cost of government borrowing.

The European Commission, ahead of last night's discussion, proposed to top up the budget with another €100bn, two-thirds coming from member countries and one-third loans.

Overall, member state negotiators did not look kindly on the offer. "The commission is insatiable for money," one senior EU diplomat said ahead of the meeting, encapsulating the mood.

"We are fully aware that these crises not only affect the limits of the union budget, but that member states also have a lot of constraints," EU Commission president Ursula von der Leyen conceded to press late last night.

But she stressed that "additional financing" is still needed to help the EU deal with the continued war in Ukraine, increased migration and foreign competition.

"It is important to be vigilant that we keep the cleantech industry in Europe," she said.

The majority of member states could quickly agree on €50bn additional funding for Ukraine until 2027 — €33bn in loans and €17bn in grants. However, on Friday morning, Hungarian leader Viktor Orbán signalled he would continue his opposition to the Ukraine aid top-up.

"There was a big battle, especially on the Ukrainian issue," he told Hungarian state radio according to Reuters. "We found this proposal had not been worked out properly and is not suitable to be a basis for serious negotiations, so we rejected it."

The second item on the list was migration. To help countries deal with the high amount of refugees and migrants, a priority for Belgian prime minister Alexander de Croo, who called on his colleagues to "really work together," the commission proposed €15bn in additional funds.

Dutch prime minister Mark Rutte suggested these funds "can be found in the current budget" by using "unused reserves" or shifting around funds from lower priority issues.

One such issue is competitiveness.

The commission had proposed to set aside an additional €10bn to support green tech initiatives that could improve European competitiveness. But wealthy northern countries, including Germany and the Netherlands, opposed this.

"This is not a priority for us," one diplomat from a wealthy northern country said.

He expressly referred to the so-called STEP budget, an already much-reduced iteration of the previously-proposed sovereignty fund meant to help countries beef up local industries.

First proposed by von der Leyen in 2022, some southern countries that lack the budgetary leeway rich northern countries have, say it could help them meet the generous state-aid France and Germany can give.

But on Thursday, it became clear that most countries are unwilling to pay more to increase the EU budget.

"We saw again that we are in very different positions, there are countries that say we shouldn't spend any more money, and there are countries saying we need additional funds because we have new crises," said prime minister of Estonia Kaja Kallas on Friday morning.

"I think we are far from an agreement," she added. "I think we definitely get an agreement on Ukraine," continued Kallas. "On how to get there: we still have two months to but the majority is very strongly behind Ukraine."

The official deadline to agree on the new budget is December, but some countries signalled that the shifting of funds may continue into the new year.

"The commission wants to finalise plans before January, but some countries feel that some of the issues can be discussed later, in the form of moving around funds," said an EU diplomat.

On the first day of the summit, EU leaders discussed a non-paper issued by the Spanish presidency, which stresses that a political agreement is "essential" to renew the financial framework until 2027.

The non-paper, obtained by Spanish outlet EL PAÍS, warns member states that it will not be possible to finance the current proposal with the resources available. Based on data from the commission, they detail that a 30 percent cut in the budget would be necessary.

"All members share the commission's view on the need to ensure that Ukraine takes responsibility for its recovery and reconstruction and to link financial assistance to the implementation of reforms and investments with a view to its future accession, to be included in a plan to be prepared by the Government of Ukraine," the Spanish document reads.