EU countries cannot adopt a joint budget. What you need to know

There is no agreement on a new budget among the EU member states. A group of countries led by Germany wants to increase defense spending, while most members want to increase subsidies to farmers and poor regions. Concerns about the budget are intensifying ahead of the 2027 elections, after which the positions of the right will strengthen in several countries. How the budget of the European Union is arranged and what kind of disputes are going on around it — in the material of Izvestia.

What is the EU budget?

• The budget of the European Union (EU) consists of two financial plans, which allocate funds for unification projects. The first one is called the "multi-year financial program" (MFF). It is designed for seven years at once. The program for 2021-2027 is currently coming to an end, and a new one, which has not yet been adopted, will be in effect in 2028-2034. The draft MFF is drawn up by the European Commission (EC), after which it begins to be discussed with the European Parliament and the EU Council, and the latter, that is, all EU members, unanimously approves it. The final multi-year program is adopted by the European Parliament, which can either approve the project or reject it completely.

• As part of the seven-year plan, the European Union also adopts an annual budget, which runs from January 1 to December 31. It details the expenses for the current fiscal year. It is also drawn up by the European Commission and adopted by all EU countries and the European Parliament, but the latter has the right to make its own amendments. If the EU Council and the European Parliament fail to agree on the budget for the next year, then each month an amount equal to 1/12 of either the previous year's budget or the draft budget of the European Commission, if it contains lower costs, is spent.

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• The EU budget should be distinguished from national budgets. It has a specific purpose and is aimed at financing joint programs of several countries and solving pan-European problems. An important difference from state budgets is the principle of balance — the EU budget cannot become deficient under any circumstances. If it turns out to be in surplus, then the remaining funds are distributed for the next year.

What does the EU budget consist of?

• The basis of the EU budget is provided by the so-called own resources. The largest such source, generating up to 70% of funds, are contributions based on gross national income (GNI). Each EU country is required to allocate funds depending on its GNI. The delay in payments leads to the accrual of penalties. Direct refusals to allocate funds are extremely rare and lead to fines being imposed by the EU court.

• Other "own resources" are customs duties on imports of goods imported from outside the EU, contributions of 0.3% value added tax (VAT) from each individual country, and a plastic levy of €0.8 per kilogram of unprocessed packaging waste. Separate sources of income are contributions from non-EU countries, interest on late payments, and fines.

• The size of the EU budget is dramatically inferior to national financial plans. It accounts for only about 1% of the GNI of all EU countries. The volume of the current seven-year program reaches €1.211 trillion, and a budget of €192.8 billion was approved for 2026. At the same time, the budget of Germany alone, for example, exceeded €520 billion in 2026.

What is the EU budget used for?

• The EU budget is divided into several areas, within which there are separate programs that require joint financing by the European Union. The largest share of spending, just over a third, is on "Cohesion, sustainability and values." From here, funds are allocated to equalize the level of development of individual countries, support employment, social inclusion and education.

• Almost a third more are in the "Natural resources and environment" area. It consists almost entirely of agricultural support costs, which include direct payments to farmers and rural support. Environmental programs and the Green Transition are also funded from this area.

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• The remaining third of the EU budget is devoted to programs for the formation of a single market, innovation and digital technologies, migration and border management, financing of unified government bodies, humanitarian aid and international cooperation, as well as defense and security. The latter direction has a volume of €2.81 billion in 2026 and accounts for about 1.5% of the entire EU budget.

• Extremely low defense spending is due to the fact that this area is mainly the responsibility of individual countries. The Treaty on the European Union prohibits direct financing from the EU budget of operations with military or defense implications. Therefore, the main defense-related expenses come from extra-budgetary funds, such as the European Peace Fund. Budget expenditures are aimed at joint research and development in the defense sector, increased capacity in the production of weapons and a military mobility program.

What kind of disputes are going on around the budget

• Currently, the EU countries are actively discussing the next seven-year budget until 2034. The European Commission has proposed a project worth €1.985 trillion, which is 1.26% of the GNI of all members of the association. It should be adopted by 2028, but the EU authorities are striving to complete the main negotiations by the end of 2026 in order to make it to the elections in France, Italy, Spain and Poland, where the positions of the right and eurosceptics may strengthen.

• The new seven-year budget plans to double spending on defense, cybersecurity, and digital infrastructure. The share of related expenses will rise to 30% of all estimated expenses. The redistribution will take place through regional alignment programs and agriculture, whose share will decrease from 70% to 45%.

• This draft budget is criticized by some European countries. Germany, Finland, the Netherlands, Sweden, Denmark and Austria, which collectively contribute up to 40% of the total budget, are demanding spending cuts of hundreds of billions of euros, threatening to block the agreement. They demand a further increase in defense spending and a reduction in spending on the agricultural sector and support for poorer countries. At the same time, most other EU countries, primarily Italy and Spain, advocate subsidies to farmers and regions, proposing to increase the budget to a level above €2 trillion.

• If negotiations drag on, the European Union risks not having time to agree on a seven-year plan on the basis of which annual budgets should be adopted. This increases the risk that a "European shutdown" will begin in 2028. Although there is a mechanism for technical financing in this regard, many programs, including defense ones, will be stopped. In addition, contributions will not be adjusted for inflation, so the actual financing of even protected items of expenditure will be lower. Delaying the budget adoption process threatens Europe with economic and financial uncertainty, which will also have political and social consequences for the entire union.