BRUSSELS – The European Union’s executive arm on Wednesday unveiled a landmark €2 trillion ($2.31 trillion) budget proposal for the bloc, featuring a dramatic fivefold increase in defense spending as the continent confronts a new era of geopolitical instability.
The ambitious seven-year framework, which would run from 2028, is designed to equip the EU for the “realities of today, as well as the challenges of tomorrow,” according to European Commission President Ursula von der Leyen. The proposal calls for a significant expansion of the EU’s central budget while seeking to fund it through new, common revenue streams rather than increased contributions from member states.
At the heart of the plan is a proposal to allocate €131 billion to support investment in defense and space, a massive increase from current spending levels. This funding would be channeled through a new “European Competitiveness Fund” and reflects a profound strategic shift for the bloc. European nations have widely pledged this year to hike their national defense spending in response to new security threats, and von der Leyen declared in March that Europe has entered its “era of rearmament.”
The budget also allocates massive funds to other key priorities, with 35% of the total framework earmarked for climate and biodiversity projects. It includes €100 billion in continued support for Ukraine and a tripling of funding for migration management to €34 billion.
To pay for this expanded budget, which amounts to 1.26% of the EU’s average gross national income, the Commission is proposing five new common revenue streams designed to generate €58.5 billion a year. These include rates on non-collected e-waste, new duties on tobacco products, and a lump-sum contribution from large corporations expected to generate an average of €6.8 billion annually.
The proposal, however, faces a difficult political path. It must be unanimously approved by all EU member states, which currently finance around 70% of the budget, and also be cleared by the European Parliament. The plan has already met with resistance.
Dutch Finance Minister Eelco Heinen said in a statement that the budget proposal was “too high” and that the EU needed to focus on how existing funds could be spent more effectively, signaling that tough negotiations lie ahead.
Analysts noted that while the proposal represents a significant step, it may still fall short of what is needed to meet all of Europe’s current challenges.
“Against the history of the EU budget, today marks a breakthrough as this is not only the largest budget ever in absolute terms but also in percentage of GDP,” Carsten Brzeski, global head of macro for ING Research, told CNBC.
However, he added that the increase is “still far too small to cater for all the spending and investment needs Europe currently has.” Brzeski noted that had the EU followed the recent recommendations of the influential Draghi report on competitiveness, a budget closer to 2% of GDP would have been required, a figure he deemed “politically unfeasible.” As a result, national governments and private capital will still need to finance a major chunk of Europe’s investment needs.
