Germany quick to reject EU’s mega $2.3 trillion budget proposal

BRUSSELS (Reuters): Germany, the largest member of the European Union and its leading economy, was quick to reject an ambitious 2 trillion euro ($2.3 trillion) budget proposal touted by EU Commission President Ursula Von der Leyen on Wednesday.

Germany said it was “unable to accept” the $2.3 trillion budget for 2028-2034, which von der Leyen called “the most ambitious ever proposed.” Farm unions also quickly came out against proposed reforms to the bloc’s huge agriculture subsidies.

The plan seeks to bolster Europe’s security and ramp up competitiveness, against a backdrop of soaring trade tensions with the U.S., while paying off debts from a massive COVID-19 era loan.

The European Commission put 451 billion euros on the table under a broad “competitiveness” tag that encompasses defense and space – together allocated 131 billion euros, a fivefold increase.

The budget earmarks up to 100 billion euros for the reconstruction of war-torn Ukraine – as well as substantial new “flexibility” funds kept available in the event of crises.

But German government spokesperson Stefan Kornelius said in a statement that “a comprehensive increase in the EU budget is not acceptable at a time when all member states are making considerable efforts to consolidate their national budgets.”

Germany also opposed the commission’s call to make companies with a turnover of more than 100 million euros pay more tax.

While Germany argues that the budget is too large, many EU lawmakers accuse it of not leaving sufficient funds for priorities such as climate adaptation and the agricultural subsidies that make up the largest share of the budget.

Budget Commissioner Piotr Serafin said that under the commission’s plans, 300 billion euros would remain to support farmers – compared to around 387 billion euros, of which 270 billion euros are in direct payouts, under the current seven-year budget.

‘Black Wednesday for farmers’

Brussels says there would be an overhaul of the Common Agricultural Policy (CAP) subsidies – with some funding moved to other budget columns.

But the future of the CAP is headed for a fight, with farmers warning against cuts to their slice of the EU pie – and marching on Wednesday in Brussels to show their resolve.

Hundreds of European farmers joined a protest outside the commission building in Brussels, organized by the pan-European agriculture lobby group Copa-Cogeca.

The group described it as a “Black Wednesday” for farmers, accusing Brussels of seeking to “dismantle the ‘common’ nature of the CAP through concealed budget cuts.”

The warning raised the specter of another confrontation after last year’s protests across Europe by farmers, who were upset at cheap imports, low margins, and the burden of environmental rules.

Hungary, a staunch critic of Brussels and Russia’s closest ally in Europe, meanwhile tapped into rural anger ahead of the plan’s release, while criticizing the money allocated to Kyiv.

“Ukraine would get a massive funding boost, while European farmers lose out,” Hungarian Prime Minister Viktor Orban said.

Battle lines drawn

The announcement sets the stage for two years of fraught negotiations between the European Parliament and 27 member states.

Already stretched thin, some states, such as Germany, are unwilling to contribute more to the common pot.

Unlike in the previous budget, the EU has debts due to the COVID-19 pandemic, when states teamed up to borrow 800 billion euros to support the bloc’s economy. These are estimated to cost 25-30 billion euros a year from 2028.

The previous 2021-2027 budget was worth around 1.2 trillion euros and was made up of national contributions and money collected by the EU, such as customs duties.

National contributions will grow slightly, from 1.13% of member states’ gross national income to 1.15% plus 0.11% devoted to repaying the COVID-19 loan.

The commission will also seek to raise about 58 billion euros a year by collecting money directly through five instruments, including its carbon border tax and a levy on electronic waste.

Member states gave a sneak peek at the fights to come.

France’s European Minister, Benjamin Haddad, hailed the commission’s “ambition,” but Dutch Finance Minister Eelco Heinen, representing one of the frugal states, said the proposed budget was “too high.”

Members of the EU Parliament, however, made it clear that the budget was not enough in their view.

“However, you try to package this, what we have is a real-terms investment and spending freeze,” said a joint statement from the EU lawmakers tasked with steering the budget through parliament.