Merz unites budget-cutters as Costa seeks EU compromise
BRUSSELS — The battle over the European Union's next long-term budget is coming to a head, with German Chancellor Friedrich Merz rallying a group of leaders to demand deep cuts just as European Council President António Costa embarks on a tour of capitals to broker a compromise.
Merz, whose government is under pressure ahead of a key state election, has rejected the European Commission's proposal for a near-€2 trillion budget covering 2028–2034. On Thursday, he will host the leaders of the Netherlands, Finland, Austria, Denmark and Sweden in Berlin to coordinate their push to shrink the spending plan.
Austrian Chancellor Christian Stocker, one of the leaders joining the Berlin meeting, said the budget must be significantly reduced. "The total budget must be substantially reduced — by hundreds of billions of euros," Stocker told POLITICO. "It is unacceptable that Brussels is discussing the largest budget in history while we at home have to tighten our belts."
Finnish Prime Minister Petteri Orpo has also said the overall level of the proposed framework is too high, aligning with the group pushing for cuts.
Meanwhile, Costa is holding his own series of consultations, including a stop in Prague, as he tries to find common ground. According to a senior EU official, Costa believes governments are not as far apart as their public statements suggest, and he is working to bridge the gap before the bloc's leaders face elections in France, Spain and Italy next year that could make agreement even harder.
Ireland, which holds the EU presidency, is expected to present new compromise budget figures in October.
The Commission's proposal includes new revenue streams, such as levies on emissions, carbon imports, non-recycled electronic waste and tobacco products, plus an annual lump-sum payment from large companies. The European Parliament has suggested additional taxes on digital services, online gambling and crypto assets.
Estonian Prime Minister Kristen Michal has said she is open to new EU taxes if they demonstrate genuine European added value and do not impose disproportionate burdens, according to a statement.
Costa's tour has taken him to Estonia, Latvia and Lithuania, where he has linked the budget discussions to defence readiness, support for Ukraine and the security of Europe's Eastern flank.
In Tallinn, he praised Estonia's long-standing backing for Ukraine and outlined the EU's approach to the Ukraine Support Loan, security guarantees through the Coalition of the Willing, continued pressure on Russia and progress on Ukraine's EU accession.
"Thanks to the courage of the Ukrainian armed forces, the tide is turning on the battlefield. And we will continue to increase the pressure until Russia comes in good faith to the negotiating table," Costa said.
In Riga, he stressed the need to reach agreement on the 2028–2034 budget by the end of 2026 and argued that new EU own resources will be essential to reconcile greater spending ambitions with limits on national contributions. He also pointed to Russian hybrid threats, drone incidents and airspace vulnerabilities on the Eastern flank, calling for stronger border protection and defence readiness by 2030.
"Hybrid threats and drone incursions show how important it is to be prepared, including in the areas of air defence and border protection," he said.
In Vilnius, he combined the budget and security agenda with preparations for Lithuania's Council Presidency, which begins in January 2027.
"The next budget must reflect the demands of the challenging times we live in – and must have competitiveness, industrial transformation, defence, security, and strategic resilience at its heart," Costa said.
He also addressed the instrumentalisation of migration, saying: "Your geography also exposes you to the instrumentalisation of migration. This is totally unacceptable."
The coming months will be critical for the EU's stability, as leaders try to agree on a budget that balances security needs with fiscal restraint.