Guns vs Farm Subsidies: How the 2028–2034 Budget Battle Is Redefining the EU

The urgency is far from procedural. If EU governments fail to settle the framework in time, core programmes ranging from agricultural subsidies and regional development to higher education face a funding gap when the current cycle expires at the start of 2028. But Costa is confronting more than a familiar argument over spending: defence and geopolitical security are now competing directly with the redistribution mechanisms that have underpinned European integration for decades.

That is the line now running through the negotiations: Europe wants to become harder, more militarily capable and less dependent on outside security guarantees, but much of the political system remains unwilling to pay for that transformation through larger national contributions or common borrowing.

Berlin’s answer: rearm Europe without expanding the bill

The Frugal Six are not rejecting European defence. Their argument is more consequential precisely because they accept the need for it.

They want the EU to spend less overall while shifting what remains towards defence, security, competitiveness and migration. They also oppose new joint EU debt and are pushing for stricter rule-of-law conditions attached to European funding.

This creates a difficult arithmetic problem. The Commission’s proposed framework establishes a €131bn baseline for defence, security and space — between five and ten times the comparable allocation in the current MFF. Alongside it sits the €150bn SAFE facility, through which the EU would borrow over long maturities, of up to 45 years, to provide member states with loans for joint procurement of ammunition, missiles and air defence.

The political significance is larger than the numbers themselves.

For much of its history, the EU budget was primarily a mechanism for reducing economic disparities within the bloc. Agricultural support and cohesion funding helped make membership materially attractive to poorer and less-developed states. Defence was largely treated as a national responsibility, while European integration concentrated on trade, regulation, infrastructure and economic convergence.

The proposed MFF breaks with that division of labour.

Defence is no longer simply an area in which European states co-operate. It is becoming a permanent budgetary function of the Union.

That makes the Frugal Six position harder to reconcile with the Commission’s ambitions. If defence becomes a structural priority, something else must either give way or the overall financial capacity of the EU must increase.

For northern governments facing domestic pressure to restrain Brussels, expanding the budget is politically difficult. For poorer member states dependent on cohesion funding, cutting traditional programmes to finance rearmament carries a different kind of risk.

The argument is therefore not really about whether Europe needs more weapons. It is about who pays for them.

The eastern states want more than a bigger defence budget

The debate is also exposing a second fault line: where Europe’s new military-industrial capacity should be built.

Bulgarian Prime Minister Rumen Radev has used the term “industrial cohesion” to argue that traditional infrastructure spending is no longer enough. If the EU is moving towards technological and military rearmament, eastern member states do not want the resulting factories, research capacity and high-value supply chains to remain concentrated in western Europe.

The distinction matters.

A conventional cohesion policy seeks to narrow differences in infrastructure and living standards. Industrial cohesion would extend that logic into strategic production: defence manufacturing, advanced technology and other capabilities considered essential to European security.

Without such an approach, eastern governments could face an awkward bargain. Their agricultural and regional funds could be reduced to finance Europe’s military ambitions, while the industrial benefits of that spending accrue disproportionately to wealthier western economies.

Radev’s proposal is therefore less a plea for compensation than a challenge to the design of the new European economy. If defence is to become a central European investment, the geography of that investment becomes a political question.

For countries on the EU’s eastern flank, security expenditure that does not also generate domestic industrial capacity risks becoming another form of dependency.

Ukraine is becoming part of the budget architecture

Costa has made sustained support for Ukraine a central argument for the new financial settlement, describing European assistance as an investment in the continent’s security. The €90bn support package finalised under the Cypriot Council presidency is intended to provide a longer-term financial foundation rather than leaving assistance exposed to every change in political circumstances.

That approach effectively moves Ukraine closer to the centre of the EU’s security architecture.

Yet Costa’s tour has also shown the limits of that convergence. Hungary’s Prime Minister Péter Magyar has adopted a markedly different position from the confrontational stance associated with his predecessor’s government. Budapest condemns Russian aggression, recognises Ukraine’s right to self-defence and regards Moscow as a European threat.

But Magyar opposes an accelerated Ukrainian accession process.

Hungary wants EU membership to remain a merit-based process lasting 10 to 15 years and insists on a national referendum. The distinction is important for the wider budget negotiations because financial solidarity with Ukraine and political integration are increasingly connected, but they are not the same question.

A government can support Ukraine’s security while resisting a rapid transformation of the Union’s membership and institutional balance.

That creates another constraint on Costa’s search for consensus. The European budget is being asked to accommodate not only a new security priority, but also different national interpretations of what European solidarity should eventually mean.

The debt question is hiding in plain sight

The most consequential disagreement may concern how Europe intends to finance its ambitions.

The SAFE facility already points towards a model in which the EU uses borrowing capacity to shape defence procurement. The proposed loans, backed by the space available under the EU budget ceiling, would allow governments to finance joint purchases over exceptionally long periods.

But the Frugal Six oppose a broader move towards joint EU debt.

That leaves “own resources” as the other major battlefield. The EU budget is traditionally financed through national contributions, customs duties and VAT-related revenue. New EU-level revenue sources - including proposals involving carbon imports, corporate contributions and other levies - would give Brussels a more direct fiscal base.

The political obstacle is formidable: changes to the own-resources system require unanimous Council approval and ratification by every national parliament.

The argument over revenue is consequently an argument about sovereignty.

A larger role for EU-level taxation would give the Union greater capacity to finance priorities that individual governments might struggle to fund collectively. But it would also deepen the shift of fiscal authority away from national capitals.

For the Frugal Six, that is precisely the direction to resist. For those advocating a stronger European defence capacity, it may increasingly look unavoidable.

The old budget cannot easily survive the new Europe

This is why the fight over agriculture and cohesion funding is more than a conventional distributional dispute.

The EU has spent decades building political legitimacy around the idea that integration can make poorer regions richer and spread the benefits of membership across the continent. Those policies created constituencies that are now being asked to accept a different hierarchy of priorities.

Defence spending has an obvious strategic rationale. Agricultural subsidies and regional development do not disappear as political needs simply because the security environment has deteriorated.

The danger is that the two objectives become competitors rather than complements.

If the military pivot is financed primarily by reducing cohesion and agricultural spending, southern and eastern governments will have to explain why the new security settlement leaves some of their domestic constituencies paying the price. If the budget instead expands substantially, northern governments will have to defend higher contributions or accept mechanisms they have traditionally resisted.

Neither route is politically painless.

Costa’s consultations are therefore an attempt to hold together a coalition that no longer shares a common definition of solidarity. The countries most exposed to Russia want predictable security commitments. Less-developed states want development money and a share of the new industrial investment. Fiscal hawks want discipline. The Commission wants greater capacity to execute a European strategic agenda.

And Germany, once one of the principal engines of European integration, is now leading the pressure to make that agenda cheaper.

The coming negotiations in Berlin, Paris and Rome will test whether those demands can coexist. Ireland, which holds the rotating Council presidency, is due to present revised compromise figures in October.