German Chancellor Friedrich Merz and the leaders of five other major European economies have urged "hundreds of billions" of dollars worth of cuts to the next EU budget as part of efforts to fund the continent's defense.
The European Union's next long-term budget will cover the period from 2028 to 2034, with officials aiming to reach an agreement on spending priorities and limits by the end of this year. Over the summer, the European Commission presented its proposal for the next budget — known as the Multiannual Financial Framework (MFF) — which amounted to almost 2 trillion euros ($2.3 trillion).
In a letter to Irish Taoiseach Micheál Martin and European Council President António Costa, the leaders of Germany, Denmark, the Netherlands, Austria, Finland and Sweden said the proposal "will need to be reduced by several hundred billion euros." Ireland currently holds the rotating Presidency of the Council of the European Union. The EU's MFF requires unanimity from all 27 member states to pass.
The signatories to Monday's letter, seen by CNBC, pointed out that their six countries finance almost 40% of all member countries' contributions to the budget. "While net contributors as a whole are in the minority they shoulder around three quarters of the total financing burden," they said.
However, they wrote that the looming negotiations are "about much more than money." Europe's rearmament push "It is about political priorities and about whether we can achieve the goal we have jointly set ourselves: a strong and sovereign Europe in an uncertain world," they said. "To achieve this, the MFF must be fundamentally reformed.
We must make choices." The leaders argued for funding to be focused on defense spending, competitiveness and innovation and "the fight against irregular migration." Europe has been under pressure to increase defense spending in the wake of Russia's full-scale invasion of Ukraine in 2022, with U.S. President Donald Trump also calling for the continent to take greater ownership of its own defense.
Members of the NATO military alliance — most of whom are European countries — have already committed to raise their national spending on defense to 5% of their domestic GDP by 2035, while the European Commission has proposed a major uptick in funding for regional security. Germany itself reformed its historic "debt brake" rules last year to pave the way for higher defense spending.
Earlier this year, the International Monetary Fund warned a new era of ramped-up security budgets meant governments would soon face tough dilemmas on where to make cuts to fund defense — a phenomenon termed the " guns versus butter " trade-off.
The joint letter also comes against a backdrop of surging government borrowing costs, spiraling inflation and sluggish growth across much of the continent, as well as concerns about rising budget deficits in various EU countries. France, for example, is being tasked with drastically cutting spending to bring its 5.1% national deficit closer to an EU guideline of 3%.
Concerns about French fiscal policy have seen yields on the country's government bonds, known as OATs, surge to multi-decade highs this year, giving France some of the highest borrowing costs in the G7 group of advanced economies.
Government deficits in focus Austria and Finland — signatories to the letter — are currently under the EU's excessive deficit procedure, a mechanism designed to ensure member states "return to or maintain discipline in their governments' budgets." In 2025, Austria's deficit stood at 4.2% of gross domestic product, while Finland's deficit was 3.4% of GDP.
Other countries under the EDP include Italy, France, Poland and Belgium.
Stressing that the EU budget is "ultimately paid for by European citizens," the letter's signatories said that the source of the financing would remain true "whatever financing mechanism or resources we invent." "Common borrowing cannot be the answer," they said. "So, there is no avoiding the difficult question of the overall volume." Read more France becomes ‘poster child’ of sovereign debt problems as borrowing costs hit post-2008 high Italy's Meloni just hit a major political milestone.
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There will be no European sovereignty without sound public finances," the six countries' leaders added. "We are not calling for cuts compared to the existing MFF," they said, noting that the next long-term budget will grow compared to the current iteration, which runs through 2027.
But they said European governments "need to be realistic." "The European Commission has proposed a nominal increase of around 60%. That is simply not realistic," they wrote. "Not economically. Not politically. And certainly not at a time when public finances in several member states are a cause for serious concern."