EU debt puts pressure on next seven-year budget
The European Union faces a growing financing squeeze over its next seven-year budget as rising debt repayments compete with demands for more spending on defence, competitiveness, energy and support for Ukraine.
The European Court of Auditors has warned that the bloc’s mounting debt could put significant pressure on future budgets unless EU governments agree on new sources of revenue. The warning comes as member states prepare for difficult negotiations over the 2028–2034 budget, with countries divided over how much the EU should spend and who should ultimately pay for it.
EU borrowing has risen sharply since the Covid-19 pandemic, when Brussels raised hundreds of billions of euros to support economies across the bloc. Pierre Moscovici, a member of the European Court of Auditors, said EU debt had more than tripled in only a few years, reaching €739 billion by the end of 2025.
The auditors warned that borrowing could approach €1 trillion by 2027, largely because of the EU’s pandemic recovery programme. Interest payments could reach as much as €93 billion, creating an increasingly visible claim on future EU finances.
The problem comes as the bloc is preparing an unusually ambitious long-term budget. The European Commission proposed an almost €2 trillion framework for 2028–2034, equivalent to about 1.26 per cent of EU gross national income on average. In 2025-price terms, the European Parliament’s research service values the proposed framework at about €1.76 trillion, including a separate €149.3 billion provision for NextGenerationEU debt repayment.
Brussels wants the new budget to finance priorities ranging from regional development and agriculture to defence, energy security, technological competitiveness and external partnerships. But expanding those priorities while servicing pandemic-era borrowing has exposed a basic problem: the EU is seeking to do more at a time when its existing revenue structure is under pressure.
The Commission has therefore proposed five new “own resources” for the next budget. They include a share of revenues from the EU emissions trading system, the carbon border adjustment mechanism, a levy on non-collected electronic waste, a tobacco excise resource and a contribution from large companies operating in the single market. Together, the proposed new resources are expected to generate roughly €58 billion a year.
The plan is politically contentious. EU governments remain divided between countries that favour tighter spending and those seeking greater funding for national and regional priorities. The dispute is particularly important for larger net contributors, which face pressure to increase their financing of the common budget while dealing with their own fiscal constraints.
The European Parliament is taking a different position from the Commission on debt repayment. Parliament has called for a larger long-term budget and argued that new genuine EU revenue sources should cover the repayment of NextGenerationEU borrowing without forcing cuts to existing programmes.
That difference could become one of the central battles of the negotiations. Member states must ultimately agree unanimously on the long-term financial framework, while the EU’s own-resources decision also requires unanimous approval and national ratification. The Council says the Irish presidency will lead efforts during the second half of 2026 to prepare a political agreement, with the new budget due to take effect in January 2028.
The fiscal pressure is also arriving alongside new demands on European governments. The war in Ukraine, energy-security concerns, defence spending, industrial competition with China and the United States, and the need to strengthen European technology and supply chains have all increased the number of priorities competing for EU money.
This makes the budget dispute more than a technical argument over accounting. It is becoming a question of how the EU intends to finance its growing ambitions without continuously increasing the burden on national governments.
The Commission argues that new EU-level revenue would reduce pressure on national public finances while providing Brussels with a more predictable income stream. But governments must still decide whether they are prepared to give the EU greater access to revenues generated from companies, carbon markets, tobacco and other sources.
The European Parliament has also pushed for additional revenue from areas including digital giants and online gambling, while seeking to protect existing spending programmes.
Brussels hopes to reach a political agreement before the end of 2026 so that legislation and programmes can be prepared ahead of the 2028 budget cycle. But the negotiations are taking place against an increasingly complicated European political backdrop, with national elections potentially changing governments’ negotiating positions.
At the heart of the dispute is a widening gap between what Europe wants its common budget to accomplish and what its existing financing system can comfortably support. Unless member states agree on how to close that gap, the next EU budget could force a difficult choice between higher national contributions, new EU-level revenue, additional borrowing or reductions in existing priorities.
