The EU’s path to resolving the budget equation. Debt ‘rollover’ and the 2027–34 budget

Brussels. If there is one recommendation from Mario Draghi and Enrico Letta that the European Union will not follow, it is to create a new common debt instrument to finance European public goods. At a time when the President of the European Council, António Costa, is engaged in a ‘tour of the capitals’ to get to the heart of negotiations on the next multiannual financial framework, there is one point on which diplomats and officials agree: the EU’s 2028–34 budget will not include a “NextGenerationEU 2.0”, another common debt fund like the one introduced for the post-Covid recovery. “There is some resistance from several Member States. It is a very complex political issue,” a senior EU official explains to Il Foglio.

Unanimity is required for a new non-repayable common debt instrument – just as it is for adopting the new multiannual financial framework. Not even Ursula von der Leyen’s Commission dared to venture into a ‘NextGenerationEU 2.0’, preferring instead to include in its proposal two limited debt instruments for lending to Member States. But to find the ‘financial equation’ – the politically acceptable balance between national contributions to the EU budget, the introduction of new taxes and adequate resources to fund old and new priorities – Costa could resort to another solution: deferring repayment of the debt accumulated under the first version of NextGenerationEU. In Brussels, this is referred to as a ‘rollover’ (extension) of the debt. “It will be part of the debate,” explains the EU official: “Rolling over the current NextGenerationEU debt is something that could create a bit of budgetary leeway.”

Today in Berlin, the German Chancellor, Friedrich Merz, will meet with several leaders from the ‘frugal’ countries to coordinate their position in the EU budget negotiations. Their absolute ‘red line’ is shared debt for grants such as those under NextGenerationEU. Their main demand is to make drastic cuts to the Commission’s proposal of 1,800 billion euros over seven years. The reason is the increase in their national contribution to the EU budget: the wealthiest countries pay more and receive less. For Germany alone, the annual contribution could rise to well over 50 billion euros a year. Merz is demanding a reduction of 400 billion euros for the EU’s 2028–34 budget. A cut of this magnitude would entail a significant reduction in funding for new priorities (competitiveness, security and defence), as well as for existing policies (agriculture and cohesion). In Lithuania yesterday, during a stop on his ‘tour of the capitals’, Costa acknowledged that the EU budget ‘will have to be financed within the limits of limited resources’. However, the President of the European Council hopes that ‘a balanced and ambitious package of so-called new own resources – that is, new sources of revenue for the EU – will form an integral part of an overall agreement’.

Own resources are taxes. The Commission has proposed five new ones (a share of ETS revenue, a share of revenue from the Carbon Border Adjustment Mechanism, a tax on non-recycled electronic waste, a new excise duty on tobacco and a flat-rate annual contribution for companies with a turnover exceeding €100 million), which are expected to generate €65 billion a year. The European Parliament has proposed a further three (taxes on digital giants, crypto-assets and online gambling). Each own resource faces opposition from one or more Member States, making it difficult to reach a unanimous agreement. This is where the ‘rollover’ of debt comes into the financial equation. The Commission estimates that the cost of repaying NextGenerationEU for the period 2028–34 will be €168 billion. In the absence of significant new own resources, ‘rollover’ could become the only way to avoid drastic cuts to the EU budget and an exponential increase in national contributions from the ‘frugal’ states.