Earlier this month, the European Commission initiated a critical phase in shaping the EU’s future by launching negotiations over its next seven-year budget. The proposed budget, totaling nearly €2 trillion, is being framed as a response to Europe’s “new and emerging challenges” — including defense, energy resilience, infrastructure, and strategic competitiveness. But despite several important changes, many analysts warn that the draft falls short of the bold financial foundation the EU needs to remain geopolitically relevant.
What’s New: A Quiet Shift in Budget Methodology
The Commission has taken significant steps in reforming how EU funds are managed and distributed. Notably:
- Agricultural subsidies and regional transfers will now be rolled into national reform plans, to be proposed by member states, approved by the Commission, and tied to measurable results before funding is released.
- This system mirrors the post-pandemic recovery fund and represents a shift from passive fund transfers to performance-based disbursements.
- Additionally, the budget architecture is being streamlined, with fewer funding streams to allow faster implementation and better coordination.
Though these changes are substantial, they have sparked relatively little controversy — a sign of quiet but meaningful institutional reform.
Where It Falls Short: Strategic and Financial Gaps
Despite its structural improvements, the draft budget has several critical shortcomings that could hamper Europe’s ability to assert itself in an increasingly volatile world:
- Lack of Strategic Integration:
While the budget reflects some priorities outlined in the Enrico Letta and Mario Draghi reports — such as energy and industrial security — it fails to fully align fiscal planning with strategic goals like single market deepening and productivity growth. One misstep is a proposed lump-sum tax on high-revenue companies, which critics argue should instead be incorporated into a broader pan-EU corporate tax framework. - Insufficient Support for Strategic Sectors:
The proposal ignores the need for equity funding in critical industries such as defense, green energy, and advanced manufacturing. A report by the European Policy Centre (EPC) suggests the creation of an EU sovereign wealth fund that would invest directly in these sectors — an idea that has yet to be embraced by Brussels. - No Plan for EU Safe Assets:
The Commission also missed the opportunity to propose pan-European benchmark securities to attract global investors and stabilize capital markets. While common EU debt remains politically sensitive, experts argue that a sovereign wealth fund — funded via shared borrowing — could be justified without undermining fiscal solidarity.
The Numbers Behind the Budget: A Misleading Picture
Brussels has come under criticism for using nominal figures that include inflation, giving the impression of a budget increase. In real terms:
- The current EU budget is about 1.26% of the bloc’s gross national income (GNI).
- After deducting debt repayment obligations, the actual available budget drops to just 1.15% — down from a combined 1.7% in the last cycle (which included pandemic recovery funds).
- This reduction undermines the Commission’s claim of strategic ambition and calls into question the bloc’s capacity to finance meaningful global engagement.
A Budget Not Fit for Global Leadership
The proposed budget signals a continued underinvestment in Europe’s geopolitical role, despite rhetorical commitments from EU and national leaders. The modest financial footprint stands in stark contrast to the scale of challenges the bloc faces — from Russian aggression and economic rivalry with China, to internal market integration and climate goals.
As observers note, bold off-budget solutions may offer better prospects:
- The EPC’s sovereign wealth fund proposal,
- Common borrowing mechanisms for targeted industrial investments, and
- Deferring debt repayments to free up immediate fiscal space.
All represent viable paths to reinforce Europe’s strategic resilience — if political will can be found.
Conclusion: Strategic Vision Requires Financial Backing
The European Union cannot navigate 21st-century geopolitical turbulence with 20th-century spending levels. While procedural reforms in the new budget are commendable, the lack of adequate financial ambition risks locking the EU into geopolitical marginalization.
As history and current global power shifts suggest, those who aim to play a leading role on the world stage must back their ambitions with real resources. For the EU, the time to invest in strategic relevance is now — not after another crisis exposes its limitations.
