Merz gathers EU budget-cutting allies as Costa hunts for compromise

German Chancellor Friedrich Merz is bringing together the leaders of the Netherlands, Finland, Austria, Denmark and Sweden in Berlin on Thursday to build a common front demanding cuts of hundreds of billions of euros to the European Union's next seven-year budget, currently proposed by the European Commission at close to €2 trillion. At the same time, European Council President António Costa continues a separate tour of EU capitals, trying to broker a compromise with governments that oppose reductions.

Austrian Chancellor Christian Stocker told Politico the overall budget must be substantially reduced, arguing it is unacceptable to discuss the largest budget in history while households at home are tightening their belts. Finnish Prime Minister Petteri Orpo voiced similar concerns, saying the proposal's general priorities align with Finland's goals but the overall funding level is too high.

The leaders meeting in Berlin want not only a smaller budget but also a shift in spending away from agriculture toward defense and security, along with conditions tying funding to respect for democratic standards. The meeting is unlikely to produce specific figures, aiming instead to present a united position ahead of negotiations. Ireland, currently holding the rotating presidency of the Council of the EU, is expected to present revised compromise figures in October ahead of a leaders' summit.

A senior EU official said member states' positions are less far apart than public statements suggest, and all are committed to reaching a deal by year's end. Notably, Merz has not yet specified which programs should be cut or by how much, which the official suggested may mean his actual demands are less extreme than his rhetoric implies.

New revenue sources gain traction

Because increasing spending on defense and security without deep cuts to agriculture and cohesion funds requires additional money, more countries — including Lithuania and Estonia — are showing openness to new EU-wide taxes, provided they demonstrate clear European added value. In July, the Commission proposed new levies on emissions, carbon imports, non-recycled electronic waste and tobacco, plus a lump-sum contribution from large companies.

Domestic politics are shaping Germany's stance, with a Sept. 6 state election in Saxony-Anhalt — where the far-right Alternative for Germany is favored to win — limiting how much Merz can concede. The toughest bargaining is expected closer to the October summit.