Why the EU’s chaotic budget proposal doesn’t add up

Good morning. Ursula von der Leyen yesterday unveiled the largest-ever EU budget proposal: a €2tn cash call on the bloc’s taxpayers. But before she even began selling it to sceptical capitals, her own commission rose up in revolt. “You cannot imagine what a clusterfuck it was,” one senior EU official said.

Here, our economy correspondent crunches the numbers at the heart of the budget pitch, and our Warsaw bureau chief reports on Russia striking a Polish-owned factory in Ukraine.

VDL’s ‘voodoo maths’

European Commission president von der Leyen yesterday made a pitch for a €2tn budget — a 64 per cent increase compared with the current purse. She swears EU countries won’t have to pay more for it, writes Paola Tamma.

Context: The EU budget is mostly financed by national contributions, with richer countries paying more into it, and other revenue streams such as taxes directly raised by Brussels.

The commission proposal includes a raft of new levies or “own resources” that would collectively raise around €58bn per year, or just over €400bn for the whole 2028-2034 period.

These include a tax on companies with €100mn in annual turnover, another on e-waste, a fee on flown-in packages, and hikes in tobacco tax.

But that leaves a roughly €400bn hole compared with the current budget appropriations of €1.2tn.

“It’s an interesting way to think about it and it doesn’t add up,” said one official in a European finance ministry.

That’s easily explained, commission officials say: countries will be asked to contribute what they will pay at the end of the current budget cycle, which is higher than what they agreed at the start, partly in thanks to carry-overs from previous years. 

EU countries in 2027 will collectively pay in €186.2bn to the budget, according to the commission’s latest forecast. Seven times that — roughly €1.3tn — is the amount of money the commission expects them to cough up for the next budget, enabling von der Leyen to claim that “member states contributions will remain constant as we propose a step change in the new own resources”.

But still, it doesn’t quite add up.

“It will make sense if you believe that money will fall from the sky. But these new own resources will never happen,” the finance ministry official added.

As the commission shared its budget plans with EU countries yesterday evening, one EU ambassador told the commission the near-doubling of the budget was “highly problematic and unjustified,” according to people briefed on the discussions.

A second EU ambassador added: “We have a competitiveness problem in Europe and a debt problem, and this proposal is making both worse,” adding it’s “voodoo maths”.

Bottom line: the proposal is likely to be ripped to pieces as net EU contributors — the likes of Germany, Austria, Sweden, the Netherlands and Finland — refuse to pay the commission’s bill.

Chart du jour: Exodus

Across Europe, rural areas are fading amid declining births and residents departing for greater opportunity in cities.

Close to home

Poland has long felt nervous about being on the frontline of Russia’s war in Ukraine, even more so after Russia bombed a Polish factory in Ukraine yesterday, writes Raphael Minder.

Context: Since Russia’s full-scale invasion of Ukraine, Poland has confronted several Russian incursions into its airspace. Some missiles have also accidentally landed in Poland, including one strike that killed two farmers in November 2022.

Yesterday’s strike on a Polish-owned factory in Ukraine was condemned by Polish foreign minister Radosław Sikorski as a targeted attack, after Russian drones hit the floorboard factory from three directions, leaving two people severely burned.

The factory in Vinnytsia, in central Ukraine, is owned by Barlinek, a company belonging to Polish billionaire Michał Sołowow. 

It was the second hit on a Polish property in Ukraine this month, after the Polish embassy building in Kyiv was damaged during a massive Russian raid of the Ukrainian capital in early July.

Polish prosecutors have also opened investigations into recent fires in residential buildings and industrial sites that are suspected to be Russian arson attacks, and Warsaw is reinforcing security measures around its undersea energy cables in the Baltic.

Sikorski said at the time of the embassy strike that it showed Ukraine urgently needed more air defence. He told Donald Trump that “Putin is mocking your peace efforts”, a message that appears to have now reached the US president, who has pledged to send to Ukraine more Nato-financed Patriot missile systems. 

Trump is calling on Russian President Vladimir Putin to agree to a truce within 50 days, but for now “Putin’s criminal war is getting closer to our borders,” Sikorski warned yesterday.

What to watch today

1. Ursula von der Leyen visits Iceland, meets Prime Minister Kristrún Frostadóttir.

2. German finance minister Lars Klingbeil speaks at a G20 event in Durban, South Africa.

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