Merz Picks His Battles on the EU Budget — and Europe's Big Fight Is Already Starting

• Speaking alongside Draghi at the Charlemagne Prize in Aachen, Merz declared the EU budget "cannot meet 21st-century challenges with 20th-century tools," calling for a fundamental reorientation toward defence and competitiveness.
• Germany will lead the "frugal" bloc opposing the European Parliament's push for a €1.93 trillion budget — and Merz drew a constitutional red line against joint EU borrowing.
• The positions put Berlin on a collision course with Paris, the Commission, and the Parliament as negotiations on the 2028-2034 Multiannual Financial Framework intensify.

Friedrich Merz had a gift in Aachen on May 14: a stage, a microphone, and Mario Draghi sitting next to him. He used all three. While Draghi accepted the Charlemagne Prize with a speech warning Europe risked being left behind without deeper integration and major new investment, Merz took the podium to outline exactly how Germany intends to shape the budget that would fund that ambition — and it is a long way from what Draghi or the Commission have in mind.

"We cannot meet the challenges of the 21st century with a 20th-century budget," Merz said. On that, he and Draghi agree. On almost everything else, they diverge.

The budget Berlin wants

Merz's critique of the current EU budget is sharp. More than two-thirds of European funds go to redistribution and subsidies — primarily farm payments and regional cohesion funds. Germany wants to redirect that money toward defence spending and competitiveness investment, aligned with the Draghi report's diagnosis if not its prescription for how to fund it.

He backed an increased role for the EU in defence, consistent with the ReArm Europe push, and called for stronger support for technology and industrial competitiveness. But he drew a firm line against new EU debt. France's Emmanuel Macron had floated joint borrowing as a mechanism for funding Europe's ambitions back in February. Germany's constitution, Merz said, rules this out. Berlin will not go there.

Where the fights are

The European Parliament is already staking out its own ground. Its MFF co-rapporteurs have drafted an interim report demanding a budget of €1.93 trillion — 1.38% of EU gross national income, roughly 10% above the Commission's initial proposal. Agricultural and cohesion funds have powerful defenders in the Parliament and among lower-income member states that depend on them.

The frugal bloc — Germany, the Netherlands, Austria, Sweden — will resist both the Parliament's total and any attempt to maintain the current distribution of spending. The European Commission, caught between competing pressures, has its own proposal to defend. Separately, the European Court of Auditors has warned that the proposed structural changes "may not make it better."

What This Means

MFF negotiations are famously gruelling — the last round went down to the wire in 2020, just as the pandemic hit. This round is shaping up to be harder. The amounts are bigger. The agenda is more contested. And Germany's opening position — investment over subsidies, no joint debt, constitutional limits — gives little room for the compromises that Brussels usually relies on to cut deals. Merz has told European partners what Germany wants. What Europe can actually afford to fund, and how, remains entirely open.