# Germany and Five Other Capitals Demand Hundreds of Billions in Cuts to the EU Budget

Berlin rejects additional joint borrowing to close the funding gap in a proposed 2 trillion euro budget framework that Brussels wants agreed by the end of the year.

- Published: 2026-09-29T05:07:13.622Z
- Canonical: https://polylog.news/2026-09-29/germany-and-five-other-capitals-demand-hundreds-of-billions
- Publisher: Polylog (Global desk)
- Section: macro
- Sources: [Financial Times](https://www.ft.com/content/3b829a46-3eae-4c20-94db-a79c38d0be4c?syn-25a6b1a6=1)

Germany and five other governments have told the European Commission to remove hundreds of billions of euros from its proposed long-term budget, [the Financial Times reported](https://www.ft.com/content/3b829a46-3eae-4c20-94db-a79c38d0be4c?syn-25a6b1a6=1). Austria, Denmark, Finland, the Netherlands and Sweden joined Berlin in a joint statement demanding reductions of several hundred billion euros, and German officials have [floated a figure as high as 400 billion euros](https://en.apa.az/europe/germany-calls-for-hundreds-of-billions-of-euros-in-cuts-to-eu-budget-523572).

The Commission's framework for 2028 to 2034 is worth roughly 2 trillion euros, more than 60 percent larger in nominal terms than the current one. Chancellor Friedrich Merz has argued the plan is unaffordable while Germany imposes restraint at home, has said cuts should fall across all policy areas, and has ruled out closing the gap through additional joint European Union (EU) borrowing. He wants remaining spending directed toward competitiveness and defence. European Council President António Costa and Merz both say they want agreement by the end of 2026.

The dispute is unfolding at a moment of tight bond market conditions. Euro-area governments are financing higher defence budgets while global long-term yields sit at multi-decade highs, which narrows the room for the kind of collective borrowing that funded the pandemic recovery program.

## What this means

The underlying issue is how fiscal capacity is divided between the European Union and its member states at a time when the cost of long-term borrowing has risen. If Berlin prevails, the EU budget shrinks and defence and industrial spending revert to national budgets, which benefits creditors of low-debt states and disadvantages high-debt southern borrowers that benefit from joint EU issuance. If the Commission holds to its original figure without new common debt, the funding gap must be filled by higher national contributions, a politically harder path for Germany than accepting cuts. The precedent is the 2020 recovery fund negotiation, in which the frugal group of countries extracted rebates and conditions, but joint borrowing went ahead once a crisis forced the issue. The likelier outcome by the end of this year is a compromise well below the Commission's 2 trillion euro proposal, with no new common debt instrument, which would keep the supply of highly rated, euro-denominated joint bonds limited. A new external shock that unifies EU capitals behind more borrowing would change that outcome.

## What to watch

- Whether the Commission concedes a headline figure below 2 trillion euros, which would show which side is setting the terms of the negotiation.
- Any revival of joint EU borrowing for defence, which would change the supply of highly rated euro-denominated debt.
- The spread between German and Italian government bond yields, which shows how markets are pricing the loss of a common fiscal backstop.