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The European Union’s multiannual budget for 2028-2035 must be crafted soon, in a context of climate emergency, war near EU borders, heightened security risks, rising protectionism, slow productivity growth and a fragile economic outlook. We previously advocated for budget reform focusing on European public goods (EPGs), cohesion and agricultural policy reforms and an expansion of the regular EU budget to 2 percent of gross national income (GNI) – a balance between desirability and feasibility (Buti et al, 2024). We also suggested off-budget instruments for emergency interventions and defence, as weapons cannot be financed by the regular budget, with EU borrowing as the funding source.

Draghi (2024) concluded that EU support for both public and private investment is constrained by the small size of the EU budget, its lack of focus and an overly conservative attitude to risk. Draghi (2024) suggested that the EU budget be refocused on jointly agreed strategic projects and objectives, while streamlining the budget structure and better supporting private investment through financial instruments and risk taking.

European Commission and Organisation for Economic Co-operation and Development forecasts predict that public and private investments (as a share of GDP) will remain practically unchanged in 2025 and 2026, leaving the European investment gap unresolved ¹ See European Commission press release of 15 November 2024, ‘Autumn 2024 Economic Forecast: A gradual rebound in an adverse environment’, , and OECD press release of 4 December 2024, ‘Economic Outlook: Global growth to remain resilient in 2025 and 2026 despite significant risks’, . Without a successor to the post-pandemic recovery programme, NextGenerationEU (NGEU), which currently supports both public and private investment, investment might decline after NGEU expires in 2026.

What changes as a result of Trump? Trump’s return will likely put further pressure on European budgets. It creates uncertainties around the US security guarantee for Europe, especially if NATO members fail to significantly raise defence spending. This will likely drive European defence expenditures higher. Trump may reduce or withdraw support for Ukraine, necessitating increased EU assistance. His disengagement from climate action makes it even more important for the EU to meet its own targets, which requires accelerated climate investment, and pushes the EU to strengthen its role as a provider of international climate finance. Lower US energy prices under Trump could widen the EU-US energy price gap, requiring expedited EU clean energy deployment to stay competitive while meeting sustainability goals.

The European Commission’s approach. Piotr Serafin, European Commissioner for Budget, Anti-Fraud and Public Administration, has been tasked with establishing a European Competitiveness Fund, revamping external action financing, leveraging national, private, and institutional financing, and introducing new EU budget revenues ² Mission letter from Ursula von der Leyen to Piotr Serafin, Commissioner-designate for Budget, Anti-Fraud and Public Administration, 17 September 2024, . . A national plan for each EU country is envisioned to link key reforms and EU investments. Various anti-fraud measures and administrative reforms are also planned to enhance the efficiency and integrity of EU budget management.

Assessment and updated recommendations. While the budget priorities are about right, neither the desirable size of the EU budget nor the need for dedicated emergency and defence funds have been addressed. The 2024-2029 Commission has positioned itself as an ‘investment Commission’, but it is unclear how the 5 percent of GDP investment gap identified by Draghi (2024) can be closed.

EPG provision would not require national reforms as a condition of EU-funded investment. However, given that it is unrealistic to expect all EU spending to focus solely on EPGs, such conditionality would be sensible. Additionally, performance-based budgeting should be expanded to various areas of the budget, particularly agricultural spending. This approach should improve upon the NGEU’s Recovery and Resilience Facility, which was noteworthy for its inconsistent quantitative targets across national plans and focused primarily on inputs and outputs rather than indicators of results. For example, setting numerical targets for reducing harmful emissions and enhancing biodiversity within agricultural policy could significantly enhance the public good aspects of this policy.

Buti, M., Z. Darvas and A. Steinbach (2024) ‘Memo to the commissioner responsible for the European Union budget’, in M. Demertzis, A. Sapir and J. Zettelmeyer (eds) Unite, defend, grow: Memos to the European Union leadership 2024-2029, Bruegel, available at /memo/memo-commissioner-responsible-european-union-budget

Draghi, M. (2024) The future of European competitiveness, European Commission, available at