Back in 2020, when the European Union (EU) agreed to the Recovery and Resilience Facility (RRF) to confront the fallout of COVID-19, some hailed it as Europe’s “Hamiltonian moment.” The phrase evoked the United States (US) Treasury Secretary Alexander Hamilton, who in the early days of the American Republic pushed for the federal assumption of state debts and a stronger central fiscal capacity.
The comparison was premature. The EU took a bold step with joint borrowing, but the moment stopped short of the deep fiscal transformation Hamilton’s name implies. The RRF was an exceptional measure for extraordinary times rather than a permanent reimagining of the EU’s financial architecture.
Now, as the EU embarks on negotiations for its new Multiannual Financial Framework (MFF), the conditions may finally be ripe for a Hamiltonian moment. The reason is simple: to face the EU’s array of challenges, it must find new ways to finance its policies. As Mario Draghi again reminded us in Rimini a few days ago, it is urgent to increase investment to support the reforms projected in his report and those of Enrico Letta and Sauli Niinistö.
Every new MFF cycle is an important moment for the Union. It is when Europe decides how to pay for its ambitions and where to set its priorities for the next seven years. The process has been in place since the first “Delors Package” of 1988, which established a structured, multi-annual budgetary framework.
It is the European Commission’s responsibility to propose a comprehensive package well ahead of the new cycle. This is an important step because it provides the basis for the negotiations to come. The latest proposal for the period 2028-2034, presented on 16 July 2025, is a vast undertaking and amounts to around €2 trillion over seven years (equivalent to 1.26% of Gross National Income (GNI), roughly 20% more than the present period). This is only the start of a long negotiation. The reactions we see now are mere positioning; the real bargaining still lies ahead and will take time.
The MFF is a package with three key components based on distinct legal procedures:
- The “own resources” decision (i.e. how the EU gets its money): the decision here belongs to the Member States acting unanimously, and the result must be ratified in all EU countries.
- The MFF regulation (i.e. the spending ceilings by category): this is a regulation requiring unanimity in the Council and the approval of the European Parliament.
- The legal bases for specific spending programmes (i.e. how funds are allocated and governed): these are mostly legislative texts governed by co-decision (the ordinary legislative procedure).
In 2020, during the COVID-19 crisis, the EU created an exceptional ‘Next Generation EU’ funding layer, which added around 70% to the annual budget between 2021 and 2024. Though it was born out of crisis, chances are high that this instrument will need to be used again. Even if the Commission-proposed increase is accepted, the EU budget compared to Gross Domestic Product (GDP) remains too low to respond to all of the EU’s needs.
The MFF process is complicated, politically charged, and often fraught with tension. Yet history shows that the EU ultimately delivers.
The first concern relates to the resources side. Today, the EU’s “own resources” amount to €240 billion annually coming from customs duties, a share of national value-added tax receipts, a levy on non-recycled plastic waste, and GNI-based contributions from Member States. The latter is currently the most important revenue source; but it is also the resource that least corresponds to the original idea of EU “own resources”, since it amounts to national contributions based on economic size.
In its July proposal, the Commission plans to add around €45 billion a year in new “own resources”, coming from additional revenues from emissions quota auctions, the carbon border adjustment mechanism, levies on electronic waste, higher excise duties on tobacco, and a contribution from large enterprises.[1] The Commission however refrained from proposing other potentially lucrative resources, such as a tax on financial transactions, digital services, exceedingly high incomes, or air travel. Nor did it push hard for new large-scale borrowing instruments. This decision reveals the file’s political realities and sensitivity, but, as the global scene continues to shift, these ideas may – and in my view should – surface in the course of the negotiations.
On the expenditure side, the proposal is radical, not so much in terms of the overall spending figures, but in terms of structure. The Commission wants to do away with the present patchwork of fifty programmes and ten pre-allocated funds. In its place, it proposes three broad strands:
- A decentralised programme for each Member State covering the Common Agricultural Policy (CAP) and structural funds.
- A new Competitiveness Fund, aimed at innovation, industrial policy, and technological leadership.
- External assistance, aligned with the EU’s geopolitical and development strategy.
This shift has triggered strong criticism from the traditional beneficiaries of CAP and convergence funds. These areas still represent two thirds of the EU budget, even though their share has decreased over the last exercises. These policies pursue key objectives of the treaties and will therefore remain important. But as the world is changing, the EU must do more to redirect resources toward future-oriented sectors, from clean tech to digital infrastructure and the defence sector. There needs to be a break from the entrenched pattern of treating the EU budget as an agricultural subsidy machine and a cohesion fund. The new structure is a clever way of creating more room for manoeuvre and flexibility to do just that.
The MFF negotiations do not only pit sectoral interests against each other. They also oppose the ‘net beneficiaries’ to the ‘net payers’ (sometimes called the ‘frugal states’). It is encouraging to see that the positions of the countries traditionally resisting higher EU spending are shifting. Germany effectively left the ‘frugal’ camp in 2020. Under Chancellor Merz, this shift is likely to deepen. Likewise, Austria’s Finance Minister has recently said the EU needs more money, and that net balance calculations are no longer adequate. The Danish Prime Minister has made similar remarks. Even the Netherlands, a long-standing standard-bearer of frugality, is showing signs of change. A recent Advisory Report commissioned by the Dutch parliament calls for a stronger EU budget. Sweden will likely follow the emerging consensus, while Finland has never been a hardliner on the issue. And, as usual, the European Parliament will push for higher spending and more ambitious resource mechanisms.
This will be a tough negotiation. The MFF is about money, and money is power. Every percentage point in a budget line reflects political leverage. Member States will haggle, as they always do. But the overall mood is changing. The Commission’s framing sets a tone that could lead to a decisive break from the past. As we said above, it could in fact have been more ambitious in view of the magnitude of the challenges facing us. It is not absurd to venture that, if the global situation deteriorates further, the negotiations on the MFF may, for the first time in EU history, not be about whittling the Commission proposal down, but about expanding it.
A bigger budget is only part of the answer. It must go together with a conscious effort at improving governance. This means better regulation, more transparency in spending, more efficient allocation of resources and sound monitoring of effectiveness (are we achieving our goals?), efficiency (are we doing so at a reasonable cost and respecting the rules?), and rule of law conditionality.
The background to this budget debate is a sobering economic picture. As Daniel Gros has pointed out in his recent essay “Maintaining the European Way of Life versus Maintaining Europe’s Role in the Global Economy,” Europe’s slow growth has not yet eroded its high living standards. In fact, median living standards in Europe remain enviable compared with the US, where headline GDP growth has not translated into broad-based gains for the majority of the population. Gros does not agree with Draghi that Europe’s key problem is competitiveness, but he sees three key structural issues that need addressing. The first is the innovation gap: the EU is spending less money than its big competitors on research and development and more on traditional industries like the automobile sector, while the US focuses on software and advanced digital technologies. The second relates to the weakness of nominal growth: as Gros points out, “size matters for political and strategic clout. Neither Vladimir Putin nor Xi Jinping cares about European quality-of-life statistics; they look at the size and growth rate of economies.” Lastly, the EU experiences a slowdown in productivity per worker and per hour, which is worrisome. This is why targeted investment matters. Europe needs to direct more resources toward future-oriented industries – such as artificial intelligence, green tech, and advanced manufacturing – and build the institutional capacity to support them. The European Innovation Council is a step in the right direction, but its budget should be scaled up.
The MFF negotiations will require vision and political courage, under the leadership of the European Council. The EU must break with entrenched patterns of spending, expand the resource base beyond national contributions, create replicas of the 2020 RRF, and ensure that new funds are invested in Europe’s future competitiveness. In short, the moment has come for the EU to become more ‘Hamiltonian’.
[1] The Corporate Resource for Europe (CORE) will be an annual lump-sum contribution by large companies with an annual net turnover above €100 million.
