EU needs new revenue as debt piles pressure on budget

The European Union's mounting debt could strain its next seven-year budget, auditors have warned. (Reuters Pic) Brussels is grappling with the challenge of securing fresh revenue sources as borrowing could soar to €1 trillion by 2027, largely due to pandemic recovery funds. The bloc's capitals are at odds over fiscal frugality, with Germany championing austerity and France favoring higher spending.

EU leaders will deliberate the 2028-2034 budget next week, following Ireland's presidency, who will present a proposal on Saturday. The EU executive's initial budget proposal stands at around €2 trillion, with plans to generate income through new taxes and charges on industries like tobacco. The European Court of Auditors (ECA) cautioned that the EU's debt has skyrocketed, tripling to €739 billion by end-2025.

Pierre Moscovici, an ECA member, stated: "The EU's growing debt burden could weigh heavily on future budgets." The auditors forecast the EU would allocate up to €93 billion annually to interest payments, attributing the rise in borrowing to covid recovery funds. The ECA also highlighted the Commission's proposal would allow further borrowing, potentially to aid Ukraine or address major crises.

The auditors urged caution, warning of budget shortfalls without new revenue. The EU would be expected to begin repaying covid debt, but the European Parliament seeks to extend the debt. Members also desire to raise funds via taxes on digital companies and gambling. Negotiations between the EU and member states, who typically hold the final say, will occur, with leaders aiming to reach a deal by Christmas prior to significant European elections. Spain's decision to hold snap elections on November 29 complicates the situation further.