Germany and Spain are at odds over the future of the EU budget, with significant implications for tax policies and international business.
Germany, under Chancellor Friedrich Merz, is advocating for maintaining the current spending ceiling at 1% of the EU's GDP and opposes further joint European debt issuance, including an extension of the Next Generation funds.
In contrast, Spain, under Pedro Sánchez, is pushing for a larger EU budget, potentially doubling its current size, and supports new joint debt issuance to finance investments, including defense spending.
Germany's stance includes prioritizing defense within the existing budget, focusing on reorganizing priorities rather than increasing overall resources.
Spain, however, advocates for investments in security and defense, financed through joint debt, to ensure European security and industrial leadership.
Both countries agree on maintaining the Common Agricultural Policy and regional aid programs, while Germany suggests linking structural funds to reforms, similar to the Next Generation funds.
The European Commission is expected to present its proposal for the new multi-annual EU budget on July 17th, initiating negotiations that will require unanimous agreement from all 27 member states.
The Commissioner for Budget, Piotr Serafin, anticipates limited scope for budget increases, indicating Germany's position may prevail.
The EU will also need to begin repaying the joint debt issued to finance the Next Generation funds, estimated at €25 billion annually, starting in 2028, a timeline that Germany supports but Spain seeks to postpone.
The European Commission has proposed new EU-level taxes to fund the budget, but governments are hesitant to cede more powers to Brussels in this area.