Merz Holds EU Budget Hostage, Calls It 'Burden Sharing'

Friedrich Merz has put a price on his signature. In a letter to European Council President António Costa, the German chancellor says Germany won't back the EU's next seven-year budget unless every member state commits to financing Ukraine's €70 billion ($78.4 billion) funding gap next year. "A collective commitment that all of us, without exception, will contribute fairly to closing [Ukraine's financing] gap is an essential prerequisite for resolving this issue and for discussing any further matters, particularly those with financial implications," Merz wrote. The letter was seen by Bloomberg and Euronews, and reported by the Financial Times. The FT, as relayed by RBC-Ukraine, called it an ultimatum. Meduza reported that Merz pledged to block the 2028-2034 budget outright.

The Chequebook as Weapon

The mechanism is not subtle. Germany is the largest net contributor to the EU budget. Hungary, Slovakia, Bulgaria and the Czech Republic are net beneficiaries, taking out more than they put in, and all four have signalled they won't pay for further financial assistance to Kyiv. Ukrainska Pravda says it plainly: Merz is using that financial leverage to secure funding for Kyiv in 2027 and over the long term. Money flows from the rich capital to the poorer ones, and the strings come attached.

Merz wants the budget deal to guarantee "a solution supported by all member states that ensures a sound and multiannual financing perspective for Ukraine from 2028 onwards, including the interest liabilities that have already accrued." Those liabilities come from the €90 billion support loan, backed by common borrowing among 24 countries. Hungary, Slovakia and the Czech Republic got an opt-out in exchange for providing the unanimity needed to pass it. The principal won't be repaid until Russia agrees to war reparations. Interest, though, starts falling due next year. Brussels first pencilled in €3 billion a year; a steep rise in borrowing costs has wrecked the sum.

Frugals, Cohesion and the Money Tree

Denmark, Finland, the Netherlands and Sweden share Merz's grievances and want the budget and Ukraine merged into one package. These "frugals" or "modernisers" push for across-the-board cuts to the draft budget, which puts them on a collision course with the "Friends of Cohesion," who want spending kept high. "The cohesion camp cannot have their cake and eat it," one diplomat said. "There is no money tree in Brussels, so we need to make political choices."

Ireland's finance minister Simon Harris, whose country holds the rotating presidency and moderates the talks, sided with the frugals. "It's very hard to have a serious conversation about the European budget for the next several years without Ukraine and the financing of Ukraine," he said before a ministerial meeting in Brussels. "We do need to frame this correctly. This is actually European security."

The phrase does a lot of work. Merz called Ukraine support "a matter of our indivisible European security, and so must be the burden sharing for that support." Security is the word that closes the argument before it starts.

Not Everyone Is Buying It

Poland's deputy minister for European affairs, Ignacy Niemczycki, argued last week that the two issues are fundamentally distinct and that binding them could "backfire" and make a final deal "even more difficult." Slovak Prime Minister Robert Fico warned the link would be "very dangerous." The Czech Republic, Hungary and Slovakia are expected to exempt themselves from joint debt again, with Bulgaria, described as a vocal critic of weapons deliveries, likely to follow.

The Commission is considering more joint debt and is due to present options before a special summit at the end of the month. The EU has promised to cover roughly €45 billion of the €70 billion gap, two-thirds, through an instrument nobody has defined yet. Euronews attributes the shortfall to Russia's airstrikes. At the 15-16 October summit, leaders told the Commission to come up with proposals. Brussels hopes to settle by year's end.

The Electoral Circus Keeps Turning

Merz wants the matter treated as a "priority" at this week's informal summit of EU leaders in Dublin, on Thursday and Friday. It wasn't on the agenda. He insists the shortfall must be dealt with there.

Elections loom, and nobody in this fight is calm about them. Meduza notes France, Italy and Poland vote next year, and French presidential candidate Marine Le Pen, who leads in the polls, has pledged to end financial support for Ukraine if elected. So the budget haggling runs on two clocks: the one in Brussels, and the one in the voting booths of capitals that may soon change their minds.

For the people who actually live under the airstrikes, none of this is a negotiation. It's a spreadsheet fight between finance ministries, conducted in the language of burden sharing, with the deadline set by whoever holds the biggest chequebook.