German Chancellor Friedrich Merz has raised the stakes in the European Union's budget negotiations by linking the bloc's next seven-year financial framework to fresh support for Ukraine. In a letter to European Council President António Costa, Merz insisted that a collective commitment to close Kyiv's funding gap is an essential prerequisite for any agreement on the EU's long-term budget.
Ukraine is facing a €70 billion shortfall in its 2027 budget, a consequence of Russia's relentless airstrikes on its infrastructure and economy. The EU has pledged to cover roughly two-thirds of that gap—about €45 billion—through a yet-to-be-defined instrument. Merz argues that the negotiations on the multiannual financial framework must 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."
The reference to interest liabilities concerns the existing €90 billion support loan, which is backed by common borrowing among 24 member states. Hungary, Slovakia, and the Czech Republic secured an opt-out from that credit line in exchange for providing the necessary unanimity. The principal of that loan is not due until Russia agrees to pay war reparations, but interest payments will begin falling due next year. Brussels initially estimated those costs at €3 billion annually, but rising borrowing costs have altered the calculation.
The proposed €45 billion for 2027 would come on top of that existing loan. Given the scale of the gap, a new round of joint debt issuance has quickly emerged as the frontrunner option. The European Commission is expected to present member states with possible options ahead of a special summit at the end of the month.
Burden-sharing dispute
In his letter, Merz asks Costa to prioritise the issue at this week's informal summit in Dublin, where it was not originally on the agenda. The chancellor pointedly regrets that financial and military support for Ukraine is "distributed unevenly and carried mostly by only a few member states." He writes: "Supporting Ukraine is a matter of our indivisible European security, and so must be the burden sharing for that support."
Germany is the largest bilateral donor to Ukraine. Other key backers—Denmark, Finland, the Netherlands, and Sweden—share Merz's grievances and want to merge the budget and Ukraine into a single package. These countries belong to the so-called "frugals" or "modernisers" who advocate across-the-board cuts to the draft budget. That puts them on a collision course with the "Friends of Cohesion," who are fighting to retain high levels of expenditure.
The Czech Republic, Hungary, and Slovakia are signalling they will again exempt themselves from joint debt to support Kyiv. Bulgaria, a vocal critic of weapons deliveries, is expected to follow suit. All four sit in the cohesion camp. Their refusal to participate has angered the frugal countries. "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."
Simon Harris, Ireland's finance minister, whose country holds the rotating presidency and moderates negotiations, 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," Harris said on Monday morning before a ministerial meeting in Brussels. "We do need to frame this correctly. This is actually European security."
But not all member states share that view. Ignacy Niemczycki, Poland's deputy minister for European affairs, argued last week that the two issues are fundamentally distinct and that binding them together could "backfire" and make a final deal "even more difficult" than it already is.
The standoff comes as Europe seeks a unified voice in international talks on Ukraine, including the Abu Dhabi peace discussions. The outcome of the budget negotiations will have far-reaching implications for the bloc's ability to support Kyiv in the coming years, and for the broader question of European security.
