Merz ties EU budget approval to Ukraine funding deal

European financial negotiations have entered a new phase of tension as Berlin links its support for the long-term budget to immediate aid for Kyiv. German Chancellor Friedrich Merz has made Germany's approval of the 2028-2034 EU budget conditional on a unified commitment from all member states to fund Ukraine in 2027 and beyond.

In a letter to European Council President António Costa, Merz stated that a collective contribution to closing Ukraine's financing gap is a prerequisite for discussing other matters with financial implications. He argued that financial support from all EU member states is essential to successfully complete the current budget negotiations. This move uses Germany's position as the largest net contributor to the bloc's budget as leverage in the talks.

The deadline for this agreement is the EU leaders' meeting scheduled for Thursday and Friday in Dublin. Merz insists that the funding shortfall must be addressed during this summit. The discussions are running in parallel with fraught negotiations on the 2028 budget, creating a complex web of financial obligations that Brussels must untangle before the year ends.

Ukraine faces a specific deficit of 70 billion euros for next year, a figure that follows the 90 billion euro loan agreed upon by EU leaders last December. Kyiv stated that the scale of Russian aggression necessitates this additional funding. The European Commission is currently evaluating options to cover two-thirds of this amount, which equates to approximately 45 billion euros, potentially through the issuance of additional joint debt obligations.

Four countries have signaled resistance to further contributions: Hungary, Slovakia, Bulgaria, and Czechia. These nations are net beneficiaries of the EU budget rather than net contributors like Germany. Last year, Hungary, Slovakia, and Czechia secured an exemption from paying interest on the previous 90 billion euro loan. Merz's letter emphasizes the need for a solution supported by all member states that ensures a sound financing perspective for Ukraine from 2028 onwards, including interest payments on outstanding debt.

The path to consensus is complicated by upcoming elections in Italy and Poland. These political shifts could make it harder to reach an agreement on Ukraine funding. The European Council instructed the Commission in October to prepare proposals for covering the 2027 shortfall, setting the stage for the final push to close the budget gap.