EU Budget and Cohesion Funds
How the EU raises and spends its money, why budget negotiations are among the most contentious in European politics, and how cohesion funds reshape economies.
How the EU Budget Works
The EU budget is modest by national standards, roughly 1% of the bloc's combined GDP, or about 170 billion euros per year. By comparison, national government spending in most European countries is 40-55% of GDP. The budget is funded through customs duties, a share of VAT revenue, and direct contributions from member states based on their gross national income.
The Multiannual Financial Framework (MFF) sets spending ceilings for seven-year periods. Negotiations over the MFF are among the most bruising in EU politics, with net contributor states (Germany, France, the Netherlands) pushing to limit spending and net recipient states (Poland, Hungary, Romania) fighting to maximize funds. The 2020 MFF negotiations, combined with the COVID-19 recovery fund, produced a historic agreement on joint EU borrowing worth 750 billion euros, breaking a longstanding taboo against common debt.