• Cyprus proposes only modest cuts to the European Commission's €1.76 trillion budget plan for 2028-34, facing opposition from Germany and other contributor countries.
• The proposal would reduce funding for competitiveness and defence while largely preserving allocations for agriculture and regional development, sparking debate over the balance of priorities in EU spending.
• The Cypriot budget proposal is expected to be a contentious issue at the upcoming EU summit, with some member states welcoming the compromise while others, including Germany and the Netherlands, criticize it as unaffordable and unbalanced.

Germany, the European Union's largest budget contributor, suffered a setback in negotiations over the bloc's next long-term budget on Thursday after Cyprus, which holds the EU's rotating presidency, proposed only modest cuts to the European Commission's spending plan.

The proposal would reduce the European Commission's €1.76 trillion ($2 trillion) budget plan for 2028-34 by around 2%, or about €32.8 billion. It would reduce funding for competitiveness and defence while largely preserving allocations for agriculture and regional development, which together account for by far the largest share of EU spending.

The plan is unlikely to satisfy Germany and other contributor countries, which have argued that EU spending should be restrained as member states face budget pressures at home. Berlin has also pushed to protect funding for defence and competitiveness.

Under the Cypriot proposal, spending on the EU single market would be cut by about €20 billion and external action funding by roughly €7.5 billion, while allocations for agriculture and regional support would remain largely unchanged.

Cyprus calls proposal balanced compromise

Cyprus's deputy minister for European Affairs, Marilena Raouna, said in Brussels that the proposal would not satisfy everyone but represented a balanced compromise. She said the presidency had consulted all member states and taken into account their positions, priorities and red lines.

German Chancellor Friedrich Merz rejected the commission's original proposal last year, arguing that such spending levels were difficult to justify at a time when governments across Europe were trying to save money.

The budget proposal is one of the most politically sensitive issues in Brussels. The seven-year spending plan is financed mainly through contributions from member states based on their gross national income, supplemented by revenue sources such as customs duties.

EU leaders are due to continue discussions on the budget at a summit in Brussels next week. The Cypriot proposal will serve as the basis for negotiations, which are expected to be lengthy and contentious.

Dutch finance minister: Plan unaffordable and unbalanced

Dutch Finance Minister Eelco Heinen called the Cypriot proposal an unacceptable basis for negotiations, saying it was unaffordable, unbalanced and focused on the wrong priorities.

The overall size remains far too high at a time when fiscal space is limited across Europe and difficult choices are unavoidable, Heinen said, arguing that the proposal funded yesterday's priorities at the expense of tomorrow's challenges.

The proposal is expected to be welcomed by many member states that receive more from the EU budget than they contribute, while drawing opposition from net contributors including Germany, the Netherlands and several northern European countries.

International Monetary Fund Managing Director Kristalina Georgieva urged EU governments to agree on an ambitious budget, saying Europe needed to direct resources towards competitiveness, economic security and energy security to remain strong.

"As a former budget commissioner, I know it is a bloody fight, but it is a fight worth going for," Georgieva said at a meeting of eurozone finance ministers in Luxembourg.