Introduction
The European Commission recently kicked off the negotiation of the EU budget for the next budgetary period, called a Multiannual Financial Framework or ‘MFF’. The period is always seven years, and this one will cover 2028-34.
The budget will need to furnish to the European Union the amount of funds needed to pay off borrowings it has taken up for the ‘Next Generation EU’ programme, whose main component – the Recovery and Resilience Facility or ‘RRF’ – is dedicated to the recovery from Covid-19.1 The borrowings were created by the issuance of long-term bonds in the EU’s own name, which were taken up by international investors.
Given that €338 billion of the programme ceiling of €806 billion was available as grants, the European Union will have no amounts flowing naturally to it as the primary source from which to make its own payments on the matching debts. This portion of the debt repayments will have to be drawn from EU member states in another way.
As regards the loans portion of €385 billion, these loans were not all granted to member states. As a result there is a risk that they may not be repaid, and that a further shortfall appears.
Amounts of the facilities themselves, and of the grants and loans portions
The total ‘NextGen EU’ facility is €806 billion. Not all has yet been drawn, and indeed it may be that a portion remains undrawn.
The planned destination of the €806 billion is:
| Destination | Ceiling | Percentage |
| RRF – Grants | €338 billion | 42% |
| RRF – Loans | €385 billion | 48% |
| Non-RRF portion for ‘Reinforcing several existing EU programmes’ | €83 billion | 10% |
| €806 billion | 100% |
The usage of funds under ‘Reinforcing several existing EU programmes’ does not accord with their being loans granted to a member state or other borrower on a back-to-back basis with the EU’s own debts. Back-to-back lending of the amounts borrowed by the EU was the structure of all of the EU’s programmes prior to NextGen EU: the European Financial Stabilisation Mechanism, the Balance of Payments Facility, Euratom, and Macro Financial Assistance.2
Projected amount and source of the repayment of the EU’s NextGen EU borrowings
The EU currently expect that only €712 billion of the available €806 billion will have been utilised by the end of 2026. This entire €712 billion will have been borrowed by the EU and needs to be repaid in due course.
The end of 2026 is not the end of the NextGen EU availability period, though. €94 billion will remain available until the end of the current MFF on 31st December 2027, such that the full amount borrowed and its repayment schedule will not be known until then.3
Nor will the breakdown be known until then between the grants, loans and non-RRF portions, and consequently what amount of EU borrowing has no loan to match it.
This projection is made on the basis that €712 billion will be drawn in total and that the drawings will be in line with each portion’s share of the whole facility:
| Portion | Share | Drawing | Matching loan | No loan |
| RRF Grants | 42% | €299 billion | — | €299 billion |
| RRF Loans | 48% | €342 billion | €342 billion | — |
| Non-RRF | 10% | €71 billion | — | €71 billion |
| 100% | €712 billion | €342 billion | €370 billion |
Under this calculation the EU would have no inflow of loan repayments with which to pay off €370 billion of its own debts, or 52% of the whole.
If the €712 billion is borrowed by the EU over 15 years, then the EU’s average capital repayment will be €47.5 billion annually.
But if they only have borrowers paying back 48% of that (€22.8 billion), it leaves 52% (€24.7 billion) needing to come from the Member States.
European Commission estimates for new money from member states
The European Commission’s first bid for the 2028-34 MFF states that €25-30 billion per annum will be needed to repay the debts behind the Covid Recovery Programme during that MFF.
This is higher than the average of €24.7 billion stated above, which may be attributable to several factors working in parallel:
- The total amount drawn exceeds €712 billion
- The average financing period is lower than 15 years
- There is a bunching of maturities in the 2028-34 MFF even though the average remains at 15 years
- Grants are more heavily utilised than loans
- There is an allowance for loans not being repaid
Why the need may be greater
The borrowers under all previous EU facilities were either EU member states or recognised countries outside the EU. NextGen EU has broken with that principle as well.
The process for the granting of loans was not homogenous across all member states. In Spain it is known that loans – and grants – were distributed through the budgets of the spending ministries of the government. In that case there is a good chance of repayment, although a lower chance that funds were spent on Covid recovery rather than on the day-to-day spending priorities of the respective ministry.
It remains possible that loans were granted to entities that were not in the public sector, that were not creditworthy, and which will not be able to pay back. It is possible that loans could have been obtained through fraud, as they have been in the UK.4
This will become clear over the course of the next ten or fifteen years, although in Poland the alleged mis-use of RRF monies is already headline news.5 The impact would be to increase the shortfall at the EU between the amounts flowing to it from loan repayments and its own debt repayments.
The European Commission estimate of the EU’s need – €25-30 billion per annum – begins at the upper range of our calculation where only €712 billion is drawn. The other €5 billion per annum may indicate an awareness of the likelihood of non-repayment of loans by their respective borrowers.
European Commission’s first bid for the 2028-34 MFF
The Commission’s first bid is for a total budget 1.26% of average EU Gross National Income (or ‘GNI’) over the period, this being reported as nearly €2 trillion.6 This amount equates to 1.26% of an average annual GNI of €22.7 trillion over 7 years, or of a total GNI figure of €158.7 trillion.
It is the amount, rather than the percentage of average GNI, that has to be agreed upon. Given that EU GNI for 2023 was €16.7 trillion (US$18.2 trillion), there would need to be a significant increase in EU GNI for €2 trillion to equate to only 1.26% of it.7
€2 trillion is a major increase over the 2021-7 MFF. It includes the €25-30 billion per annum for repaying NextGen EU debt.
Member states are already liable for the NextGen EU debts thanks to the 2021-7 MFF
The 2021-7 MFF included ‘temporary, ring-fenced own resources’ of 0.6% of GNI for the ‘Repayment Costs’ of NextGen EU.8
This remains a liability of the member states until the debts of NextGen EU are fully repaid. The actual amount will have been based on GNI in around 2018 when the budget was formulated, but backing out the UK’s GNI. The ex-UK GNI amount at that point was around €16 trillion, inferring a NextGen EU liability of €672 billion.910
The €25-30 billion per annum that the European Commission claim will be needed to repay the debts behind NextGen EU during this next MFF translates into €175-210 billion over the 7-year period. If a similar amount is needed in the 2035-41 MFF, and two such final amounts in the 2042-8 MFF, then the total will be in the range €400-480 billion.
In the worst case that is more than half of the programme amount, and indicates significant loan losses on top of the lack of any flowback from the grants portion.
New ‘own resources’
In order to meet both the overall increase and the cost of repaying NextGen EU debts within that, the European Commission has specified new areas in which income will be needed.
The annual amounts need to come in as ‘EU own resources’, the current main line items within which are member state cash contributions, VAT, and sugar levies.
The European Commission has laid out sources of new money to ‘match our common ambition’ and be brought forth from member state economies, on top of everything else, such as:
- A charge on non-collected e-waste
- A lump-sum contribution from large companies
Summary and conclusions
The European Commission may find that its statement of ‘our common ambition’ is not shared by the member states when it comes to imposing more levies and costs on their businesses and individuals.
Such increases, on top of what is already being paid, are bound at least to lead to stagnation, as available funds for innovation and investment are diverted into these levies.
Indeed it may come as a surprise to member state governments, businesses, and individuals – and even to members of the European Parliament – that there will be any extra amount at all to be paid in respect of the NextGen EU debts.
It may have been assumed that the NextGen EU grants would be made towards investments that would feed the current lines of EU ‘own resources’, or at least stimulate economic growth in member states of a greater magnitude than their increased payments to the EU.
It will have been assumed that all NextGen EU loans would be repaid.
It is uncertain how EU stakeholders have perceived the non-RRF portion of NextGen EU, the piece for ‘Reinforcing several existing EU programmes’, and what anticipation they have formed over whether money will naturally flow back from this ‘reinforcement’ to repay the debts that enabled it.
This will all come as a significant shock and that there will be controversy around whether money has been well-spent, and about whether there had been proper transparency when NextGen EU was established that the obligation of member states to ensure repayment of the debt was an irrevocable and unconditional commitment, and would lead to new cash payments by member states in due course, however they were wrapped up.
The obligation to repay the NextGen EU debt cannot be negotiated away in the normal manner of the European Commission bidding high to start with and then compromising on a far lower figure.
This conversion of the EU’s shadow debts into real ones could have major political impact.
1 https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/nextgenerationeu_en accessed on 8 August 2025
2 R Lyddon, The shadow liabilities of EU Member States, and the threat they pose to global financial stability (Bruges Group, London, 2023) pp. 139-41
3 Or even later, as the trigger point for utilisation is a commitment, not the actual funds being used. A commitment late in 2027 could trigger a drawing and a back-to-back borrowing during the following MFF
4 https://www.theguardian.com/politics/2022/jan/29/how-the-uk-government-lost-49bn-to-covid-loan accessed on 8 August 2025
5 https://www.euronews.com/my-europe/2025/08/09/eu-commission-demands-answers-from-poland-following-alleged-misuse-of-recovery-funds accessed on 9 August 2025
6 https://commission.europa.eu/strategy-and-policy/eu-budget/long-term-eu-budget/eu-budget-2028-2034_en
7 https://www.macrotrends.net/global-metrics/countries/euu/european-union/gni-gross-national-income accessed on 9 August 2025
8 ‘The EU’s 2021-2027 long-term Budget and NextGenerationEU: Facts and Figures’, p.24
9 Average annual GNI of €16 trillion x 7 years x 0.6% = €672 billion
10 https://data.worldbank.org/indicator/NY.GNP.MKTP.CD?locations=EU accessed on 9 August 2025
Photo by Guillaume Périgois
