The EU’s budget watchdog has warned that the EU’s overall debt level could reach €1 trillion by 2027 as the bloc continues to raise loans under the post-Covid recovery plan and secures long-term support for Ukraine in the wake of Russia’s full-scale invasion.
Setting out its annual report for spending in 2025, the European Court of Auditors (ECA) also said the new structure of the next seven-year budget could give rise to more errors and a greater administrative burden for member states.
It states that if the EU does not find new revenue streams to meet the budget’s spending commitments, then any further borrowing would add to the EU’s overall debt level.
The court said that while it gave a “clean” opinion of the reliability of the EU’s accounts for 2025, the error rate had risen to 3.8% compared to 3.6% for 2024.
Errors are defined as monies that should not have been paid out of the EU budget because they were not used in line with EU rules or how member states and the European Parliament had intended the money to be spent.
The warnings come as negotiations over the next seven year budget intensify, with net contributor member states who want a smaller budget – with a greater emphasis on competitiveness and defence – at odds with those countries clamouring to preserve agriculture and cohesion spending.
The Irish Presidency of the EU will on Saturday publish a compromise draft for the €1.9 trillion budget covering the period 2028-2034.
A keenly watched aspect of the draft will be the degree to which the Government has been able to forge consensus on what new revenue streams will be both politically acceptable to member states and will raise a sufficient amount of cash.
New revenue streams are required to collectively raise €60 billion a year. Proposals include higher revenues from the EU’s carbon market, a tax on carbon-intensive imports, higher tobacco duties, tax on non-recycled e-waste and a corporate levy.
The new architecture of the next EU budget – known as the Multiannual Financial Framework (MFF) – has already been accepted by member states.
Rather than fixed envelopes going directly from Brussels to farming, rural development, research, Erasmus programmes and so on, EU funds will go to member state finance ministries, which will have much more discretion over how those funds are spent.
The ECA has warned that this could give rise to capacity problems for national administrations, where annual turf wars between government departments over who gets a slice of the funds – commonplace during national budgets – could add to the burden.
“Ambitious budgets demand equally ambitious safeguards”, said ECA President Tony Murphy.
“If the EU moves to a new budget model where financing is no longer linked to costs, we must learn from experience and address what has not worked before, so that EU funds deliver the intended outcomes for citizens.”
He added: “The issue is mixing everything up in one pot. You have agriculture, you have cohesion, you have an element of defence – you’ll have all these different policy areas with different timescales, different objectives, different delivery mechanisms. The potential risk is that it will be more complex for member states.”
The annual report says that Ireland continues to be a net contributor to the EU, putting in approximately €3.4bn in 2025 and receiving €2.3bn, meaning a net contribution of €1.1bn.
Of the €2.3bn received, the majority went via Common Agriculture Payments (CAP) to Irish farming and rural development, with just under €1.18bn going in direct payments to farmers.
Under the next seven-year budget, CAP funding will be administered through the new National Regional Partnership Programmes (NRPPs) – at the heart of the new architecture – with a percentage of CAP money being ring-fenced.
However, the ringfenced amount will be conditional on payments being targeted towards farmers “who need it most”, and changes to the CAP’s green architecture, according to a Department of Agriculture briefing note.
Under the current budget cycle (2021-2027) the State has received €10.7bn in CAP funding
However, according to the most recent draft of the budget, Ireland will only receive €8.16bn in ringfenced funds for CAP over the seven year period – a reduction of 24%.
The briefing note states that the Government is “analysing” the draft proposal “including exploring the possibility to top up CAP interventions from the wider NRPP allocation, and from other potential flexibilities in CAP financing such as the early release of mid-term review resources and the so-called ‘10% rural target’ announced in January.”
The note concedes that the proposals amount to “a reshuffling of funds that were not immediately accessible under the original budgetary plan, and do not represent additional funding.”
The Court of Auditors report revealed that the EU’s debt “increased significantly” in 2025 to €738.9bn compared to €601.3bn in 2024.
The debt mostly relates to borrowing the EU undertook to reboot Europe’s economy following the Covid pandemic.
The so-called Recovery and Resilience Facility (RRF) amounted to €360bn in grants and €213bn in loans, disbursed to member states according to how badly they were affected by the pandemic and on the condition that they met pre-agreed reforms along digital and green transformation lines.
The European Public Prosecutor’s Office (EPPO) is currently investigating 512 potential cases of fraud in the spending of RRF funds, according to its latest report.
According to the Court of Auditors report, RRF funds have differed significantly from traditional budget spending since payments are not linked to actual costs, and compliance with EU and national rules is not a condition for payment.
For that reason, the court warns that the error level in the operation of the RRF could be replicated in the new budget system.
“EU countries were sometimes allowed to make their recovery-plan commitments easier or narrower without providing convincing reasons and evidence,” said the court.
“In some cases, the changes were made only after a country had asked the Commission for payment. This poses the risk that countries could receive EU money for delivering less than originally promised,”
Ireland received €1.15bn in RRF funding and has submitted its final payment request worth €225 million.
The European Commission estimates that repaying the interest and principle on the EU’s debt pile will cost some €24bn per year over the next MFF. The European Parliament has argued that the debt repayments should be kept off the books, and is looking for a 10% increase in the overall budget.
Other borrowings have been targeted to support Ukraine, including the Ukraine Facility which in 2025 had mobilised €31.3bn, including €23.2bn provided in loans backed by unspent funds in the EU budget.
