Country Risk

Post-Brexit EU budget talks risk deepening existing fault lines despite early agreement on boosting security and defence expenditure

01 March 2018
French President Emmanuel Macron (left), German Chancellor Angela Merkel (centre), and Italian Prime Minister Paolo Gentiloni (right) at an EU summit in Brussels, 23 February 2018. Source: John Thys/AFP/Getty Images

Key Points

  • At a summit in Brussels on 22/23 February, EU leaders endorsed an increase in financial support to enhance the EU’s internal and external defence and security capabilities.
  • Likely post-Brexit cuts to the EU’s Common Agricultural Policy spending and to regional and cohesion funds heighten the risk of political, electoral, investor, and trade union pushback within EU member states.
  • In addition, fault lines between EU member states willing to increase national-level EU budget contributions and those opposing such moves are likely to deepen.
  • Further complications are likely at a later stage, with the European institutions and EU member states looking unlikely to conclude multi-annual financial framework (MFF) talks before the EU enters its new institutional cycle in mid-2019.


Brexit will trigger major structural reforms at the EU level affecting public expenditure across the bloc during the next MFF starting in 2021.

On 22 and 23 February 2018, EU leaders launched preparatory talks at a summit in Brussels about the bloc’s post-Brexit public finance plan. Along with wider structural reforms and a review of public spending at the EU level, the latter has to reflect the revenue implications of Brexit and a resultant loss of roughly EUR10 billion (USD12 billion) per year of funding coming from the United Kingdom. The main focus here relates to the EU’s next MFF, which will be launched in January 2021; this will organise EU expenditure until December 2027. At present, it is likely that an envisaged post-Brexit transition period will have ended by the start of the next MFF, but it remains unclear whether the UK will commit to selective payments into EU funds after its current budgetary commitments and long-term legal obligations are settled. This depends heavily on the final deal on future UK-EU relations.

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