Germany sees limited financial leeway on next EU budget, policy paper shows

By Andreas Rinke

BERLIN (Reuters) -Germany wants the European Union's next seven-year budget to keep a lid on spending, according to a policy paper seen by Reuters on Saturday, with Berlin arguing members do not have room to boost the scope of their contributions.

The German economy, Europe's largest, has contracted for the past two years and forecasts for 2025 are modest. That has dragged on growth in much of the bloc and meant the German government is entering the budget talks cautiously.

"For the foreseeable future, member states' financial leeway will remain limited. There is no basis for increasing the (EU budget's) volume relative to GNI (Gross National Income)," the policy paper from the bloc's biggest budget contributor says.

The government did not immediately reply to a request for comment.

Negotiations are just starting on the next EU budget period from 2028 to 2034, which covers a sum of about 1.2 trillion euros ($1.4 trillion). EU Commission chief Ursula von der Leyen said last month the budget must be more flexible and focused.

Budget talks are contentious within the 27-nation EU, pitting the biggest net budget contributors against poorer net beneficiaries and traditional sectors like agriculture against the need to develop cutting-edge new technologies.

The German paper said the next budget should reinforce EU security and defence powers as well as competitiveness.

"The EU and its member states must assume greater responsibility for security and defence," it said, noting that the budget must continue support for Ukraine.

The document also underlined Germany's aversion to jointly issued debt, saying repayments to the so-called Next Generation EU (NGEU) programme, a pandemic recovery scheme financed by jointly backed bonds, should begin as of 2028.

"The federal government rejects a perpetuation of this extraordinary and temporary instrument; an extension is legally excluded," it said.

($1 = 0.8657 euros)

(Reporting by Andreas RinkeWriting by Dave Graham; Editing by Toby Chopra)