Merz Rejects EU Tax and Joint Borrowing Plans Amid Budget Debate

German Chancellor Friedrich Merz has firmly rejected two key proposals from the European Commission regarding new revenue streams for the European Union’s upcoming long-term budget. During a press conference with British Prime Minister Keir Starmer in London on March 15, 2024, Merz stated that Germany would not support an EU tax on high-turnover companies or the concept of joint borrowing to finance a proposed €400 billion crisis fund.

The European Commission presented its budget plan on March 14, suggesting that the new EU tax and joint borrowing could provide necessary funds for the EU’s central budget, projected at €1.816 trillion for the seven-year period starting in 2028. This proposal initiates a complex negotiation process involving the EU’s executive body, national governments, and the European Parliament, all of which must reach a consensus before the budget can be finalized.

Merz articulated his concerns about the legality of the proposed company tax, emphasizing, “There is no question of the European Union taxing companies, as the European Union has no legal basis for this.” He reiterated that Germany will not pursue such a financial strategy, reinforcing the country’s long-standing stance against EU-wide taxation.

Additionally, Merz expressed his worries about the increasing reliance on joint debt among EU member states. He described this reliance as “permissible as an exception” but cautioned that it is becoming “the new normal.” Germany has historically resisted collective borrowing, primarily due to concerns that it would obligate Berlin to cover debts incurred by higher-spending nations. While Germany conceded to temporary joint borrowing during the Covid-19 pandemic for economic recovery, the Chancellor’s latest remarks indicate a return to a more stringent fiscal posture.

“The European Union must basically make do with the money it has available,” Merz stated, predicting that the next two years will see significant contention over the budget negotiations. The proposed budget represents a substantial increase in the EU’s spending capabilities compared to the current budget, which has been in effect since 2021.

To address the funding needs, the Commission also introduced plans for three new taxes targeting electronic waste, tobacco products, and high-turnover companies. These measures are expected to generate between €25 billion and €30 billion annually to help repay post-Covid debts.

Despite his firm stance on taxation, Merz acknowledged a positive aspect of the Commission’s proposal. He commended Ursula von der Leyen, the President of the European Commission, for attempting to rebalance expenditure proportions, particularly in light of increased defense spending.

As negotiations unfold, the differing approaches to funding and fiscal responsibility among EU member states will likely shape the trajectory of the upcoming budget discussions. With Germany’s influential role in the EU, Merz’s objections could significantly impact the final decisions regarding the EU’s financial future.