The European Union’s financial watchdog has flagged swelling debt and a rising spending error rate in its latest report, released on Thursday.
It urged policymakers haggling over the 2028-2034 budget to avoid the weaknesses of the pandemic-era stimulus scheme that the proposed budget would largely mirror, while the European Commission argued that robust checks keep its money safe.
The European Court of Auditors (ECA), the EU’s independent external auditor, estimated that 3.8% of last year’s EU budget spending, excluding the recovery fund, breached EU or national funding rules, up from 3.6% in 2024 and well above its 2% threshold for error.
The figure does not measure fraud, though the auditors separately reported 17 suspected fraud cases to EU authorities.
While the accounts again received a clean opinion, EU budget spending received an adverse one, for a seventh consecutive year, meaning errors were material and widespread.
Error rates were highest in cohesion funding for jobs, growth and regional development, up from 5.7% to 6.6%, and in agriculture and the environment, up from 2.6% to 3.9%.
The European Commission, which oversees the EU budget, put its own cohesion estimate at 2.3%, but the auditors said its figures were “likely to be underestimated”.
The Commission said on Thursday that the error rate was “comparable” to the previous year’s and “significantly lower” than in 2023 and 2022, when the auditors placed it at 5.6% and 4.2% respectively.
Its estimates and the auditors’ “are not directly comparable due to their distinct mandates,” it added, citing €9 billion in preventive and corrective measures last year, and an estimated final error rate below 2% for cost-based programmes after corrections.
Debt heading for €1 trillion
Outstanding EU borrowing jumped by more than 20% to €738.9 billion last year and could reach €1 trillion by 2027, the auditors said, largely because of the NextGenerationEU (NGEU) recovery package.
NGEU debt must be repaid between 2028 and 2058.
For the 2028-2034 Multiannual Financial Framework (MFF), the EU’s next long-term budget, the Commission has proposed a fixed €24 billion a year to repay debt raised for NGEU grants, with interest paid first.
However, interest alone could be around €93 billion over seven years, more than half the €168 billion total.
“Expected NGEU borrowing costs for the current MFF remain double the initial estimates,” the auditors wrote, noting that “the Commission has not published an overall repayment strategy for NGEU until 2058”.
Liabilities backed by the EU budget, mostly loans including those to Ukraine, could reach up to €664 billion by 2027.
If borrowers fail to repay, the Commission can call on member states for extra cash.
Recovery fund lessons
The Commission’s almost €2 trillion proposal for the next MFF would channel much of its money through national and regional plans largely modelled on the Recovery and Resilience Facility (RRF), NGEU’s centrepiece, which pays out when governments hit agreed milestones and targets rather than reimbursing costs.
Yet nine of the 37 RRF grant payments made last year breached the stipulated rules and conditions, including requirements on milestones and targets, public procurement and state aid.
“The Commission has nevertheless made the corresponding payments,” the report said.
In its response, the Commission said that RRF spending “carries a low level of risk”, as it checks milestones before paying and “does not pay all or part of the financial contribution” if it finds they were not met.
Some governments were allowed to water down their commitments, the auditors found.
Of 32 changes examined, 29 lacked sufficient evidence, with 13 of 20 milestones and targets changed after payment was requested.
“This poses the risk that countries could receive EU money for delivering less than originally promised,” the ECA warned.
More than €122 billion, over a third of the RRF’s grants, remained unpaid going into its final year.
Only France, Austria and Croatia had received 80% or more of their grants.
“Ambitious budgets demand equally ambitious safeguards,” said ECA President Tony Murphy, urging the EU to “learn from experience” if it switches to paying for milestones rather than costs.
Pressure on national budgets
New borrowing under the Commission’s plans could also put pressure on national treasuries.
“Such planned borrowing may require member states to increase national contributions to service the debt amid already strained budgets,” Murphy wrote.
France’s 10-year borrowing costs hit their highest level since 2002 last week, while International Monetary Fund chief Kristalina Georgieva on Wednesday urged high-debt advanced economies to adopt credible deficit-cutting plans.
Germany, Austria, Denmark, Finland, the Netherlands and Sweden, all net contributors to the EU budget, want several hundred billion euros cut from the Commission’s current proposal, a call they renewed last month.
Seventeen others, including Spain and Italy, want a more ambitious budget to protect farm and regional funding.
“At a time when virtually all member states are undertaking painful fiscal consolidation, the EU budget cannot be an exception,” the six “frugal” leaders said in August, but Commission President Ursula von der Leyen pushed back on Tuesday.
Aware of “the difficult budgetary situation in Member States”, she told the European Parliament: “I would like to caution against large cuts. It would risk cutting deep into critical priorities that we all together have agreed on.”
She also called for new EU revenue sources, saying “we have to do the hard work on the revenue side”.
Most governments want a deal this year ahead of elections in 2027, including the first round of France’s presidential election on 18 April, which EU diplomats are calling a “political minefield”.
Leaders will discuss the budget’s financing at a Brussels summit on 15-16 October.
Without new revenue, the auditors warned, the EU budget could fall significantly short, forcing capitals to pay in more or scale back its ambitions.