The following is an adapted version of an article written by former Minister for Regional Development and Public Administration and researcher at the Europe Strategy Research Institute Tibor Navracsics, originally published in Hungarian on the Five Minutes Europe blog of Ludovika.hu.
Although European integration is often described as a history of crises, recent years have undoubtedly been among the most severe periods in its seven-decade history. The competitiveness crisis, which has become increasingly apparent since the 1980s, is now vital to European integration as international political tensions intensify.
At the highest level of European domestic politics, the problem came into full focus during Hungary’s second EU presidency, when the Budapest Declaration, adopted on 8 November 2024, set out a roadmap for the other EU institutions on how to restore the European Union’s position as it increasingly falls behind the United States and China in global competition.
The Draghi Report—prepared at the European Commission’s request during the European Council’s discussion and adoption of the Budapest Declaration and published in the autumn of 2024—served as the primary motivation. The document highlights the EU’s structural weaknesses with brutal precision.
According to the report’s main warning, the EU’s economic performance and productivity are falling dramatically behind its competitors: the GDP gap between the US and the EU has now reached 12 per cent, while European growth is barely exceeding 1 per cent this year. To maintain its position, the report says Europe would need 750–800 billion euros in new investment annually. This amount exceeds even the scale of the Marshall Plan and corresponds to 4.4–4.7 per cent of total EU GDP.
‘The Draghi Report…highlights the EU’s structural weaknesses with brutal precision’
The primary reasons for this lag are the innovation deficit and exorbitant energy costs. European industrial players currently pay gas prices three to five times higher and electricity prices two to three times higher than their American or Chinese competitors. It is no coincidence that, to survive, policymakers are being forced to back down: the Commission recently proposed a targeted postponement of climate protection and methane emission rules, while member states are increasingly calling for the deregulation of the Green Deal to save the industrial base.
Against this tense backdrop, high-level negotiations have begun on the European Union’s next multiannual financial framework (MFF) for 2028–2034. The stakes are enormous, as the framework now taking shape will allocate resources to strategic priorities. The Commission’s proposal envisages a total budget of nearly 2,000 billion euros, amounting to 1.26 per cent of the EU’s gross national income (GNI).
Although the figure appears to represent a massive increase on paper, after mandatory inflation adjustments and the approximately 149 billion euro debt repayment obligation arising from the NextGenerationEU fund, the increase is negligible in real terms—amounting to just 0.02 percentage points of GNI.
Internal debates are further intensified because the Commission would radically restructure the budget: it would consolidate expenditures into just four major headings instead of the current seven, and retain only 16 core programmes instead of the previous 52. A new €130 billion European Competitiveness Fund (ECF) would be established, while the budget for the Horizon Europe research and development programme would be increased to €175 billion.
The biggest point of contention revolves around the Cohesion Funds and the Common Agricultural Policy (CAP). The Commission would merge these into a single ‘giga-fund’ of 865 billion euros and tie payments to rigid, milestone-based national reform plans. Under this approach, net contributor countries would see increased efficiency, while Central and Eastern European member states—including Hungary—fear that defence and technology projects will siphon off their catch-up. The Commission would cover the funding through five new own-source revenues (eg, revenues from the emissions trading system and the carbon border adjustment mechanism), which would generate 58.2 billion euros annually.
The most pressing question regarding the future of the European Union is also coming to the fore with increasing intensity in the debate over the multiannual financial framework for the period 2028–2034: Will the European Union be able to put together its own unified competitiveness programme, and can it secure the framework and financial resources to do so? The answer will fundamentally determine the future of European integration—whether it will involve closer cooperation or looser, national-strategy-based collaboration.
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