Fresh divisions have erupted among European Union leaders as they kick off high-stakes negotiations over the bloc’s next seven-year budget, setting the stage for weeks of tense bargaining between net-contributing frugal states, institutional leaders and pro-spending blocs. The talks, held Friday in Nicosia, Cyprus, come as EU institutions race to lock in a final agreement for the 2028-2034 budget cycle by the end of 2026, well ahead of pivotal national elections across the bloc next year. Last year, the European Commission tabled a €2 trillion ($2.3 trillion) spending plan that would cover everything from common agricultural policy subsidies to cross-border research initiatives, representing a notable increase over the bloc’s current long-term budget. That proposal has already drawn sharp pushback from the EU’s biggest net contributors, led by the so-called “frugal four” core members Germany and the Netherlands, who have drawn a clear line in the sand against the proposed spending increase. Ahead of Friday’s opening talks, German Chancellor Friedrich Merz rejected calls from France for higher collective debt to fund expanded spending, arguing that the EU must prioritize targeted spending cuts in non-critical areas to make room for new priorities rather than raising overall outlays. “We will be setting new priorities. This means that we will also have to reduce spending in the European budget in other areas,” Merz told reporters ahead of the closed-door discussions. Dutch Prime Minister Rob Jetten echoed that hardline position, saying the commission’s proposed total “needs to be significantly reduced.” For the Netherlands, one of the largest per-capita contributors to the EU budget, an unchecked increase in national contributions would be “unacceptable,” he added. Reaching a final deal will require compromise not just among member states, but also between EU national governments and the European Parliament, which must sign off on any final long-term budget agreement. EU leaders have prioritized wrapping up talks by the end of 2026 to avoid political disruption from 2027 national elections, most notably in France, where a far-right election win could complicate efforts to pass a budget deal. The commission’s proposal includes a key provision requiring the EU to begin paying off tens of billions of euros in annual debt accumulated during the COVID-19 pandemic’s economic recovery program, a requirement that many EU lawmakers oppose, with some pushing to extend the debt repayment timeline. Parliamentary leaders have also thrown their weight behind a push for new bloc-wide taxation of large global technology firms to generate fresh revenue, rather than leaning entirely on increased contributions from member states or cutting existing spending programs. European Parliament President Roberta Metsola emphasized Friday that the bloc needs new revenue streams to cover existing debt obligations, telling reporters in Nicosia: “We cannot solve all the crises and the difficulties we are facing. We need new money to service old debt, and that is something that we will ask the member states to look at.” European Commission President Ursula von der Leyen echoed that position, framing the creation of new tax-based revenue streams as “indispensable” for the bloc’s fiscal stability. “Without them, the choice is stark. It’s either higher national contributions or it’s lower spending capacity,” she told a press conference following the opening round of talks. Irish Prime Minister Micheal Martin, whose country will take over the rotating EU Council presidency from Cyprus in July, warned that negotiations would be grueling and require give-and-take from all sides. “There will have to be compromise,” Martin said. “Some think the budget is too high as it is. Others think it’s not high enough.” With the deadline for a 2026 agreement fast approaching, European Council President Antonio Costa stressed that the bloc faces a collective responsibility to strike a deal on time. “The clock is ticking,” Costa said after Friday’s opening talks concluded. “We have a collective responsibility to reach an agreement by the end of the year.”