BRUSSELS — For years, Germany and its austerity-loving allies were Europe’s fiscal buzzkills.
Their motto was simple: No joint debt, no budgetary free-for-alls and absolutely no blank checks for Brussels.
Together, this coalition of rich northern nations — Austria, Denmark, Sweden, Finland and the Netherlands — held the European Union’s purse strings tight, outmaneuvering Southern Europe in marathon budget battles.
But cracks are forming in the north’s united front. War at Europe’s borders, economic shifts, and a United States president eyeing a retreat from NATO have forced a rethink — and the frugal alliance is wobbling just as the EU prepares for its next big budget showdown.
In the past, these frugal countries developed a “closely knit, well-prepared strategy to stop ideas that had to do with more spending,” an EU government official with experience overseeing several budget talks told POLITICO.
But the upcoming negotiations on the 2028-2034 budget promise to be “completely different,” according to the official, who like others quoted in this story was granted anonymity as they are not allowed to speak on the record.
“A group of Nordic and Baltic countries [is] developing a different vision focused on the security issue that distinguishes them from the other frugals like Holland and Austria,” Eulalia Rubio, an analyst from the Jacques Delors Institute think tank, told POLITICO.
Sovereignty has become the new rallying cry, and even staunch fiscal hawks like Denmark or Finland are warming to the idea of loosening the purse strings to bolster the EU’s collective defense and resilience against external threats.
Why Denmark flipped
A pivotal sign of this shift came during Danish Prime Minister Mette Frederiksen’s New Year’s speech, when she stunned EU budget veterans by advocating more defense spending, state aid and investment in Europe’s sovereignty.
For a country long skeptical of deeper EU integration, Frederiksen’s words marked a seismic shift.
Squeezed between Russia’s grinding offensive in Ukraine and a U.S. president who wants to snatch Greenland from her country, Frederiksen went big on French-style ideas of EU sovereignty that Copenhagen had until recently viewed as anathema.
“[We are] looking at state aid with new eyes, looking at common debt with new eyes, and looking at the EU budget with new eyes. It’s a new time,” Frederiksen said during a separate interview in December.
Analysts hailed her remarks as a landmark in Denmark’s relationship with the EU and a potential wedge within the Nordic-German alliance.
“[Frederiksen] has personally shifted her position 180 degrees” said Jacob Funk Kirkegaard, an analyst at Bruegel think tank.
In his view, this will allow the prime minister to “maximize the influence of Denmark” during the budget negotiations, as she can act as a bridge-builder between different groups of countries.
This is no small development. Frederiksen is one of the EU’s most stable and experienced leaders, and her country will hold the rotating presidency of the Council of the EU later this year — giving Copenhagen significant influence over the bloc’s agenda.
The defense dilemma
However, not everyone is convinced the frugals are on the verge of a full breakup. “There’s a lot of smoke and mirrors,” cautioned one EU diplomat. “It’s hard to make out what the actual positions are.”
What is certain is that Russia’s invasion of Ukraine has forced a reckoning among the EU’s northern members, particularly on defense spending.
Countries like Finland and Estonia, which are geographically closer to the conflict, now back joint EU debt to fund arms purchases — a notion that was unthinkable for the frugals in the past.
Yet other members of the alliance haven’t changed their minds. Germany and the Netherlands remain staunchly opposed to EU joint debt for defense, underscoring the deepening division within the coalition.
Austria is also likely to harden its resistance toward EU debt if the far-right firebrand Herbert Kickl, who is cozy with Russia, becomes the new chancellor.
Nevertheless, the alliance isn’t entirely dead.
The frugals maintain common ground when it comes to linking EU regional funding — mostly directed toward lower-income areas in Southern and Eastern Europe — to structural reforms aimed at making their economies more competitive
The “old frugal group came back together” to oppose spending increases during negotiations in November on the EU’s annual budget, according to the EU diplomat.
The Jacques Delors Institute’s Rubio predicted the group would likely return in upcoming budget talks too: “I don’t think that the coalitions of frugals versus net beneficiaries [those receiving more money from the EU than what they pay in] will disappear.”
But, she added, there “will be an additional pressure group made up of Poland and Eastern European countries asking for more focus on security issues.”
Even so, many believe the real test of the fate of the frugals will come if the German election delivers a majority for Friedrich Merz’s center-right Christian Democratic Union.
A CDU-led government would likely resist big EU spending projects, whether on defense or green investments.
But if the bloc’s biggest country changes its mind and becomes more spendy, its recalcitrant allies are likely to follow suit.
“We’re still waiting for the big guy,” the EU government official said, referring to Berlin.
“They’re the gravitational point on the MFF [Multiannual Financial Framework, the EU’s budget], everyone is following the position of Germany.”
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