A new multi-year budget of nearly €2 trillion ($2.3 trillion) for the period 2028-2034 is proposed by European Union, in an effort to address growing global challenges, from intensifying economic competition to increased defence needs.

According to Bloomberg, the draft for the new budget, which will take effect in 2028, was agreed after intensive negotiations that lasted late Tuesday night and continued into Wednesday morning.

The €1.98 trillion figure represents a significant increase compared to the previous budget of €1.2 trillion for the period 2021 to 2027 – the equivalent of 1% of EU GDP.

The proposal is expected to provoke opposition from member states that are already facing budgetary difficulties and will shoulder most of the funding through their national contributions.

According to the same sources cited by the agency, the draft includes a new Competitiveness, Prosperity and Security fund worth €589.6 billion, of which €450.5 billion is earmarked to boost the EU’s competitiveness.

Agriculture, traditionally a key pillar of the EU budget, retains its important role, with the draft providing €293.7 billion for the EU’s Common Agricultural Policy.

Wednesday’s proposal marks the start of a long and difficult process in which the European Parliament and the European Council – representing member states – will have to agree on the plan.

And it requires unanimous approval from the leaders of member states, with a final deadline of the end of 2027.

Talking to Bloomberg Radio on Wednesday morning, European Commissioner Michael McGrath said the new budget is being drawn up “under difficult circumstances,” including the need to start repaying debt from the pandemic period in 2028, a process that could cost up to 25 billion euros a year.

“We have two years of tough negotiations ahead of us,” he said. “Nevertheless, today is an important day.”

Budget disputes in the EU have always been political and geo-economic in nature, with demands ranging from funding for agriculture to helping poorer regions.

This year’s proposal, which will set the union’s spending from 2028 to 2034, is particularly sensitive as the EU seeks to strengthen its defence capabilities and improve its competitiveness against external pressures from the US and China’s growing economic penetration.

A report prepared by former ECB president Mario Draghi last year warned that the EU faces an investment gap of €800 billion a year.

The current seven-year budget funds around 50 EU funds, covering areas such as research, energy and regional development. The bulk of it is funded by contributions from member states, with the richer economies “bearing” most of the burden.