The EU is considering a nearly 2 trillion "super budget" to welcome a huge wave of investment from agriculture to military industries to semiconductor equipment.

The European Union has proposed a historic budget of nearly 2 trillion euros (approximately 2.3 trillion US dollars) for its next seven-year budget cycle to address a series of challenges ranging from intensified global economic competition to increased European defense and military needs. According to sources familiar with the matter, this large-scale plan is set to take effect in 2028. After intense negotiations from late Tuesday night to early Wednesday morning local time, the parties involved have reached a preliminary agreement. The European stock markets, which have significantly outperformed US stocks so far this year, and even the global stock markets, are expected to benefit from the unprecedented EU budget boosting bullish momentum. The proposed budget of approximately 1.98 trillion euros is significantly higher than the 1.2 trillion euros allocated in the previous 2021-2027 budget cycle (equivalent to 1% of the EU's economic output). This enormous budget is expected to face opposition from some EU member states that are already facing increasing financial pressures, and they will bear a large portion of the budget funds through national contributions. As revealed by sources, the draft includes a "Competitiveness, Prosperity, and Security Fund" of around 589.6 billion euros, with 450.5 billion euros designated for the European Competitiveness Development Fund. Agriculture has always been one of the cornerstones of the EU budget. Sources say that the draft budget for the next seven years proposes an allocation of 293.7 billion euros for the EU's Common Agricultural Policy (CAP). The framework proposed on Wednesday signifies the beginning of a lengthy fiscal process for the EU, where important opinions will be expressed by the European Parliament and the European Council representing member states. EU leaders will need to agree unanimously. The formal budget (involving multi-year financial frameworks) must be finalized by the end of 2027. EU Commissioner Michael Magrath said in a media interview on Wednesday that the budget was formulated in a "challenging environment," including the need to begin repaying the EU debts incurred during the Covid-19 pandemic starting in 2028, with debt repayments potentially reaching up to 25 billion euros annually. "There will be two years of tough negotiations ahead," he said. "But today is an important day." The EU budget has always been a subject of controversy because the EU needs to balance competing demands from member states, including funding for agriculture and poorer regions. This proposal will determine the spending priorities of the EU for the period 2028-2034, which is particularly sensitive as the EU aims to enhance its defense capabilities and competitiveness to counter economic threats from the United States and the increasingly fierce competition with Asian economies in the manufacturing sector. A report released last year by former European Central Bank President Mario Draghi warned that the EU faces an investment gap of up to 800 billion euros annually. According to NATO statements, it is expected that by 2035, overall military spending as a share of the European economy (GDP) will increase from the current 2% to 5%. This also means that the historic level of defense and military spending in Europe of hundreds of billions of euros annually from 2025 onwards is expected to support the European economy as a whole, preventing Europe from falling into deep economic recession. The current long-term budget supports approximately 50 EU funding projects covering a wide range from research to energy. The budget is mainly provided by contributions from member countries, with economically stronger countries generally being net contributors. Could the "European heart stimulant" bolster global stock markets? With a nearly 2 trillion euros multi-year financial framework proposal that far exceeds the previous cycle, the EU is preparing to significantly expand public investments: nearly 450.5 billion euros will directly target competitive areas (expected to be closely related to cutting-edge technologies such as artificial intelligence, nuclear fusion, and quantum computing), about 293.7 billion euros will continue to flow into agriculture, and the budget for national security is also significantly increased. If approved, this "financial wave" could be a liquidity stimulant for European stock markets and even global stock markets. For the European defense, military, and aerospace sectors, this is undoubtedly a major long-term bullish catalyst, and the manufacturing sectors such as semiconductor equipment/digital applications, green energy equipment, large-scale power facilities, construction and engineering machinery, and agricultural inputs/machinery are also expected to see significant inflows of funds. With fiscal and military defense spending in various European countries driving economic growth and corporate profit prospects towards being more favorable to Europe than the United States market, the defense and military spending of NATO European member countries is expected to increase by over 200 billion euros annually over the next five years after the US government announced it will no longer provide large-scale support for NATO. The prolonged conflict between Russia and Ukraine has highlighted the insufficient protection of critical defense systems in many European countries, and the rise of drone-led combat operations has made the ability to cause damage deep in enemy territory increasingly important. This has led to an increased focus by EU member countries on the new era "unmanned warfare system" centered around drone systems, satellite communications, anti-listening and interference networks, and automated driving systems. European semiconductor equipment manufacturers such as ASML, ASM International, and BE Semiconductor, hold significant influence in the global chip industry chain. With the EU pushing forward policies to achieve "large-scale chip manufacturing," these semiconductor equipment giants are likely to enjoy larger subsidies and other financial incentives, increase production capacity, and help EU leaders achieve the Europeanization of chip manufacturing. Therefore, semiconductor equipment may be the biggest beneficiary of the nearly 2 trillion euro budget framework after defense and agriculture. Moreover, with the increasing demand for AI chips in Europe and globally, Taiwan Semiconductor and Samsung Electronics, who have been fully loaded with 5nm and below high-end processes, will have to accelerate the construction of chip factories in Germany, the US, and Japan to increase AI chip production capacity. This means that they will have to invest heavily in purchasing core semiconductor equipment like ASM International's atomic layer deposition equipment, ASML's EUV lithography machines, and chip yield monitoring machines, etching machines, as well as BE Semiconductor's "hybrid bonding" advanced packaging high-end semiconductor equipment.