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MEMO/04/30

Brussels, 10 February 2004

Frequently asked questions: budget and financial perspectives

    The EU budget

Where does the money come from?

Since the reform of the budget in 1970, the European Community has its own resources to finance its expenditure. There are four different types of resources to which the European Community is entitled without any further decisions by the national authorities. In 2004, 73.4% of the revenue of the EU budget will come from the GNI based resources, 1.3% from agricultural duties, 10.4% from customs duties, 14,1% from the VAT based resources.

The own resources system is laid down by Council decision, the last one dating from 29 September 2000:

http://ec.europa.eu/budget/pdf/financing/decisionrp_09_2000/jol253en.pdf

It is decided by unanimity and must be ratified by the national parliaments before it enters into force. For further information on the own resources system :

http://ec.europa.eu/budget/financing/index_en.htm

    Where does the money go?

Nearly 80% of the 2004 budget goes to agricultural aid granted under the EAGGF Guarantee Section (European Agricultural Guidance and Guarantee Fund) and to structural operations (structural and cohesion expenditure); these two items account for 44% and 34% respectively of the budget. Other areas of expenditure are external action at 6.9%, internal policies at 7% and administrative expenditure at 6%.

    Who decides the annual budget?

The Council and the European Parliament are the budget authority for the EU budget. The Commission makes a proposal, Council and EP each have two readings of the budget. Council has the last word on some type of expenditure, mainly agricultural expenditure, the EP on all the other expenditure. The budgetary procedure starts in May with the Commission proposal and normally ends in December with the adoption of the budget by the EP.

    What is meant by "net contributions"?

"Net contributions" is neither a technical nor a legal term. Since the European Community is endowed with own resources, there are not strictly speaking any contributions by the Member States. But in practice, the amount of funds coming from a Member State can be calculated and compared with the funds received by that Member State under various Community programmes.

This information is published annually in the report on annual expenditure broken down by Member State of the EU:

http://ec.europa.eu/budget/agenda2000/reports_en.htm

However, this is a purely technical exercise which cannot take into account the other advantages of belonging to the European Community, such as economic integration or geopolitical stability.

    Who spends the money?

The Commission is responsible for implementing the budget, complying with the Financial Regulation and subject to the control of the Court of Auditors and the European Parliament. Article 274 of the Treaty provides that "The Commission shall implement the budget, …on its own responsibility and within the limits of the appropriations, having regard to the principles of sound financial management".

While direct management is the rule, in practice, however, the Commission relies heavily on the Member States for the management of certain policies, especially on agricultural and structural expenditure. Subsequently, the Commission in partnership with the Member States checks that the projects are properly carried out and the money is well spent.

    What is the ceiling for the EU budget?

The ceiling of the own resources, the maximum that member states will contribute to the EU Budget, is at 1.24% of EU Gross National income. It is fixed in the Own Resources Decision which can only be changed by unanimity and needs ratification by the national parliaments. The overall ceiling in the financial perspectives might stay below this absolute ceiling, to leave some room for unforeseen expenditure. The level of the annual budget usually stays below both these ceilings.

    What is an appropriation for commitment?

Appropriations for commitment are the amounts authorised for programmes or projects that can be entered into in a given year. They create a commitment of the EU towards a beneficiary.

    What is an appropriation for payment?

Appropriations for payment are actual money, cash, to be financed from the member states and that can be spent in a given year. Appropriations for commitment and for payments differ, because multi-annual programs and projects are usually committed in the year they are decided and are gradually being paid over the years as the implementation of the programme and project is progressing. As a general rule, appropriations for payments are lower than appropriations for commitments, because the EU budget is growing and some projects do not materialise.

    The financial perspectives

What is the financial perspective?

The financial perspective is a multi-annual financial planning framework which sets limits on European Union expenditure. It is compulsory in the sense that the financial perspective ceilings must be respected in the annual budgetary procedure. It is agreed by the European Parliament, the Council and the Commission and lays down, subject to the ceilings on own resources assigned to the EU, maximum amounts by major heading of expenditure within which the annual budget must be established over the period in question.

It translates into financial terms the priorities set for the Union's policies and is at the same time an instrument of budgetary discipline and planning, and determines the limits on the financing of the EU budget.

    What is the purpose of the financial perspective?

The main purpose is budgetary discipline, i.e. to ensure that the evolution of budgetary expenditure is controlled. Other purposes: predictability of European expenditure on the mid-term; better cooperation between the institutions during the annual budgetary procedure.

The political and institutional balance in the Community's financial set-up had been gradually deteriorating during the 1980s. This period was marked by ever increasing strains which made it more and more difficult for the annual budgetary procedure to function properly and left resources less and less consistent with the Community's needs. This succession of budgetary rows prompted the Community institutions to agree on a method to improve the operation of the budgetary procedure while at the same time guaranteeing that budgetary discipline would be maintained.

    What is the procedure for adoption?

The current FP table is an integral part of an Interinstitutional Agreement1 between the Commission, the EP and the Council, the FP sets out the maximum amount and the make-up of the Community's planned expenditure.

The European Council (heads of State and government of the EU member states) decides at unanimity on the figures, on the basis of a Commission proposal. The European Parliament must give its consent. The European Parliament gives its consent when it approves a text at the majority of its component Members (315 votes is the minimum).

    The timetable for the adoption

Commission communication is a first step 10 February 2004.

Reaction from Council (expected on June European Council) and Parliament (after enlargement, new Eur.Parliament). Commission will make a formal proposal before the summer break. We hope for decision of European Council in first semester 2005

    Reasons for the chosen timing?

Last time with agenda 2000 adoption in spring 1999 for entry into force 1.1.2000 proved too late: programming of the Structural Funds was not ready and first years experienced important delays.

We cannot exclude that the adoption of the FP within the EU with 25 Member States be more complicated than with 15 Member States.

    Is it possible to change the financial perspectives after their adoption, for instance if amounts prove insufficient?

The yearly technical adjustment takes into account GNI and inflation developments. A so-called revision is possible, under strict conditions, on proposal by the Commission to be approved by Council and Parliament. However this happens very rarely.

    What is the legal framework of the FP?

The financial perspective figures are established by an Interinstitutional agreement, i.e. a common decision taken by the Commission, the Council and the Parliament. They are not mentioned in current treaties.

    What did the Convention propose regarding the financial perspectives?

The Convention on the future of Europe proposed, in its draft Constitution, that the financial perspective be integrated in the future Constitution, under the new name of 'multiannual financial framework'. This is a recognition that the financial perspective has been efficient and that it should have a permanent basis. The draft constitution provides for the existence of the financial perspective in the form of a European law of the Council, to last for a minimum of five years. The draft also provides that the first FP after adoption of the Treaty will be decided by the Council acting unanimously.

    Duration of the next Financial perspectives?

The next financial perspective will start in January 2007. The duration on the past has been for either 5 or seven years. The Commission proposes to move towards a duration of 5 years for better alignment with the duration of the mandates of the Commission and the European parliament, even if this needs another period of 7 years for the next financial perspectives in order to get into this rhythm.

    When was the first financial perspective established?

In 1988, for a duration of 5 years.

The last three FPs served to support the Single Act (1988-92 "Delors I Package"), the implementation of the Maastricht Treaty (1993-99 "Delors II") and enlargement of the EU (2000-06 "Agenda 2000"). The period covered by each of these "packages" varied between five years (Delors I) and seven years (Delors II and Agenda 2000). The current financial perspective runs until 2006.

    The Agenda 2000 Package

In July 1997, the Commission presented a communication 'Agenda 2000: for a stronger and wider Union' addressing the reform of the common agricultural policy, the future of the economic and social cohesion policy, the establishment of a pre-accession strategy, the consequences of future enlargement and the financing of the Community.

In March 1998, along with draft legislative proposals on the reform of the common agricultural policy, new guidelines for structural operations and pre-accession aid, the Commission proposed a new FP table for the period 2000-06 and a report on implementation and renewal of the Interinstitutional Agreement of 29 October 1993. In October 1998. the Commission added to the Agenda 2000 documents a report on the operation of the own resources system.

The main components of the Agenda 2000 package were agreed at the Berlin European Council on 24 and 25 March 1999. After a final round of negotiations, the European Parliament adopted the new Interinstitutional Agreement on 6 May 1999, containing the financial perspective 2000-06.

Financial framework of the European Union:

http://ec.europa.eu/budget/financialfrwk/index_en.htm#why

    Where can I find the interinstitutional agreement currently into force?

The current FP 2000-2006 was established in the IIA of 6 May 1999 and published in the Official Journal of the European communities (OJ n° C172 of 18.6.1999). It is available on DG Budget's website:

http://ec.europa.eu/budget/pdf/financialfrwk/aii1999/aiien.pdf

    What is a heading?

A heading is a component of the financial perspective,: In the FP the major categories of Community expenditure are broken down in headings, for example the current Heading 1 contains the agricultural expenditure, Heading 2 structural expenditure etc. Each of these headings carries a maximum amount in commitment appropriations for each year. Its purpose is to identify one core objective of the European Union action for the period concerned. Since 1988, budgets have accordingly been systematically arranged by FP heading so that it is easier to see how much resources have been allocated to achieve specific objectives.

The Commission proposes a new heading structure for the period after 2006. The classification of Community expenditure by the new FP heading is based on a policy approach. The distribution of total expenditure between the various headings must therefore reflect the major political priorities set for the period.

    What is a ceiling?

A ceiling is the maximum amount entered under a specific heading for a given year and on the total.

The FP differs from indicative financial programming in that the ceilings are binding on the parties to the Interinstitutional Agreement. But it cannot be regarded as a multiannual budget as the annual budgetary procedure is still essential to determine the actual level of expenditure beneath the ceilings and in particular to allocate amounts between the various budget lines.

The "financial perspective table" also shows the total amount of payment appropriations as an absolute amount in EUR millions and as a percentage of the Community's gross national income (GNI) based on a forecast of GNI growth. This creates a link with the own resources ceiling, which too is set as a percentage of Community GNI by the own resources decision. This own resources ceiling is currently fixed at 1.24% of EU GNI.

    Is all the money allowed by the financial perspective spent?

    Historical data show that actual annual budget have always stayed well below the ceiling.

      Appropriations for commitments available in the past

'

1988

Delors I

1994

Delors II

1995

(EU 15)

2000

Agenda 2000

2001200220032004 (EU 25)
Financial

Perspectives

%

45 30373 48680 94393 79297 189100 672102 145115 434
% of GNP (GNI as from 2002)1,12%1,27%1,26%1,13%1,13%1,13%1,10%1.08%
Budget adopted in Mio €45 30371 78979 84393 32397 00099 43599 686111 300

1  The Inter-institutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure OJ C 172, 18.6.1999.

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