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Brussels, 17 May 2006
Q&A on Interinstitutional Agreement on Budgetary Discipline and Sound Financial Management 2007-2013
1. What is the Interinstitutional Agreement? How does it relate to the Financial Framework?
The Interinstitutional Agreement (IIA) between the European Parliament, the Council and the Commission formalises the multi-annual Financial Framework for the period 2007-13 and the rules for its management in relation to the annual budgetary procedure as foreseen in the EU treaty. The framework serves financial stability and budgetary discipline by setting binding annual spending ceilings for the main categories of EU expenditure (headings). This also ensures predictability and the orderly development of expenditure, as well as efficient implementation of multi-annual programmes and projects.
The Financial Framework itself is not foreseen by the EU treaty – that is why it has to be adopted by means of an agreement (i.e. it is ‘soft law’) between the three EU institutions involved in the budgetary cycle, i.e. the Commission and two arms of the budgetary authority: the European Parliament and the Council.
2. What is the total expenditure under the agreement for the years 2007-2013?
The Financial Framework 2007-2013 sets the global level of commitment appropriations at € 864.3 billion (at 2004 prices), equal to 1.05 % of EU gross national income (GNI).
For a detailed breakdown by year and heading see the table in Annex 1.
The Interinstitutional Agreement also provides for additional funding under certain emergency and flexibility instruments (see question 10 below).
3. What is the new structure of expenditure headings?
To ensure better management of the EU budget, the structure of expenditure headings and the underlying programmes was thoroughly overhauled. The new headings comprise:
4. What are the biggest changes in expenditure ceilings compared to the current agreement?
Changes in the expenditure structure largely reflect the original Commission proposal, with a reorientation of expenditure in favour, in particular, of policies aimed at growth and employment, compared to the 2000-2006 period. The changes 2006/2013 by heading are as follows:
5. How was the agreement negotiated?
The European Commission submitted its broad orientations in February 2004, followed by three ‘batches’ of specific proposals on EU spending and financing in July and September 2004, and April 2005. On a comparable basis with the final outcome, the Commission proposed a total ceiling of € 992.7 billion, equivalent to 1.20% of the EU’s Gross National Income (GNI). The European Parliament’s proposal in June 2005 set the expenditure at € 973.3 billion, i.e. 1.18% of GNI.
After the inconclusive summit in June 2005 the European Council (heads of state and government) in December 2005 reached a political agreement among Member States on the Financial Framework 2007-2013, with an expenditure ceiling reduced to €860.8 billion (1.045% of GNI)[*)]. On the basis of the political deal reached by the European Council, in early 2006 the Commission proposed a revised draft Interinstitutional Agreement (and a proposal for a modified Own Resources Decision).
On the 4th of April 2006, agreement was reached by representatives of the European Parliament, the Council and the Commission, increasing the total ceiling to € 864.3 billion (1.05% of GNI). On the 15th of May the Council approved the IIA and on the 17th of May, the signature of the Interinstitutional Agreement took place in Strasbourg.
6. What is the additional money compared to the December 2005 deal agreed by Member States?
The ceiling of € 864.3 billion in the final compromise entails a supplementary € 4 billion compared to the European Council agreement of December 2005, of which € 2 billion appear explicitly in the expenditure ceilings, while the remaining € 2 billion (corresponding to the Emergency Aid reserve plus € 500 million for administrative expenditure) remain outside the expenditure ceilings.
In order to develop new financial instruments aiming at increasing the leverage effect of the EU budget to support Lisbon-related objectives in the field of research, trans-European networks and SMEs, there is also a commitment by the European Investment Bank (EIB) to co-finance provisions for those instruments up to € 2.5 billion from its own funds.
7. Why isn’t the European Development Fund (EDF) included under the headings of the Financial Framework?
The EDF is not funded from the European budget, but through separate contributions by the Member States. In its original 2004 proposal, the Commission proposed the ‘budgetisation’ of the EDF and therefore included it in the financial framework. This proposal was not accepted by the Member States, which means that the EDF will continue to be financed outside the EU budget. For the 10th EDF, covering the period 2008-2013, Member States have agreed on a global amount of € 22.7 (in current prices) for the period 2008-2013, as the financial provisions of the current EDF expire at the end of 2007.
8. Will the ceilings increase with future enlargements of the EU?
The financial framework covers expenditure related to a Union of 27 members, as Bulgaria and Romania are expected to join in 2007. Other enlargements will have to be reflected by adjusting the Financial Framework as foreseen in the IIA (point 29). Revision of the framework will require unanimity in Council.
9. Expenditure is expressed in 2004 prices. What is it in current prices? Is the total ceiling actually higher then?
The initial proposal by the Commission was tabled in February 2004; hence all the figures given are in 2004 prices. To avoid further confusion in an already complex negotiation, the basis has not been changed.
The annual budgets are established in current prices. Therefore, the Commission will make technical adjustments to the Financial Framework ceilings each year, by using a deflator of 2% a year.
The cumulated global expenditure ceiling for commitment appropriations of € 864 billion expressed in 2004 prices is equal to € 975 billion when expressed in current prices. The figure is therefore higher, although in reality it is the same amount taking into account inflation.
10. Is it possible to increase the ceilings?
The Financial Framework may be revised in the event of unforeseen circumstances on the proposal by the Commission, in compliance with the ceilings defined in the own resources decision setting the potential maximum level of financing of the EU budget (the corresponding ceilings are 1.24% of GNI for payments and 1.31% in commitments). Any revision of the framework will require unanimity in Council.
11. What is the role of the flexibility mechanisms and funds?
A number of instruments are available outside expenditure ceilings agreed in the financial framework to face unforeseen events. They include:
In addition, it will be possible to mobilise the European Globalisation Adjustment Fund (maximum € 500 million/year) by using unused appropriations from the previous year.
12. What is the link between the agreement and new programmes to start in 2007?
The agreement provides the general framework within which the spending programmes are to be financed. The 40-odd outstanding pieces of legislation proposed by the Commission required for the authorisation of spending for expiring and/or new programmes have to be amended and completed to make them consistent with the agreed financial framework. They are the legal bases which allow the implementation of the appropriations authorised in the programmes in the annual budgets.
13. In what way does the agreement improve sound financial management of EU funds?
In general terms, by establishing the Financial Framework, the agreement ensures the smooth running of multi-annual programmes, and reduces the risk of a political and financial deadlock of the EU when the annual budgets are decided.
In terms of better accountability of the use of EU money, the agreement includes a clause on internal control by Member States related to the structural funds, which they manage jointly with the Commission. As part of their enhanced responsibilities for structural funds, the relevant audit authorities in Member States will produce an assessment concerning the compliance of management and control systems with the regulations of the Community. The objective of this new provision is to facilitate a positive Statement of Assurance from the European Court of Auditors.
14. Does the agreement resolve all the challenges resulting from the December 2005 deal?
The agreement is the result of a compromise between meeting EU obligations and challenges on the one hand, and limited resources on the other. However, it represents a significant shift towards funding policies for growth and employment, which are the Union’s priorities, and ensures the smooth functioning of multi-annual programmes in the enlarged EU.
As requested by the European Council, the Commission will undertake a thorough review both on policy priorities and financing of the budget, and present a White Paper in 2008/9, in view of sustaining and enhancing the modernisation of the EU budget, to better adopt it to the new challenges facing the EU.
15. When will the next financial framework be presented?
It will be presented by the (new) Commission before 1 July 2011.
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[*)] For the purpose of having a comparable basis, the expenditure levels quoted exclude the European Development Fund, the EU Solidarity Fund and the Emergency Aid Reserve.