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European Commission

MEMO

Brussels, 11 June 2013

Making sense of the MFF/ budget 2014/ amending budgets 2013 maze

The negotiations on the 2014-2020 Multiannual Financial Framework (MFF) are in full swing. As a rule, MFF negotiations are immensely complex as they encompass everything the EU will do over seven years. However, this time round the Rubik's cube has morphed into some sort of Rubik's dodecahedron as the MFF negotiations are linked to the adoption of a number of amending budgets for 2013 and the adoption of the 2014 EU budget. This leads to an avalanche of figures competing with each other to confuse journalists.

Here's our attempt to make it simple(-ish) to you.

What is the current state of play in the MFF negotiations?

The Commission put its proposal on the table in June 2011. The Member States issued their position on it at the European Summit of February 2013. The European Parliament adopted its position in a resolution in March 2013. On 6 May, the Presidents of the European Parliament and the Commission and the Irish Prime Minister met to discuss the MFF negotiations. They agreed that the negotiations should focus on 4 points:

- Flexibility of the EU budget;

- A revision clause of the MFF deal, half-way through;

- Future own resources of the EU budget;

- Unity of the EU budget.

Currently, negotiations are taking place (trilogues) between the Council and the Parliament with the Commission in the role of broker. All parties have stated that they want a deal by the end of June.

In a nutshell: Everybody hears the clock ticking. Intense negotiations proceed in good spirit

 

What do you mean by "flexibility of the EU budget"?

This is a condition both the European Parliament and the Commission insist on: with reduced expenditure ceilings for the 2014-2020 period, it is vital to make the most of every cent in the EU budget. A more flexible budget would allow unused margins (difference between the expenditure ceilings and the money actually spent) as well as unused funds to be transferred onto the following year or into different areas of the budget. This would not increase the adopted overall ceilings of course.

In a nutshell: If you cut future EU budget, at least allow it to use unspent funds in one area to feed underfed other areas or use them in the following years…

 

What do you mean by "a revision clause"?

Half way through the next MFF the Council, Parliament and Commission should check whether, based on objective criteria, the political priorities and figures allocated to expenditure ceilings should be revised… or not! The concept is agreed by all, what is being negotiated is the scope of it and practical details. So far, it seems that any revision would not affect national envelopes and any change to the MFF will have to be agreed by unanimity in the Council.

In a nutshell: How can you, in 2013, forecast with accuracy what Europe's political priorities and GNI will be in, say, 2017? Seven years is a long time, it is worth pausing half way and check whether we are still using the right parameters.

 

What do you mean by "future own resources of the EU budget"?

Though the Lisbon Treaty states that the EU budget will be wholly funded by own resources, today some 90% of the budget comes from the Member States. This was never meant to be and is the result of other resources having shrunk over the last decades (e.g. share of customs duties). The Council, the Parliament and the Commission currently discuss whether the EU would need new resources in future in order to decrease Member States' national contributions to it. In 2011, the Commission suggested the financial transaction tax become such a new resource.

In a nutshell: As the Member States are concerned that they pay too much into the EU budget, let's explore possible alternatives, the aim not being to increase the budget.

 

What do you mean by "unity of the EU budget"?

Usually, the EU budget is presented as a table showing all the headings in both commitment and payment appropriations. However, the EU budget acts as "collateral" in a number of financial instruments (European Stability Mechanism, loan guarantees to small and medium enterprises, trust funds in development aid…). The European Parliament insists on including information on borrowing and lending operations carried out by the Union as well as revenue, expenditure, assets and liabilities of the European Development Fund, European Stability Mechanism and other possible future mechanisms.

In a nutshell: Negotiators discuss ways to present everything that is linked to expenses and revenues of the EU in one single document.

 

Why are the 2014-2020 MFF negotiations linked to proposals to amend the 2013 budget?

2013 being the last year of the current financial period (2007 - 2013), financial obligations not met through the 2013 budget will increase the payment needs in 2014 and thus the next financial framework.

In particular, two proposals to amend the 2013 budget have an impact on the negotiations: draft amending budget 1 (Croatia), and draft amending budget 2 (unpaid claims from 2012).

Let's take them each separately (see below).

 

Draft amending budget 1: Croatia

As from 1 July, Croatia will be a member of the EU. Croatian regions, farmers, SMEs', etc. will therefore have access to EU funds in the second half of 2013. However, when the 2013 EU budget was adopted, Croatia was not a member of the EU. Therefore, the Commission has issued a proposal (draft amending budget) to adapt the voted 2013 budget to Croatia's accession. The Inter-Institutional Agreement between the Commission, the Council and the European Parliament (IIA) on budgetary discipline and sound financial management states that (art.29) when a new member state joins the EU, the Parliament and the Council "will jointly adjust the financial framework to take account of the expenditure requirements resulting from the outcome of the accession negotiations."

The current debate within the Council is whether the payment ceilings should be adjusted to include the extra needs stemming from Croatia accession or not. If the payment ceilings are not revised, this leaves a smaller margin for following draft amending budgets, including draft amending budget 2, explained in the next box.

In a nutshell: Croatian regions, farmers and others will be entitled to benefits from EU funds as from 1 July 2013. The 2013 EU budget must reflect those new expenses.

 

Draft amending budget 2: €11.2 billion of claims that should have been paid in 2012…

This is the big one, because without this money the EU budget will not be able to pay for many of its previous commitments. The Commission proposed an €11.2 billion top-up to cover unpaid bills from 2012, (reimbursing beneficiaries of EU funded programmes completed across Europe in 2012 as well Cohesion Policy claims for 2013). Not one euro from this amending budget will go for administration.

One could see it come from afar: when adopting the 2013 EU budget last November, the Council and the Parliament issued a joint statement acknowledging that the level of payments could be insufficient to cover all the needs. They asked the Commission to issue such an amending budget when the need would arise. Settling this amending budget is one of the European Parliament's conditions to complete the MFF negotiation in order to avoid the next financial period to start dragging unpaid claims from the past. The Council reached a political agreement to provide €7.3 billion as a first step and to discuss the remaining amount (€3.9 billion) later this year.

In a nutshell: Should unsettled and legitimate claims from the past be settled before the end of the current financial framework…?

 

Why does it seem so important to complete the MFF negotiations as soon as possible?

Most of the current EU programmes have an expiry date: 31 December 2013. Therefore, from 1 January 2014 all those programmes will simply stop. Funding will grind to a halt. Considering that after an overall agreement on the MFF is reached, all the sectorial negotiations must be completed (cohesion, energy, climate, research, support to SMEs', students programmes, etc.), and that could take months, the fear is that only with a deal by end of June would we be in time to offer financial support to businesses, researches, regions, students, NGOs' by 1 January 2014. They need the EU budget's support, Europe needs it.

Last time around (negotiations 2007-2013), programmes started late despite the fact that the negotiations were completed in April, we are already in June and no agreement.

In a nutshell: We need a swift agreement to finalise all legal bases, so the beneficiaries of EU funds can start using them from 1 January 2014.

 

What is the link between the MFF negotiations and the 2014 EU budget?

The Multiannual Financial Framework sets expenditure ceilings per year and per EU policy. Pending an MFF agreement, the Commission must work on a proposal for the 2014 budget without known ceilings, not the easiest of tasks.

Traditionally, the draft annual budget is released in April. The fact that it has not been presented yet (mid-June) illustrates the technical and political difficulties of working on it in the absence of an agreed financial framework.

Note: The Lisbon Treaty specifies that the draft annual budget must be presented by 1 July of the previous year at the latest.

In a nutshell: Producing a draft annual budget without an agreed financial framework is similar to steering ship in a rough direction without any chart…

 

What will happen if there is no MFF deal?

This is uncharted territory. The Lisbon Treaty (art. 270a) states that when there is no MFF "the ceilings and other provisions corresponding to the last year of that framework shall be extended". Concretely speaking funding could only be done on a yearly basis. Furthermore, most sectorial legal bases expire by the end of 2013. Their prolongation would raise complex questions, such as the reference for establishing eligibility of regions under cohesion policy. This would create legal and financial uncertainty for most spending programmes in the EU.

In a nutshell: If you need EU funding for a project that runs over several years, would you launch your project with yearly funding only, recruit staff, sign long term contracts without guarantee that you will benefit from EU funding till the end of the project?


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