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European Commission

MEMO

Brussels, 2 October 2014

EU BUDGET 2014 and 2015: What's the issue? Why does it matter?

What is the "payments" problem?

President Barroso's letter to the Italian Presidency of the EU Council focuses on current and recurrent payments problems. The EU budget consists of commitment appropriations and payment appropriations. Broadly speaking, commitments are usually higher than payment appropriations and do not constitute "real money"; they could be compared to the amount mentioned in a contract any household or private company commits itself to pay at the completion of any given work. Payments, on the other hand, are "real money"; they are what the EU budget has to pay, again, just like any household or private company has to pay the builders once any contracted work is completed. Direct payments to European farmers and payments for EU-funded projects under Cohesion Policy make up over 80% of the total EU budget.

In recent years, the budgetary authority (Council and European Parliament) have adopted annual payment appropriations for the EU that are consistently below the European Commission's estimate of what is actually needed, despite the fact that the Commission's proposals for the EU budget are always based on estimates from Member States themselves (how many farmers will get direct payments next year, how many Cohesion Policy projects are to be completed in each country next year etc).

As a result, at the end of 2011, the Commission found itself unable to pay some €11bn worth of legitimate bills (mostly from Cohesion Policy) and postponed payment until January of the following year. However, by doing so, the 2012 EU budget, already not sufficient to cover all the estimated needs of the Union, first had to pay the €11bn from 2013 before starting to pay the 2014 bills.

At the end of 2012, the Commission had to roll over about €16bn of bills into 2013, and in 2013, €26bn was rolled over into 2014, each time further reducing what could be done with an already insufficient budget.

Why don't you simply lower commitments? That would solve the problem.

Commitment appropriations are political commitments to provide financing for key EU priorities in current and future years. The 28 Member States have agreed to invest in various policies (research, rural development, support to businesses…) that are key to economic recovery and the priority now must be to deliver on this agreement. Cutting commitments would constitute going back on what has already been agreed at a time when investment is desperately needed. The discussion should therefore focus on addressing the shortfall in payment appropriations, which are needed so that projects, selected and managed by Member States themselves, which have actually been correctly completed can be paid for.

Why is this a problem now and not two years ago?

There is only so much the European Commission can do to honour its legal commitments if it has insufficient resources. For over two years, the Commission has left no budgetary stone unturned to pay bills incurred by Member States, researchers, SMEs etc. across Europe, for example, through postponing less urgent payments, amending budgets, internal reallocation of resources and cost-cutting measures. However, this is neither sound nor sustainable. Our aim is therefore to stabilise the amount of unpaid bills at the end of 2014 and to gradually reduce that amount in future years.

How can you do that?

The first step is for the Council and the European Parliament to adopt our proposal for the 2015 EU budget as it stands, as well as a number of proposals to amend the 2014 EU budget. So far, the Council has called for a €2bn cut in our proposal for 2015 and has not adopted its position on various draft amending budgets, hence President Barroso's letter to the Italian Presidency.

The key draft amending budget (DAB3/2014) proposes a €4.7bn increase in the EU budget (but increases Member States' GNI contributions to the budget by only just over €100 million) to face payment shortages in several programmes. In his letter, President Barroso recalls that his agreement to the 2014-2020 Multiannual Financial Framework was "conditional on (the Commission) being able to exploit the flexibility in the budget so as to make full use of the agreed amounts". It is now time for Member States to deliver on what they unanimously agreed upon with the consent of the European Parliament.

Some argue that your proposal for 2015 is dangerously close to the expenditure ceilings of the 2014-2020 period, that it leaves no room for flexibility for unforeseen events.

Leaving margins between payment appropriations and payment ceilings was especially needed in the past when there were virtually no flexibility instruments in the EU budget. However, in the new financial framework, the EU budget is equipped with a range of flexibility instruments (such as the contingency margin). Therefore, there is no longer a need for large margins provided that we are able to make full use of the available flexibility. This was one of the key points in the agreement on the 2014-2020 Multiannual Financial Framework: lower ceilings than in the past but full flexibility. This was an important issue for the Commission and the European Parliament, and was a condition for their agreement. We do not need margins for 2015. We need the full available amount to stop the ever-growing snowball of unpaid bills.

This sounds like a typical internal "Brussels" issue: institutions wrangling amongst themselves on an issue that is far away from European taxpayers!

Actually, this has far-reaching consequences across Europe. As only 5-6% of the EU budget is used to cover the running costs of the EU institutions, over 90% of the EU budget goes back to European regions, private companies, researchers, students, NGOs and others. Smaller beneficiaries of EU funds invest money in projects that can span a number of years, secure in the knowledge that the EU will pay its agreed share. Voting EU budgets that are below the objective assessment of payment needs hurts those beneficiaries of EU funds. It is not fair on European beneficiaries who launch projects in good faith and who rightly expect the EU to honour its commitments. The EU will always pay its bills but late payment (which is what we are talking about) can hurt SMEs, NGOs and others: unless the key draft amending budget and our proposal for the 2015 EU budget are adopted without cuts or delays, grants to Erasmus students will be disrupted, shortages of resources in Cohesion Policy will hurt the most vulnerable beneficiaries, science and research projects are currently blocked due to lack of payment appropriations and humanitarian aid projects across Africa will continue to be delayed.

And what are the next steps?

After the European Parliament's adoption of its position on the 2015 budget, 21 days of conciliation will start between the Council, the Parliament and the Commission to reach an agreement on the 2015 EU budget and on the proposed various 2014 amending budgets.

Further information

"(not) Enough is (not) enough!": Budget Commissioner Jacek Dominik's speech on the budget's payment shortages

DG BUDG website

Letter from President Barroso to the Italian Presidency of the EU Council on the EU budget payment shortages


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