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Decision-making procedures


The Union's finances and budgetary procedure


Introduction
Budgetary and financial principles
The Union's resources
The multi-annual financial framework
Budgetary procedure
Implementation of the budget and discharge
Summary table

INTRODUCTION

The Constitution simplifies the budgetary procedure, which is a remarkable feat. It is then subject to a type of codecision procedure (ordinary legislative procedure), with a single reading plus conciliation. Furthermore, the difference between compulsory and non-compulsory expenditure and the annual setting of a maximum rate of increase for non-compulsory expenditure has been dispensed with. The multi-annual financial framework has been made part of the Constitution and the rules on own resources remain essentially unchanged.

Two sections of the Constitution deal with the Union's finances and budgetary procedures:

Apart from the Constitution's provisions in this area, there are three texts which are still important with respect to the Union's finances and the budgetary procedure: the financial regulation of 2002 ; the institutional agreement on budgetary discipline and improvement of the budgetary procedure of 1999; and the decision on the own resources system of 2000 .

The Constitution has incorporated some provisions from these texts such as the "financial perspectives" which are now called "the multi-annual financial framework" which was previously in the 1999 interinstitutional agreement.

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BUDGETARY AND FINANCIAL PRINCIPLES

The budgetary and financial principles are intended to ensure that the budget is prepared and implemented properly. The Constitution upholds the current principles and stipulates that all the Union's revenues and expenditure must be forecast for each budgetary year (annuality), must be entered into the budget (unity) and must be balanced (equilibrium). A legally binding instrument must be adopted prior to any expenditure being implemented. In order to ensure budgetary discipline, the funding of expenditure must be covered by own resources and must comply with the multi-annual financial framework. The principle of sound financial management is highlighted, as is the need to combat fraud in this area.

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THE UNION'S OWN RESOURCES

The Constitution states that the Union's budget is funded totally by own resources , notwithstanding other revenue (Article I-54). The own resources system is governed by a European law enacted by the Council by a unanimous decision after consultation of the European Parliament, which, as is the case at present, must be ratified by all the Member States. Qualified majority voting applies solely to the adoption of laws establishing the implementing measures for the system, as long as the law adopted previously makes explicit provision for this. This option constitutes the only difference from the current budgetary provisions (Article 269 of the EC Treaty) as far as own resources are concerned.

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THE MULTI-ANNUAL FINANCIAL FRAMEWORK

For the first time, the system of " financial perspectives " has been incorporated in primary legislation. This was established by the "Delors package" in 1988 and incorporated in the 1993 institutional agreement and the 1999 inter-institutional agreement and has now finally been enshrined in the Constitution, with Article I-55 defining and laying down the arrangements for applying the multi-annual framework. It stipulates that the Council shall decide by a unanimous vote after approval by the European Parliament. However, there is a "bridging" clause which gives the European Council the option of deciding unanimously to change over to majority voting without any transitional period.

This multi-annual financial framework, as it is called in the Constitution, is intended to ensure that expenditure develops in an orderly fashion, always remaining within the limits of the Union's own resources. It therefore places a ceiling on annual expenditure in the Union's major spheres of activity for a period of at least five years. The annual budget must remain within these limits.

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THE BUDGETARY PROCEDURE

The Union's annual budget covers the period between 1 January and 31 December. The Constitution establishes a budgetary procedure which is akin to the ordinary legislative procedure (current co-decision procedure) with a single reading plus conciliation, with very strict deadlines and an obligation upon the Commission to present a new proposal in the event of any disagreement between the Council and the Parliament.

The Constitutional Treaty has simplified the previous arrangements, as the Commission will now present a draft budget and not an initial draft. Moreover, the Constitution does away with the current distinction between compulsory expenditure and non-compulsory expenditure. This has two consequences: the Parliament's influence now extends to the whole of the budget but it loses its right to the "final say" which, in the previous budgetary procedure , enabled it to impose its will on the Council with regard to non-compulsory expenditure. The Convention had actually made provision for the European Parliament to have the last word on all expenditure, only for the Intergovernmental Conference to drop this provision almost entirely. In fact, this remains the case only when the Council rejects the budget after the Conciliation Committee set up by the Constitution has agreed on it.

The "provisional twelfths system", in cases where the Council and the Parliament do not come to an agreement on the budget by the deadline, is upheld by the Constitution.

A brief explanation of the new budgetary procedure is given below:

Before 1 July* Each institution prepares a provisional statement of its expenditure so that the Commission can combine them in a draft budget incorporating revenue and expenditure.
By 1 September at the latest The Commission presents the draft budget to the European Parliament and the Council, now in the form of a proposal. It may amend it up to the convening of the Conciliation Committee.
By 1 October at the latest The Council adopts its position and forwards it to the European Parliament.
Within 42 days of forwarding Within this period, there are three possible scenarios. The Parliament may:
1) approve the Council's position - the European law establishing the budget is adopted;

2) does not come to a decision - the European law is deemed to be adopted;
3) adopts, by the majority of the members making it up, amendments which it transmits to the Council and the Commission - the procedure continues: the Conciliation Committee is convened immediately.
As soon as the amendments have been received by the Council, there are two possible deadlines:
10 days
21 days
After the Council has convened the Conciliation Committee, there are two possible scenarios with two different deadlines:
1) if, within ten days of the amendments being forwarded, the Council approves all the amendments, the Conciliation Committee does not meet - the European law is adopted;
2) within a period of 21 days, the Committee may or may not come to an agreement:
3) it agrees on a common draft by a qualified majority of the members of the Council and the majority of the members representing the Parliament - the procedure continues;
4) it does not come to an agreement - the Commission must present a new draft budget.
Within 14 days following the agreement of the Conciliation Committee When the Conciliation Committee has reached an agreement, there are seven possible scenarios during the 14 subsequent days:
1) the European Parliament and the Council approve the joint draft - the European law is deemed to be adopted in compliance with the draft;
2) the two institutions do not come to a decision - the European law is deemed to be adopted in line with the draft;
3) one of the institutions approves the draft and the other does not come to a decision - the European law is deemed to be adopted in accordance with the draft;
4) the two institutions reject the joint draft -the Commission must present a new draft;
5) one of the institutions rejects the draft whilst the other does not come to a decision - the Commission must present a new draft;
6) the European Parliament rejects the draft whilst the Council approves it - the Commission must present a new draft;
7) the European Parliament approves the draft whilst the Council rejects it - the procedure continues.
Within 14 days of approval by the EP and rejection by the Council The Parliament may, within 14 days, decide to confirm all or part of its amendments. Where amendments are not confirmed, the position agreed within the Conciliation Committee on the budgetary heading which is the subject of the amendment is upheld -the European law is deemed to be adopted on this basis.
End of the procedure The President of the European Parliament states that the European law has finally been adopted.

*All the dates in the table refer to the year preceding the budgetary year

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IMPLEMENTATION OF THE BUDGET AND DISCHARGE

Finally, the last innovation to the budgetary procedure is the assessment report (Article III-408) which the Commission has to submit each year to the European Parliament and the Council of Ministers. This report, in connection with the discharge procedure, is intended to assess how the budget has been implemented in relation to its objectives.

The Commission is responsible for presenting the draft of the Union's annual budget and implementing it in cooperation with the Member States under the supervision of the Parliament and the Court of Auditors.

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SUMMARY TABLE

Articles Subject Remarks
Article I-53 Budgetary and financial principles -
Article I-54 The Union's own resources -
Articles I-55 and III-402 Multi-annual financial framework New provisions
Article III-403 and III-414 The annual budgetary procedure, execution of the budget and discharge Major changes

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These fact sheets are not legally binding on the European Commission. They do not claim to be exhaustive and do not represent an official interpretation of the Constitution.


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