El paso del mito al logos

2.1. Slight decrease in Community expenditure

Stabilisation or even reduction of contributions to the EU budget was a priority for a number of net contributors, as is for instance refl ected in the ‘letter of the six’ (cf. supra), which argued that average expend- iture during the next fi nancial framework should not exceed 1.0 % of EU GNI. The letter did not specify whether the 1.0 % related to com- mitment or to payment appropriations, which opened up a useful margin for negotiation. Indeed, during the negotiations this norm related fi rst to commitment appropriations, then, at a later stage in the negotiation, to payment appropriations – an objective easier to comply with. Neverthe- less, the constraint imposed by the letter weighed heavily in the negotia- tion, in particular as the new Member States were very keen on securing an agreement which would grant them access to substantial additional expenditure from the EU budget.

Table 6.2 below illustrates the dynamics of negotiation. The process started with a Commission proposal which intended to create a strong impetus for, notably, Lisbon-related expenditures. The European Parlia- ment suggested limited shifts across headings, in particular an increase in heading 3. The subsequent Council discussions led to markedly reduced overall levels of commitment appropriations under the Luxembourg and UK presidencies. The conclusion of the Interinstitutional Agreement allowed for a very limited upward adjustment.

Detailed fi gures on the yearly commitments from 2007 to 2013 illus- trate another facet of the multiannual fi nancial framework. As detailed in Annex 1 to the Interinstitutional Agreement 2007-13, the global ceil-

110 EUROPEAN UNION PUBLIC FINANCE

ing for commitment appropriations will fall from 1.10 % of EU GNI in 2007 to 1.01 % in 2013 (from 1.06 % to 0.94 % for payment appropria- tions). This includes the (increasing) cost of enlargement, considering the phasing-in of various policies, in particular the CAP, in the new Member States. In practice, if a future fi nancial framework (beyond 2013) was sta- bilised at the level of 2013, i.e. 1.01 % of EU GNI for commitment appro- priations, global multiannual commitments would decrease compared to the average level of 1.05 % of EU GNI foreseen for 2007-13.

TABLE 6.2

Total 2007-13 commitments – from Commission proposal to agreement (million EUR at 2004 constant prices) Commission proposal (14 July 2004) EP resolution (8 June 2005) European Council (15-16 Dec. 2006) Final agreement (17 May 2006) Change vs. Commission proposal 1. Sustainable growth 457 995 446 930 379 739 382 139 -75 856 -17 % 1a. Competitiveness 121 687 110 600 72 120 74 098 -47 589 -39 % 1b. Cohesion 336 308 336 330 307 619 308 041 -28 267 -8 % 2. Natural resources 400 294 392 306 371 244 371 344 -28 950 -7 % of which CAP 301 074 293 105 293 105 293 105 -7 969 -3 %

3. Citizen, freedom, security, justice 14 724 16 053 10 270 10 770 -3 954 -27 %

3a. Freedom, security and justice 9 210 9 321 6 630 6 630 -2 580 -28 % 3b. Citizenship 5 514 6 732 3 640 4 140 -1 374 -25 %

4. The EU as a global player 61 223 62 436 48 463 49 463 -11 760 -19 % 5. Administration 57 670 54 765 50 300 49 800 -7 870 -14 % 6. Compensations (BG and RO) 800 800 800 800 — —

Total commitments 992 706 973 290 860 816 864 316 -128 390 -13 %

% of EU-27 GNI 1.20 % 1.18 % 1.05 % 1.05 %

NB: Original fi gures have been adjusted to ensure comparability with the fi nal outcome. Head- ing 4 excludes the European Development Fund (EDF) as well as the Emergency Aid Reserve. The exclusion in the fi nal agreement of EUR 500 million staff pension contribu- tions under heading 5 and of the Emergency Aid Reserve (EUR 1 547 million) allowed the actual increase of EUR 4 billion obtained by the European Parliament to be presented in the fi nancial framework table as an increase of only EUR 2 billion. The original documents referred to in this chapter contain the unadjusted fi gures.

2.2. A moderate shift in the budget structure

In the context of strict budgetary discipline, involving a decrease in com- mitments as a percentage of GNI over the period 2007-13, and consider- ing the agreement reached for agriculture before the negotiation of the fi nancial framework, the bulk of adjustment in relative terms during the negotiation was mainly borne by headings 1a and 3. The December 2005 agreement involved a cut of 39 % and 27 % for these headings respect- ively, compared to the initial Commission proposal.

Although the Council and the Member States agreed on the importance of an ambitious Lisbon and Göteborg agenda, and the related need to increase efforts in areas such as research or the environment, this proved diffi cult to translate into budgetary terms. For many Member States cohesion policy, agriculture, and specifi c rebates on their contributions came as priorities.

2.3. Limited adjustment of the own resources system

In the agreement it reached on 15-16 December 2005, the European Council took the following main decisions on the future own resources system:

The ceilings laid down in the decision on own resources should be —

maintained at their current level of 1.24 % of EU GNI for appro- priations for payments and of 1.31 % EU GNI for appropriations for commitments;

The distinction between agricultural duties and customs duties would —

be abolished;

‘In the interests of transparency and simplicity’, in particular the elimi- —

nation of the complex frozen rate mechanism, the uniform rate of call of the VAT-based resource would be fi xed at 0.30 % (see Chapter 12). For the period 2007-13 only, the rate of call of the VAT-based resource —

would be fi xed at 0.225 % for Austria, 0.15 % for Germany and 0.10 % for the Netherlands and Sweden.

112 EUROPEAN UNION PUBLIC FINANCE

For the period 2007-13 only, the Netherlands would benefi t from a —

gross reduction in its annual GNI contribution of EUR 605 million and Sweden from a gross reduction in its annual GNI contribution of EUR 150 million, measured in 2004 prices.

The correction mechanism in favour of the United Kingdom should —

remain, along with the reduced fi nancing of the correction benefi t- ing Germany, Austria, Sweden and the Netherlands. However, after a phasing-in period between 2009 and 2011, the United Kingdom should participate fully in the fi nancing of the costs of enlargement, except for direct agricultural payments and market-related expend- iture, and that part of rural development expenditure originating from the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section. The corresponding reduction of the UK correction should not exceed EUR 10.5 billion in constant 2004 prices during the period 2007-13.

The European Council of 15 and 16 December 2005 concluded that the above changes should take effect on 1 January 2007. In practice, the entry into force of the changes would be retroactive, following the ratifi cation of own resources decision 2007/436/EC, Euratom (1), a process which the

Council expected to be completed no later than the beginning of 2009 (2).

Overall, the own resources system remains largely unchanged. However, with the notable exception of the fi xing of the rate of call of the VAT- based resource, the changes introduced render the system even more com- plex and less transparent than before.

2.4. Conclusion of a new Interinstitutional Agreement

The Interinstitutional Agreement of 17 May 2006 was largely based on the agreement adopted for the previous multiannual fi nancial framework. This was in particular the case for the structure by headings and the use of ceilings.

(1_{) Pursuant to Article 11 of this Decision (in accordance with Article 269 of the Treaty):}

‘Member States shall notify the … Council without delay of the completion of the proce- dures for the adoption of this Decision in accordance with their respective constitutional requirements. This Decision shall enter into force on the fi rst day of the month following receipt of the last of the notifi cations … It shall take effect on 1 January 2007’. (2_{) See point 78 of Council document No 15915/05, op. cit.}

Nevertheless, a number of useful changes, making for further simplifi ca- tion and fl exibility, were introduced.

(a) Simplifi cation, consolidation

The agreement incorporated the Interinstitutional Agreement of —

7 November 2002 on the creation of the European Union Solidarity Fund (EUSF), agreed on during the period of the 2000-06 fi nancial framework as a separate supplementary Interinstitutional Agreement. The current rules for mobilisation of the EUSF are maintained. When the Fund is mobilised, corresponding expenditure is ‘entered in the budget over and above the relevant headings’ in the fi nancial frame- work.

Simplifi cation of the method for the technical adjustment, by extend- —

ing the predetermined 2 % annual infl ation rate used for structural funds and agriculture to the rest of expenditure. The table of the multiannual fi nancial framework included in the IIA is expressed in constant 2004 prices. However, in view of the fi xed annual infl ation rate the ceilings are already fi xed in current prices for the entire period covered by the multiannual fi nancial framework.

The provisioning of the guarantee fund for loans to third countries is —

rationalised so that there is no longer any need for a ‘reserve’ to this end. The related (reduced) expenditure to be budgeted becomes part of the instruments available for the Union’s external policy.

(b) Flexibility: taking stock of the experience of Agenda 2000

On 15 and 16 December 2005, the European Council reached a political agreement which entailed expenditure ceilings signifi cantly lower than those proposed by the Commission. Tighter expenditure ceilings would in turn entail more rigidity in the fi nancial framework and risked under- mining the Union’s ability to address future challenges, hindering rather than encouraging effective resource allocation.

In order to fi nd the proper balance between budgetary discipline and effi cient resource allocation, new fl exibility instruments were introduced to facilitate the deployment or redeployment of fi nancial resources within the expenditure ceilings:

114 EUROPEAN UNION PUBLIC FINANCE

a new European Globalisation Adjustment Fund intended to provide —

additional support for workers who suffer the consequences of major structural changes in world trade patterns, to assist them with their reintegration into the labour market. The Fund could not exceed a maximum annual amount of EUR 500 million (current prices);

the possibility for the budgetary authority, on the basis of a Commis- —

sion proposal in the framework of the annual budgetary procedure, to depart by up to 5 % from the so-called ‘reference amounts’ concern- ing multiannual programmes adopted under the co-decision proce- dure (except for cohesion programmes).

Some other instruments could be mobilised above the agreed expenditure ceilings within certain limits. These instruments, to be used in the frame- work of the annual budget procedure according to the relevant provisions set out in the IIA, included:

the European Union Solidarity Fund, with unchanged amount —

(EUR 1 billion at current prices) and mobilisation procedure;

the Flexibility Instrument, with an annual ceiling of EUR 200 mil- —

lion, with the new possibility to cover requirements of a multiannual nature. The mobilisation procedure remains unchanged;

the Emergency Aid Reserve of EUR 221 million in constant prices was —

moved outside the multiannual fi nancial framework. Its purpose is to respond to emergency situations in third countries. Both the amount and the mobilisation procedure remain unchanged.