The financial framework of 2000-06 (Agenda 2000)

The adoption of new financial provisions, which will enable the Union to face the dual challenge of the deepening of Community policies and enlargement of the Union, is a key element of Agenda 2000. It was mainly in response to the request made by the Madrid European Council (1995) that an in-depth analysis be undertaken of the financing system and a new financial framework for the Union proposed with a view to enlargement that the Commission launched "Agenda 2000".

The financial package which was finally adopted in 1999 includes several decisions, the most important one being the decision on the new financial perspective (2000-06), which is an integral part of the new Inter-institutional Agreement on budgetary discipline and improvement of the budgetary procedure.

The framework for the development of Community expenditure with ceilings for major spending categories covering several years and adopted jointly by the Commission, Parliament and the Council has been a standard feature since 1988 (Delors I package). Since the 1993-99 financial perspective is to expire shortly, the approval of a new financial framework was one of the most urgent matters during the negotiations on Agenda 2000.

Continuing the approach put in place by the 1988 and 1993 Inter-institutional Agreements on budgetary discipline, the three institutions have undertaken, in the new Interinstitutional Agreement, to consider budgetary objectives contained in the financial perspective for each of the major categories of expenditure as strict spending ceilings.

The expenditure available under the financial perspective cannot, of course, exceed the amount of own resources available for the period in question. During the negotiations which led to the adoption of the new financial framework, the institutions were very much aware of the need to ensure sound management of public finances, while making it possible to finance essential requirements. The overall ceiling on own resources has thus been kept at 1.27% of gross national product (GNP) for the entire period 2000-06.

Financial perspectives

The expenditure figures in the financial perspective are well below this overall ceiling. The total for commitments will fall from 92.03 billion in 2000 to 90.66 billion in 2006. The corresponding amounts for payments are 89.60 billion and 89.62 billion i.e. in terms of GNP, a decline from 1.13% to 0.97 %.

This budgetary rigour will be reflected in the various headings of the financial perspective, where the common agricultural policy and structural action will continue to account for the bulk of expenditure.

Other Union priorities which have been allocated funding in the new multiannual financing programming reflect the Union's higher profile on the international scene, the modernisation of the Community's administration and the development of certain internal policies (trans-European networks, research and innovation, education and training, application of new environment-friendly technologies, small and medium-sized enterprises).

Budgetary discipline and the expected increase in GNP will suffice to cover the cost of enlargement of the Union within an own resources ceiling of 1.27% of the GNP of the enlarged Union. On the assumption that the first wave of enlargement will take place during the middle of the period covered by the financial perspective, these costs will initially take the form of increased pre-accession aid and will gradually come to be borne by the funds reserved for Community policies.

A table annexed to the Inter-institutional Agreement but separate from the financial perspective gives an estimate of expenditure from 2002 onwards in a Union with 21 Member States (EUR 21). An adjustment of the financial perspective to take into account the budgetary impact of the accession of new States will be made each time a new country joins.

Improvement of the budgetary procedure

Apart from the financial perspective, the new Inter-institutional Agreement on budgetary discipline and improvement of the budgetary procedure includes provisions to promote better cooperation between the institutions during the annual budgetary procedure.

The conciliation procedure had been broadened and solutions have been found to problems which were left unresolved by the 1993 Agreement, in particular the matter of classification of expenditure and the need for all budget items to have a legal basis. The Commission stated in its report on the implementation of the 1993 Inter-institutional Agreement that it would like to see these problems resolved.

All the Inter-institutional Agreements and Joint Declarations dealing with budgetary matters have been consolidated in the new Inter-institutional Agreement in accordance with the recommendations made by the Commission in its report.

Own resources system

The Inter-institutional Agreement and the financial perspective which it contains relate mainly to the "expenditure" side of the Community budget. The arrangements for financing this expenditure are laid down in the "own resources decision".

Since the 1988 own resources decision was adopted, the Community has four categories of revenue: customs duties, sugar and isoglucose levies and agricultural duties (traditional own resources), VAT, and the GNP-based resource. Under the 1994 own resources decision, the share of GNP in the financing of the budget increased significantly.

In a report on the operation of the own resources system, the Commission examined the current system and the possibilities of improving it, including the introduction of a new resource.

The Berlin European Council decided to introduce a set of measures which had as one of their objectives the improvement of the budgetary balances of some Member States. The maximum call-in rate for VAT resources will be gradually reduced (from 1.0% to 0.75% in 2002 and 0.50% in 2004) and the percentage of traditional own resources (customs duties, etc.) retained by the Member States by way of collection costs will be increased from 10% to 25% in 2001.

It was agreed to maintain the correction mechanism for the United Kingdom subject to some minor adjustments. For example, the financing scale has been changed, reducing the portion paid by Germany, the Netherlands, Austria and Sweden to one quarter of their normal share.

A new own resources decision incorporating these changes should be adopted shortly.

A decision on whether or not to reform the own resources system more radically was postponed until later.

Guarantee Fund for external action

Apart from these basic decisions, the Agenda 2000 financial package also includes a more specific measure, namely the new regulation on the Guarantee Fund for external action.

The Guarantee Fund for external action was set up in 1994 in order to protect the Community against any budgetary shocks should loans covered by the Community guarantee under its borrowing and lending policy for non-member countries not be repaid. When the Guarantee Fund was evaluated in 1998, it emerged that the quality of the guaranteed loans portfolio and the healthy financial state of the Fund made it possible to lower the parameters it operates with.

That was done by the new regulation amending the rules of the Fund. The new financial perspective also provides for a corresponding reduction in the amount allocated to the guarantee and loan reserve in the general budget.

This Agenda 2000 financial package will enable the Union to meet its major immediate challenges - the reform of its policies and the arrival of new members - within strict financial limits.

See also