New interinstitutional agreement and financial perspective (2000-2006)

The purpose of the agreement is to implement, on a multiannual basis, budgetary discipline at Community level. It seeks to improve the functioning of the annual budgetary procedure and cooperation between the institutions on budgetary matters.

ACT

Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure.

This Agreement repeals and replaces the following measures:

Joint Declaration by the European Parliament, the Council and the Commission of 30 June 1982 [Official Journal C 194 of 28.07.1982];

Interinstitutional Agreement of 29 October 1993 [Official Journal C 331 of 07.12.1993];

Declaration by the European Parliament, the Council and the Commission of 6 March 1995 [Official Journal C 102 of 04.04.1996];

Joint Declaration of 12 December 1996 [Official Journal C 20 of 20.01.1997];

Interinstitutional Agreement of 16 July 1997 [Official Journal C 286 of 22.09.1997];

Interinstitutional Agreement of 13 October 1998 [Official Journal C 344 of 12.11.1998].

Decision 2003/429/EC of the European Parliament and the Council of 19 May on the adjustment of the financial perspective for enlargement.

SUMMARY

Since 1988 Community expenditure and the annual budgetary procedure have been based on interinstitutional agreements on budgetary discipline and the improvement of the budgetary procedure.

These agreements, which cover several years and have been adopted jointly by Parliament, the Council and the Commission, have been traditionally divided into two types of provision:

• the financial perspective, which sets the budgetary ceilings for the major categories of Union expenditure in order to keep expenditure within the limits of the own resources available ("budgetary discipline");
• arrangements between the institutions to improve the annual budgetary procedure ("functioning of the budgetary procedure").

Under Agenda 2000, and with a view to the expiry of the financial perspective (1993-99), a new interinstitutional agreement has been adopted for the period 2000-2006. This agreement, which is the core of the Agenda 2000 financial package, should enable the Union to expand and strengthen its policies while remaining within a rigorous financial framework.

Financial perspective

The first part of the agreement consists of the financial perspective and its implementing details.

The 2000 to 2006 financial perspective establishes, for each of the years covered and for each heading and subheading, the amounts of expenditure in terms of appropriations for commitments. Overall annual totals of expenditure are also shown in terms of both appropriations for commitments and appropriations for payments.

The institutions undertake to comply with the various annual expenditure ceilings during each budgetary procedure and when implementing the budget for the year concerned.

The ceilings in the financial perspective were set initially in 1999. They were adapted for enlargement of the Union to include ten new Member States (Europe 25) in 2003.

The new perspective contains eight main headings (agriculture, structural operations, internal policies, external action, administration, reserves, pre-accession strategy, compensations), divided in some cases into subheadings. Ceilings are expressed in 1999 prices.

Agriculture and structural operations (headings 1 and 2) account for the bulk of expenditure under the financial perspective.

The reform of the common agricultural policy under Agenda 2000 will require an initial increase in agricultural expenditure (from EUR 40.92 billion in 2000 to EUR 45.8 billion in 2006), following the adaptation of the financial perspective for Europe 25, which has raised the amounts for this heading provided for in 1999. Approximately one tenth of the agricultural expenditure will be used for rural development.

Enlargement also has a highly visible impact on expenditure for structural operations, which the 2003 decision raises from the initial 1999 amounts to EUR 37.94 billion in 2006.

Given the importance of some of the Union's internal policies (trans-European networks, research and innovation, education and training, measures in support of small and medium-sized enterprises) heading 3 of the financial perspective will have its financial allocation increased from EUR 5.93 billion in 2000 to EUR 8.21 billion in 2006.

The same applies to external action (from EUR 4.55 billion to EUR 4.61 billion) and administrative expenditure (from EUR 4.56 billion to EUR 5.71 billion).

With regard to the reserves, the monetary reserve was abolished in 2003, as provided in 2006. The emergency aid reserve and the loan guarantee reserve will remain at a steady level (EUR 200 billion in both cases) throughout the period 2000-2006.

The seventh heading, "Pre-accession strategy", is allocated EUR 3.12 billion per year.

Heading 8, "Compensations", covers transitional budgetary compensations for the ten new Member States decided on at the Copenhagen European Council on 12 and 13 December 2002.

The table below traces the development of the headings of the financial perspective for 2004-2006 following adaptation to Europe 25, in million euros at 1999 prices.

-	2004	2005	2006
1) Agriculture	42760 - 44657	41930 - 45677	41660 - 45807
2) Structural operations	29595 - 35665	29595 - 36502	29170 - 37940
3) Internal policies	6370 - 7877	6480 - 8098	6600 - 8212
4) External action	4590	4600	4610
5 Administration	4900 - 5403	5000 - 5558	5100 - 5712
6) Reserves	400	400	400
7) Pre-accession strategy	3120	3120	3120
8) Compensations	0 - 1273	0 - 1173	0 - 940

This adaptation of the financial perspective also includes the figures emerging from the technical adjustment for 2004 to trends in gross national income (GNI) and prices. The following are the figures at 2004 prices:

-	2004	2005	2006
1) Agriculture	49305	50431	50575
2) Structural operations	41035	41685	42932
3) Internal policies	8722	8967	9093
4) External action	5082	5093	5104
5 Administration	5983	6154	6325
6) Reserves	442	442	442
7) Pre-accession strategy	3455	3455	3455
8) Compensations	1410	1299	1041

In accordance with the recommendations made in the Commission report, the interinstitutional agreement also provides for various mechanisms enabling the financial perspective to be adjusted along the way, thereby increasing its flexibility.

As before, the agreement, in addition to the annual technical adjustment to movements in prices and GNI, makes provisions for a revision of the ceilings in the event of unforeseen circumstances.

These revisions will be adopted by joint decision of the Council (acting on a qualified majority in the case of revisions of less than 0.03% of Community GNP and unanimously in other cases) and Parliament (acting by a majority of its members and 3/5 of the votes) on a proposal from the Commission.

Revision may take the form of a reallocation of appropriations between different headings or subheadings of the financial perspective. Amounts available under headings 1 to 6 cannot at any time be used for heading 7 (pre-accession strategy) of the financial perspective. Expenditure provided for the Union of Fifteen and that for enlargement are thus kept rigorously separate.

The interinstitutional agreement specifies that any revision of the compulsory expenditure may not lead to a reduction of the amount available for non-compulsory expenditure.

The three reserves appearing in heading 6 of the financial perspective make for flexibility in the management of the Union's finances. They are the monetary reserve (to cover the impact of unforeseen movements in the euro/dollar parity on agricultural expenditure, abolished in 2003), the loan guarantee reserve for non-member countries (to provision the Guarantee Fund) and the emergency aid reserve (to meet specific and unforeseen aid requirements of non-member countries).

In addition, a general flexibility instrument with an annual ceiling of EUR 200 million is intended to cover specific expenditure which cannot be financed within the limits of the ceilings set. The unused part of the instrument may be carried over to the following two years' budgets. A decision to use this instrument is taken during the budgetary procedure by joint agreement between Parliament and the Council, on a proposal from the Commission. It must as a rule avoid being used to cover the same needs two years running. This instrument was drawn on fully in December 1999 in respect of the 2000 budget in order to finance the reconstruction of Kosovo following an examination of all the possibilities for reallocating appropriations (Parliament and Council Decision of 16 December 1999, to reallocate appropriations in order to finance the reconstruction of Kosovo, Official Journal C 41 of 14.02.2000).

The Interinstitutional Agreement provides for two types of procedure to meet requirements which exceed the ceiling of a heading in the financial perspective: the flexibility instrument and revision of the financial perspective. The order in which the various financing sources are to be mobilised is as follows:

(1) reallocate appropriations within the heading in question;

(2) if that is not enough, mobilise all or part of the flexibility instrument subject to the conditions governing its use;

(3) if that is not enough or if the criteria for using the flexibility instrument are not met, revise the financial perspective, raising the ceiling of the heading in question and offsetting this by lowering the ceiling of another heading;

(4) if that cannot be done, increase the ceiling of the heading in question with no offsetting compensation, provided the overall own resources ceiling is not exceeded.

Improvement of the budgetary procedure

The second part of the agreement lays down the rules designed to improve the functioning of the annual budgetary procedure.

These rules relate to interinstitutional cooperation in general and to more specific problems (classification of expenditure, the matter of legal bases, incorporation of financial provisions in legislative acts, etc.) which had not been resolved by the 1993 agreement or which were dealt with under other arrangements (agreements or joint declarations) agreed between the institutions.

The agreement strengthens interinstitutional collaboration.

Trialogue meetings (between the President of the Council (Budget), the Chairman of Parliament's Committee on Budgets and the Member of the Commission with responsibility for the budget), generally followed by conciliation between the Council and a delegation from Parliament with the Commission as a participant, are planned in accordance with the following schedule:

• before the establishment of the preliminary draft budget by the Commission;
• before the establishment of the draft budget by the Council;
• before the first reading by Parliament;
• after the first reading by Parliament;
• the day preceding the second reading in the Council.

The conciliation procedure, which has to date been limited to non-compulsory expenditure, is extended to include all expenditure and the classification of expenditure as compulsory or non-compulsory expenditure.

This is facilitated by the inclusion in the Agreement of a definition of "compulsory expenditure" and a list classifying each heading or subheading of the financial perspective.

With regard to the incorporation of financial provisions in legislative acts, the agreement makes a distinction between acts concerning multiannual programmes adopted under the co-decision procedure and other legislative acts.

Only the first category of acts can contain financial provisions (financial allocation to the programme for its entire duration) which are binding on the institutions during the budgetary procedure.

If financial provisions are incorporated in other kinds of acts, they serve only as an illustration.

The agreement also clarifies to what extent the utilisation of appropriations entered in the budget require the prior adoption of a basic act. Only four categories of appropriations are exempt from the general requirement of a legal basis:

• appropriations for pilot schemes of an experimental nature: these appropriations may be entered in the budget for no more than two financial years and may not exceed EUR 32 million.
• appropriations relating to preparatory acts intended to prepare legislative proposals: these proposals may not be entered for more than three years and may not exceed EUR 30 million per year and EUR 75 million in all;
• appropriations concerning actions carried out by the Commission by virtue of tasks resulting from its prerogatives at institutional level or specific powers conferred upon it by the EC Treaty (studies and opinions relating to social policy, initiatives to boost coordination with regard to trans-European networks, etc.);
• appropriations intended for the operation of each institution under its administrative autonomy.

The Interinstitutional Agreement also contains provisions making it possible to distribute expenditure relating to fisheries agreements between the budget headings concerned and the reserve on the basis of the date of entry into force of the agreements during the budgetary procedure. All expenditure relating to new or renewable agreements which enter into force after 1 January of the year in question is placed in the reserve until the time comes to transfer it to the corresponding budget heading.

With regard to the operational expenditure of the common foreign and security policy (CFSP), the institutions will endeavour to secure each year, by means of the conciliation procedure, agreement on the amount to be charged to the Community budget and on the distribution of this amount between the articles of the CFSP budget chapter (observation and organisation of elections, prevention of conflicts, financial aid to the enlargement process, urgent actions, etc.). The amount allocated to urgent actions may not exceed 20% of the overall amount of the CFSP budget chapter.

Whenever it adopts a decision in the field of CFSP entailing expenditure, the Council will immediately send the European Parliament an estimate of the costs envisaged.

The Commission will inform the budgetary authority about the implementation of CFSP actions and the financial forecasts for the remaining period of the year.

Several declarations are attached to the agreement.

The following should be mentioned, among others, the Declaration on the agricultural guideline (which confirms the principles and mechanisms) and the Declaration on the Balkan situation (which points to a possible revision of the financial perspective in order to cover additional expenditure).

See also

Supplementary information on the new financial framework is available on the site of the Directorate General for Budgets.

RELATED ACTS

Commission Communication of 10 February 2004, Building our common Future - Policy challenges and Budgetary means of the Enlarged Union, 2007-2013 [COM(2004) 101 final - Not published in the Official Journal].

Last updated: 25.05.2004