Towards a new financial framework 2007-2013

The European Commission is presenting its proposals for the next financial framework of the European Union, which will set out the objectives and budgetary resources for the European Union for the period 2007-2013. According to this framework, EU activity should be concentrated primarily on the objectives of competitiveness and cohesion, sustainable development, European citizenship and the EU's external policy. Other topics that feature in the two communications of 10 February and 14 July 2004 include matching resources to objectives, instruments and good governance, and the financing system.

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]

Commission communication of 14 July 2004 to the Council and the European Parliament "Financial Perspectives 2007 - 2013" [COM(2004) 487 - Not published in the Official Journal]

SUMMARY

The first Commission communication launches the debate on the objectives and budgetary resources for the European Union for the period 2007-2013. This is the fourth financial perspective, following Delors I (1988-1992), Delors II (1993-1999) and Agenda 2000 (2000-2006), as part of which a new interinstitutional agreement was adopted in 1999.

The second communication proposes a set of detailed measures and is accompanied by relevant legislative proposals that are to be negotiated by the Council and the European Parliament. The Commission welcomes the political consensus on the areas of action set out in February's communication, such as employment, sustainable development, security and an effective world role for the EU, and calls for funding the actions in order to realise these goals. At the request of the European Council in June 2004, the Commission has analysed the added value of its proposals and considered that it is demonstrated on the basis of three criteria:

• effectiveness: in certain cases, EU action is the only way to get results;
• efficiency: the EU offers better value for money;
• synergy: EU action stimulates, complements and launches measures.

The document then goes on to develop proposals under each heading.

The number of headings in the financial perspective (i.e. major categories of expenditure) has been reduced from eight to five. This should make the system less rigid and allow resources to be used more efficiently. These headings, for which EUR 1 025 billion will be provided in commitment appropriations between 2007 and 2013, are as follows:

• Sustainable development. This is divided into two components:- competitiveness for growth and employment;- cohesion for growth and employment;
• Sustainable management and protection of natural resources;
• Citizenship, freedom, security and justice;
• The European Union as a global partner: this heading covers all external action, including the pre-accession instruments, the incorporation of the European Development Fund (EDF) in the EU budget, and the current reserves earmarked for emergency aid and loan guarantees;
• Administration: this covers the expenditure of institutions other than the Commission, pensions and the European Schools. A new feature is that the Commission's administrative expenditure is included directly under the corresponding operational headings and not under this one.

Payment appropriations in the same period will amount to approximately EUR 929 billion.

The Commission also suggests that from 2013 onwards the financial perspective should be established for a period of five years, which would fit in better with the institutional timetable (both the Commission and the Parliament have a five-year term).

The Commission also calls for the Solidarity Fund to be integrated into the financial framework (under Heading 3: citizenship, freedom, security and justice).

There is an emphasis on flexibility, to be promoted via three specific mechanisms:

- the procedure for revising expenditure ceilings (which already exists in the current framework);

- a new reallocation flexibility to enable the budgetary authority to reallocate appropriations, within certain limits, between expenditure headings;

- a growth adjustment fund (to be included under the heading for sustainable development) which would make it possible to adjust expenditure more quickly to any changes in the implementation of the roadmap for sustainable development. A sum of EUR 1 billion would be allocated to this fund, which could be supplemented by any funds from the two cohesion instruments that remained unused after two years, up to a maximum of a further EUR 1 billion.

Priorities for the financial framework 2007-2013

In view of the mediocre performance of Europe's economies in recent years, the Commission proposes that the European Union concentrate its efforts on three main priorities:

• Promoting sustainable development. This means completing the internal market and mobilising the various policies (economic, social and environmental) to that end. The objectives of competitiveness, cohesion and the protection and management of natural resources also fall under this heading;
• Giving meaning to the concept of European citizenship by completing the area of freedom, justice and security and ensuring access to basic public goods and services;
• Promoting a coherent role for Europe as a global partner.

On the subject of sustainable development, the Commission points out that competitiveness and cohesion are mutually reinforcing. To achieve such development, the European Union must become a dynamic, knowledge-based, growth-oriented economy. There must be greater cohesion, a more competitive agricultural sector, stronger rural development, more sustainable use of fish stocks and environmental protection.

The competitiveness for growth and employment component, with a budget of EUR 133 billion, comprises the following objectives:

• Promoting the competitiveness of firms within a fully integrated single market, and particularly industrial competitiveness, entrepreneurship, the growth of small businesses, the innovative potential, innovation, investment in information technology for public services, eco-efficient technologies;
• Stepping up and improving European research and technological development in order to create a European research area and to achieve the target of bringing public investment in research up to 1% of GDP: Financial aid for independent researchers, partnerships, networking between laboratories and the coordination of programmes and policies are all essential elements. Priority sectors are space and security;
• Connecting Europe through EU networks: The cost of congestion is put at 1% of GDP, and improved connections could potentially add 0.23% to GDP. The cost of the whole trans-European network is estimated at EUR 600 billion. A list of 26 priority projects has been drawn up for the period up to 2020, at a cost of EUR 220 billion. Funding will peak in the period 2007-2013;
• Improving the standard of education and training, particularly by placing the emphasis on mobility: The aim is for 3 million university students to benefit from this up to 2010, for 150 000 vocational trainees to take part in mobility schemes each year by 2013, for 10% of the school population to be involved in mobility schemes over the course of the programme and for 50 000 adults to take part in lifelong learning schemes;
• Achieving the social policy agenda: This agenda, an integral part of the Lisbon strategy, combines legislation, the open method of coordination and social dialogue.

In order to achieve these objectives, the Commission proposes the creation of a single framework programme for competitiveness and innovation in the single market. The areas of research and technological development on the one hand, and sustainable development of the trans-European transport and energy networks on the other, will both be subject to separate instruments. In the field of education and training, a single programme will replace the current ones, with the emphasis on mobility. Other suggestions put forward by the Commission are managing changes with social consequences through the "Progress" programme.

Greater cohesion for growth and employment, the second component of Heading 1, with a budget of approximately EUR 339 billion between 2007 and 2013, focuses on three priorities:

• convergence: efforts must be concentrated on the least-developed Member States and regions;
• regional competitiveness and employment: this objective mainly targets the Member States and regions not affected by convergence, given that there will continue to be significant needs;
• European territorial cooperation through cross-border and transnational programmes.

The Commission also suggests reinforcing the elements that contribute to the added value of cohesion policy: concentrating resources on investment, complying with the rules on the single market, placing the emphasis on job creation in new areas, contributing to partnership and good governance, and the leverage effect (as a result of co-financing rules that mobilise additional resources for new investment from national public and private resources).

The heading sustainable management and protection of natural resources is to receive a total of EUR 405 billion for the period 2007-2013, of which 72% for agriculture (EUR 301 billion). Most of the expenditure for this heading stems from the reform of the common agricultural policy (CAP), rural development policy after 2006 and from the new common fisheries policy (January 2003) for which the Commission proposes a simplification of the financial arrangements and structures. Environmental matters are also of great importance and the Commission suggests increasing funding in this area and developing an instrument which would allow strictly environmental measures to be taken ("Life+").

In Heading 2, Conservation and Management of Natural Resources, the key actions are the common agricultural policy (CAP), rural development policy and fisheries policy. The Commission proposes simplifying the financing arrangements and structures of these policies. The environment is also a key concern and the Commission suggests providing more funding of environmental action and establishing a single instrument to unify strictly environmental measures ("Life+").

The share of the heading citizenship, freedom, security and justice in the financial perspective will increase over the years and amount to EUR 25 billion over the period as a whole.

This heading proposes reinforcing the EU as an area of freedom, security and justice through a simplified structure based on three framework programmes ("Freedom of movement and solidarity in the area of external borders, asylum and immigration", "Security" and "Justice and fundamental rights") which would replace all the existing instruments. Management of the funds would be largely shared with the Member States. In the first framework programme, the Commission proposes the creation of an Agency for External Borders and expects Europol, Eurojust and the European Police College to become EU bodies.

This heading also proposes actions and programmes to ensure access to basic goods and services and to foster European culture and diversity, and the creation of a solidarity and rapid reaction instrument.

For the area of freedom, security and justice, the Commission proposes the creation of a European Border Agency and a European Border Guard Corps, a common asylum policy and a common immigration policy. In the interests of security, the priority will be to strengthen Europol and the European Police College. Measures are needed to ensure access to justice and close cooperation between the judicial authorities, as well as common approaches to fighting crime.

Under the heading the European Union as a global partner, the emphasis will be placed on the need for the EU to achieve a level of political influence commensurate with its economic influence, so that, in its region and beyond, the EU can be active not only in economic and political areas but also in promoting stability, conflict prevention and crisis management. As a partner in sustainable development, the EU must fight poverty, pursue the millennium development goals set by the United Nations and promote common positions that will give coherence to multilateral negotiations. As a global player, it must work for effective multilateralism and contribute to security in the region. There must also be greater coherence in bilateral relations and international institutions by establishing a single policy framework and unique programming for each partner country and each thematic policy, as well as a common development policy. A total of EUR 95 billion is allocated to this heading.

For this heading, the Commission proposes a drastic simplification of instruments, based on coherence and the importance of the results in relation to the attribution of resources. In the new architecture proposed, three instruments directly support European external policies: the Pre-Accession Policy (IPA), the European Neighbourhood and Partnership Instrument and the Development Cooperation and Economic Cooperation Instrument, which will be the main means of cooperation with other non-EU countries not covered by the first two instruments.

With a view to responding to crises and to certain regional or international problems, the Commission proposes three further instruments: the Humanitarian Aid Instrument, the Macro-Financial Assistance (MFA) Instrument and the Instrument for Stability. The Instrument for Stability would also be used to address trans-border challenges such as the fight against terrorism and trafficking, to promote nuclear safety, to provide electoral assistance and to develop the peace-keeping capacity.

The table below corresponds to the financial framework for 2007-2013, as set out by the Commission in the document COM(2004) 498 final of 14 July 2004.

Financial framework 2007-2013

EUR million at 2004 prices

Note: 2006 expenditure in the framework of the current financial perspective has been broken down according to the proposed new nomenclature for reference purposes and to facilitate comparisons. The amounts in headings 3 and 4 include expenditure for the Solidarity Fund (EUR 961 million at 2004 prices) and the EDF (estimated as EUR 3 billion) respectively.

(a) Including expenditure for the Solidarity Fund (EUR 961 million at 2004 prices) from 2006. However, the corresponding payments are calculated only from 2007.

(b) The integration of the EDF in the EU budget should take effect in 2008. The commitments for 2006 and 2007 are included for the sake of comparison only. Payments for commitments before 2008 are not taken into account in the payment amounts.

(c) Including the administrative expenditure of institutions other than the Commission, pensions and the European Schools. The Commission's administrative expenditure is included in the first four expenditure headings.

(d) Amounts provided for in the European Union's common position with a view to the Accession Conference with Bulgaria (CONF-BG-27/04).

Matching resources to objectives

The communication also explains the budgetary constraints, and in particular the commitments already entered into which cannot be ignored, such as direct aid to agriculture (fixed until 2013), cohesion policy for the enlarged EU, future enlargement to include Romania and Bulgaria, and the Lisbon and Göteborg strategies. It will be impossible to meet all these commitments if the budgetary resources are less than in the current period. The commitment appropriations ceiling will account for 1.11% of the EU's gross national income (GNI) in 2006. Including the commitments under the 9th EDF would add, on average, another 0.03 % of GNI, but a ceiling of around 1% of GNI would not be sufficient and would require compromises to be made.

The Commission believes that the significance of the challenges identified justifies an increase in the budget but that a credible plan to meet the Union's needs can be drawn up within an overall own resources ceiling of 1.24% of GNI.

Financial transfers will continue to be capped at 4% of GNI of the State concerned for cohesion policy, and the amounts transferred to the new rural development and fisheries instruments are still included in the calculation.

Instruments and governance

The success of policies relies on the efficiency of delivery instruments. The Commission accordingly reiterates the guiding principles of the proper apportionment of tasks: concentration of resources, consistency between goals, and partnership with all the actors involved.

A crucial feature of the communication is the simplification of instruments by means of a roadmap that brings together goals, objectives, instruments, indicators and a stringent timetable. Simplification will take account of consistency, the political dimension of the project and the principle of proportionality. The Commission thus proposes applying a single instrument per policy area (a single fund per programme) and examining alternatives to in-house direct management. Annex 1 to the document contains an overall approach to administrative governance.

The financing system

The structure of own resources and the correction of budgetary imbalances are dealt with in this section.

As regards the system of own resources, the Commission acknowledges the criticism about its complexity and lack of transparency, but stresses its successful performance in financial terms, given that the system has achieved its primary aim of ensuring the stability of resources. In its view, a visible tax resource payable by EU citizens and/or economic operators could partly replace the GNI contributions. It sets out three possibilities for the future, even though the Commission was not supposed to propose a new own resource as part of the financial perspective for 2007-2013:

• a tax on corporate income;
• a genuine VAT resource;
• an energy tax.

The Commission also makes it clear that the tax burden for citizens would not increase.

To correct budgetary imbalances, the Commission suggests a generalised correction mechanism to correct net contributions in excess of a certain pre-defined threshold of adequate "financial solidarity", defined as a percentage of gross national income, in line with the relative prosperity of the Member States.

RELATED ACTS

Commission working document of 14 July 2004, "Proposal for renewal of the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure" [COM(2004) 498 final - Not published in the Official Journal] This working document is intended to serve as a basis for the negotiations between the European Parliament, the Council and the Commission aimed at drawing up common rules for the management of the multiannual financial framework and the annual budgetary procedure. It proposes that the existing basic principles of budgetary discipline be retained, in particular the structure of the financial framework divided into broad categories of expenditure ("headings"), the definition of maximum amounts ("ceilings") for commitment appropriations in each heading and the setting of an annual ceiling on payment appropriations.

Drawing on the experience acquired with previous financial frameworks, the Commission is also suggesting adjustments regarding flexibility, transparency and interinstitutional collaboration, e.g. the integration into the financial framework of the European Development Fund and the Solidarity and Rapid Reaction Fund, two instruments which, although managed at European Union level, currently fall outside Agenda 2000.

Resolution of the European Parliament of 22 April 2004 on the Communication from the Commission "Building our common future - policy challenges and budgetary means of the enlarged Union 2007-2013" [A5-0268/2004 - Not published in the Official Journal]

This resolution sets out the European Parliament's policy priorities for the 2007-2013 financial framework.

Analytical report by the Irish Presidency of 7 June 2004 on the 2007-2013 financial framework, submitted to the Brussels European Council of 17-18 June (10219/04).

This European Council proposed to the Council that work should continue in relation to the 2007-2013 financial framework on the issues identified in the Irish Presidency's report: the need for stricter prioritisation, the level of expenditure required and analysis of the value added by EU expenditure.

Progress reports on the work carried out by the Council of Ministers: 13120/04 of 7 October [PDF ], 12087/04 of 3 September [PDF ], 11607/04 of 19 July [PDF ].

Report from the Commission - Financing the European Union - Commission report on the operation of the own resources system [COM(2004) 505 final - Volume I - Not published in the Official Journal].

Report from the Commission - Financing the European Union - Commission report on the operation of the own resources system - TECHNICAL ANNEX - [COM(2004) 505 final - Volume II - Not published in the Official Journal].

Proposal for a Council Regulation on the implementing measures for the correction of budgetary imbalances in accordance with Articles 4 and 5 of the Council Decision of (...) on the system of the European Communities' own resources [COM(2004) 501 final - Not published in the Official Journal].

The Dutch Presidency Progress report of 14 December 2004 on the financial framework for 2007-2013, submitted to the Brussels European Council on 16 and 17 December 2004 [PDF ] (16105/04).

Last updated: 19.09.2005