Thursday 12. December 2019
#141 - September 2011

 

Multi-Annual Financial Framework 2014-2020: what lies behind the proposal

 

This article gives an insight into the main issues at stake behind the next Multi-Annual Financial Framework, that of a more policy-driven EU budget, and into the battle to come, that of ‘own resources’.

 

On June, 29th President Barroso announced in a late night press conference the release of the long-awaited Communication on the future Multi-Annual Financial Framework (MFF) for 2014-2020. In fact a group of no fewer than ten documents was released that evening, all available on a dedicated website. Besides the Communication itself, A Budget for EUROPE 2020, divided into two parts (general presentation; “policy fiches”), there are two staff working documents, one explaining the added value of the EU budget, and one detailing “the underpinning for the strategic orientations” of the next MFF. There are also five legislative proposals, either dealing with the MFF itself or dealing with a Council decision on own resources (with yet another staff working document).

 

The MFF: a tool for budgetary discipline and targeted, more policy-driven spending

The EU budget is decided every year according to a procedure laid down in the Lisbon Treaty (art. 313-316 TFEU). However, each annual budget is also part of a longer-term MFF meant to ensure budgetary discipline by indicating the maximum amount of money (the “ceiling”) which may be spent under each specific heading of the framework, corresponding roughly to policy domains.

 

Until 1988, there was no MFF. EU spending used to “serve time invariant institutional objectives” (SEC(2011) 868; all other quotations from this cited document), the Common Agricultural Policy (CAP) being the oldest and best known. However, the launch of the single market made it necessary to review how EU policies were financed in order “to support the Union's medium term [strategic] policy priorities”. As a consequence, MFFs have subsequently been oriented towards an overarching goal: the “Delors Package I” (1988-1992) on the internal market and the multi-annual research and development framework; the “Delors Package II” (1993-1999) on social and cohesion policy, preparing for the introduction of the Euro; “Agenda 2000” (2000-2006) on enlargement; the current MFF 2007-2013 on sustainable growth, competitiveness, and job-creation. The next MFF 2014-2020 logically focuses on the EU2020 targets.

 

The key issue is indeed to get a budget that is more policy-driven than is currently the case, using EU2020 goals as benchmarks. And there is much room for improvement, since “less than half of the EU annual budget is directed at financing initiatives” in support of EU2020. To take just one example of this focus on EU2020 goals, for each selected project under the “economic, social and territorial cohesion” heading, a “performance reserve” is created, representing 5% of the total amount granted, the disbursement of which will be conditional to a mid-term performance review with respect to EU2020 targets.

At the same time, however, several Member States seek a reduction of the EU budget, or at least its freezing. The dilemma is hardly solvable: whereas the EU must finance more and more policies under the Lisbon Treaty, it should do it with less money. To accommodate such irreconcilable conditions, the proposed framework suggests a “nominal freeze” on CAP and cohesion policy (meaning in reality a proportional reduction year after year in the whole EU budget) in order to invest the rest of the money in policies such as research and innovation, student and labour mobility, European trans-national networks, external action, etc.

The MFF will be subject to a fierce negotiation between the Council, which must decide unanimously and does not want any increase of the EU budget, and the European Parliament (EP), which must give its consent, and has already made it clear that the EU must be given more financial means to deliver on its policies.

 

Own resources: the “big battle” to come

However, one of the most contentious issues is not the MFF in itself, but the way European policies can be financed. Here, as often in European affairs, a little history may help to understand what is at stake.

When the EEC was launched in 1958, the first aim was to establish a customs union. Common policies were also foreseen, the principal and first one being the CAP, formally decided in 1962. However, the Community had no resources to finance such common policies. After a first attempt to establish own resources failed in 1965, agreement between the Member States was finally reached in 1970. The EEC budget was to be mainly financed by sugar levies, agricultural and customs duties, as well as by a VAT-based contribution levied by Member States and calculated according to a specific formula.

Over time, with the globalisation and liberalisation of international trade, tariffs and custom duties, once the main source of own resources, diminished. In 1988, a new own resources based on Member States’ Gross National Income (GNI) began to complement the EU budget. But this introduced direct “national contributions” into the EU budget, generating discontent among the net contributors to the budget. The resulting slogan is well-known: ‘I want my money back’! Such a rebate to one country could only be compensated by extra contributions from others. This in turn generated claims by some countries to secure a “rebate on the rebate”. This led to “putting a national flag on each element of a spending programme, sacrificing European added value, and creating a complex system of corrections” at the expense of both “clarity about who obtains what from the EU budget” and a “transparent decision making process and even a more economically rational structure of the budget”. For example in 2011, customs and sugar levies represent only 12% of the EU budget, whereas national contributions amount to 76% (87% if one adds the VAT-based resource).

To regain more real “own resources”, the Commission therefore proposes daringly to reform the current system: abolishing the complex VAT-based contribution while introducing a new Financial Transaction Tax and a modernised VAT-based contribution. It is estimated that by 2020, both new own resources should amount to half of the budget, reducing the GNI-based national contribution to “only” one third.

 

If in principle such a proposal is logical and should help the EU finance its policy-driven budget targeted towards the EU2020 goals, one must not forget that new own resources need unanimous agreement by the Council, with consultation of the EP (therefore with a very limited say) and following the ratification by each Member State according to its constitution. Since the proposal reduces the direct influence of the Member States on the EU budget, it will no doubt provoke fierce debate.

 

For Commissioner Lewandowski, the good news so far is that several Member States have estimated that the various proposals of the Commission are a “good negotiation basis”. However, electoral calendars in France (May 2012) and in Germany (autumn 2013) only leave a very brief window of opportunity to reach agreement, namely June 2012. In any case, the MFF should ideally be approved by the end of 2012, so that the necessary legal bases for many programmes as laid down in the MFF (research, education, regional and cohesion policy, external action, etc.) may be put in place so as to start in January 2014.

There is more than money behind this complex procedure: it is about the capacity of the EU to deliver on its policies.

 

Hervé Pierre Guillot SJ

Jesuit European Office – OCIPE, Brussels

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