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Financial perspectives system and the multiannual financial framework

Financial perspectives system and the multiannual financial framework

Outline of the Community (European Union) legislation about Financial perspectives system and the multiannual financial framework

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Budget

Financial perspectives system and the multiannual financial framework

 

The political and institutional balance of the Community’s system of finance gradually was marked by ever-increasing strains in the 1980s. The conflict between the two arms of the budgetary authority (the European Parliament and the Council) meant that the annual budgetary procedure became increasingly difficult to administer and resulted in budgetary imbalances and a growing mismatch between Community resources and requirements. This prompted the Community to introduce a system designed to improve the budgetary procedure.

Through an interinstitutional agreement (IIA), the European Parliament, the Council and the Commission agree in advance on the main budgetary priorities for a period covering a number of years. These budgetary priorities establish a framework for Community expenditure (the multiannual financial framework) in the shape of a financial perspective. The system of financial perspectives thus improves the budgetary procedure whilst ensuring budgetary discipline. The multiannual financial framework is not mentioned in the treaties.

Financial perspective and multiannual financial framework: a means of ensuring budgetary discipline

The multiannual financial framework indicates the maximum amount and the composition of foreseeable Community expenditure. The first Interinstitutional Agreement was concluded in 1988 for the application of the 1988-92 financial perspective (Delors I package), which was intended to provide the resources needed for the budgetary implementation of the Single European Act. Since then, the financial perspectives have been updated in 1992 for the period 1993-99 (Delors II package), in 1999 for the period 2000-06 (” Agenda 2000 “) and in 2006 for the period 2007-13.

The purpose of the financial perspective is therefore to strengthen budgetary discipline, to keep the total increase in expenditure under control and to ensure that the procedure runs smoothly. The multiannual financial framework imposes a dual ceiling on expenditure: one for total expenditure and one for each category of expenditure.

Structure of the mutiannual financial framework

For each programming period, the multiannual financial framework determines “ceilings” (the maximum amounts of commitment appropriations and payment appropriations) per “heading” (the categories of expenditure) for each year. The annual budgetary procedure determines the exact level of expenditure and the breakdown between the various budget lines for the year in question.

The expenditure allocated to each heading is based on the Union’s political priorities for the period in question. The structure of the multiannual financial framework for 2007-13 is as follows:

1. Sustainable growth
1 a. Competitiveness for growth and employment
1 b. Cohesion for growth and employment
2. Conservation and management of natural resources (including market expenditure and direct payments)
3. Citizenship, freedom, security and justice
3 a. Freedom, security and justice
3 b. Citizenship
4. EU as a world player
5. Administration
6. Compensation

The ring-fencing of expenditure headings means that a budget line is financed only from a given heading. Each heading should be well enough financed to allow redeployment of expenditure between operations under the same heading where necessary in order to tackle unforeseen issues.

The “margin for unforeseen expenditure” between the own resources ceiling and the ceiling for payment appropriations has a dual role:

  • to allow the multiannual financial framework to be revised if necessary so as to cover any expenditure which is unforeseen when the financial perspective is adopted;
  • to leave a safety margin should economic growth be lower than forecast; should this be the case, actual GNI will be lower than expected and the ceiling for payment appropriations, which is an absolute amount, can be financed from the own resources margin, within the limits of the own resources ceiling expressed as a percentage of GNP.

Link with the own resources system

The overall ceiling for commitment appropriations is obtained by adding together the various ceilings for individual expenditure headings. To check the compatibility of the financial perspective with the ceiling for own resources, which constitutes the absolute limit on the resources that the Member States can make available to the Union, an annual ceiling is also established for payment appropriations. This is an overall ceiling not broken down by expenditure heading. It is also expressed as a percentage of the Community’s estimated gross national product (GNP).

Rules for applying the financial framework

The rules for applying the financial framework are laid down in the Interinstitutional Agreement, which contains the rules and procedures for the annual management of the financial framework (e.g. technical adjustments, adjustments connected with the conditions of implementation or with enlargement of the Union, and revision of the financial perspective). This makes it possible to improve the annual budgetary procedure.

Each year the Commission, under its own responsibility, makes a technical adjustment to the multiannual financial frameworkfor the coming year. This adjustment concerns the following operations:

  • as the multiannual financial framework is drawn up at constant prices, it has to be adjusted each year to take account of inflation so as to ensure that each expenditure heading retains its initial purchasing power. The technical adjustment is generally made at the beginning of year n-2 for a given year n on the basis of the most recent economic data and forecasts available. No subsequent technical adjustment is made for the year in question;
  • the ceiling on own resources is expressed as a percentage of GNI. Translation of this ceiling into an absolute figure means that, for the purposes of the technical adjustment, the calculation has to be based on the most recent data on Community GNI. It is at this point that compatibility between the total payment appropriations and available own resources is verified.

The Commission can also propose changes to the multiannual financial framework to the two arms of the budgetary authority in two cases:

  • re-scheduling of the payment appropriations available for structural operations where delays have been identified in the programming of such operations;
  • re-evaluation of the needs relating to certain headings as a result of the accession of new Member States.

The two arms of the budgetary authority may, following a proposal from the Commission, decide to revise the multiannual financial framework. This will enable the Community, while respecting the own resources ceiling, to take necessary action not foreseen at the time the financial perspective was drawn up.

A European Economic Recovery Plan

A European Economic Recovery Plan

Outline of the Community (European Union) legislation about A European Economic Recovery Plan

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Economic and monetary affairs > Stability and growth pact and economic policy coordination

A European Economic Recovery Plan

Document or Iniciative

Communication from the Commission to the European Council of 26 November 2008 – ‘A European Economic Recovery Plan’ [COM(2008) 800 final – Not published in the Official Journal].

Summary

The European Economic Recovery Plan is a response to the global economic crisis which affected the real economy in 2008. It sets out the broad lines of a coordinated European approach which involves:

  • swiftly stimulating demand;
  • helping the most vulnerable people affected by the economic downturn;
  • preparing Europe to be competitive with a view to future growth;
  • taking advantage of this period of upheaval in order to accelerate the establishment of a cleaner economy with more concern for the environment.

The European Commission proposes that Member States and the European Union agree on an immediate budgetary impetus amounting to EUR 200 billion.

The plan is intended to operate at both European and global level.

Solutions at European level

At financial market and macro-economic level

The instability in the financial markets triggered the crisis in the real economy. It is important that the banks should re-focus on their primary activities of providing liquidity and supporting investment in the real economy.

The European Investment Bank (EIB)will increase its yearly interventions in the European Union by some EUR 15 billion in the form of loans, equity, guarantees and risk-sharing financing, as well as investment from private sources.

Budgetary policy will have a role to play in stabilising economies and sustaining demand. This recovery will take place within the framework of the Stability and Growth Pact and the priorities of the Lisbon Strategy.

At the level of individuals

The Plan aims to help individuals who have lost their jobs and are suffering the social consequences of the crisis. In this perspective, it will reinforce the activation schemes, in particular for the low-skilled and vulnerable, in order to get them into training or even help them to re-train with a view to matching the supply and demand of jobs.

To this end, the Commission will use the European Social Fund and the European Globalisation Adjustment Fund in order to finance the costs of training and job placement for those who are made redundant.

In addition, Member States are advised to reduce their employers’ social charges on lower incomes to promote the employability of lower-skilled workers. Similarly, solutions such as service cheques for household and child care, or temporary hiring subsidies for vulnerable groups, are encouraged.

A reduction in the VAT on labour-intensive services is also envisaged.

At the level of businesses

Businesses must have access to financing on the same basis as the banks. Small and medium-sized enterprises and micro-enterprises are the most exposed and must therefore be the focus of urgent steps. It is envisaged that the European Small Business Act will be implemented to this end.

The Commission will put in place a simplification package to speed up its State aid decision-making.

At the level of the environment

It is becoming vital to develop a clean economy. In this perspective, the European Union must equip itself with new businesses and industries, as well as environmentally-friendly infrastructures.

The Commission plans in particular to invest in trans-European transport projects, while the EIB will increase the financing of investment to tackle climate change and to improve energy security and infrastructure.

The Plan also provides for action at the level of research and innovation in order to develop “green products”, particularly in the construction and automobile sectors.

Solutions at global level

The Plan aims to reinforce closer collaboration between the European Union and its international partners in economic and climate matters.

The European Union must also maintain its commitments to developing countries in the context of the Millennium Development Goals (MDGs) and Overseas Development Assistance (ODA), in particular by developing new instruments to help those countries deal with the direct consequences of the crisis whilst maintaining sustainable development.

Background

In the face of the crisis, the European Economic Recovery Plan is designed to create a basis for agreement between Member States to get Europe’s economy moving again. Although the Plan contains short-term action, it also falls within the Lisbon Strategy.

The decision-making process and the work of the institutions

The decision-making process and the work of the institutions

Outline of the Community (European Union) legislation about The decision-making process and the work of the institutions

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Institutional affairs > The decision-making process and the work of the institutions

The decision-making process and the work of the institutions

In order to implement EU policies, the European institutions adopt legal acts in accordance with the rules and procedures set out in the Treaties. In general, the European Commission proposes the legal acts, which are then adopted by the Council and the European Parliament. The three main procedures are consultation, assent and codecision.
Citizens also have a say in the development of Community policies. In the early 2000s, the Commission launched a major initiative to make the decision-making process more transparent, more efficient and more democratic. The aim of this initiative is to bring the European institutions closer to the citizen.

DECISION-MAKING PROCESS

  • Legislative procedures
  • The citizen’s initiative
  • Financial Regulation
  • A budget for Europe (2014-2020)
  • Towards a new financial framework 2007-2013
  • Interinstitutional Agreement on cooperation in budgetary matters
  • Procedure for the adoption of international agreements
  • The principle of cooperation between the institutions
  • Cooperation between the European Parliament and the European Commission
  • The accession process for a new Member State

LEGAL INSTRUMENTS

  • Sources of European Union law
  • Primary law
  • International agreements
  • The non-written sources of European law: supplementary law
  • Unilateral acts
  • Conventions and agreements
  • Regulations
  • The European decision
  • Directive
  • Atypical acts

ACTIVITIES OF THE INSTITUTIONS

Governance and Community legislation

  • White Paper on governance
  • Action Plan for Better Regulation
  • Strategic review of the “Better Regulation” programme
  • Interinstitutional Agreement on better law-making
  • Simplifying the regulatory environment
  • Reducing administrative costs
  • Fewer administrative formalities for more growth

Communication and debate on the activities of the European Union

  • Plan D for Democracy, Dialogue and Debate
  • Better informed about Europe
  • White Paper on Communication
  • Communicating Europe in partnership

Publication, transparency and access to documents

  • Transparency register
  • Access to European Parliament, Council and Commission documents
  • Public access to documents held by the Institutions
  • European Transparency Initiative (ETI)
  • Green Paper on the European Transparency Initiative

ENFORCEMENT OF COMMUNITY INSTRUMENTS

Transposition, implementation and enforcement

  • The direct effect of European law
  • Precedence of European law
  • The action for annulment
  • Proceedings for failure to fulfil an obligation
  • Proceedings for failure to act
  • The reference for a preliminary ruling
  • The action for damages

Implementing Community instruments

  • The Commission’s implementing powers