By whom and how is the community budget defined?

We have recently devoted a special section of our Guide to the new programming 2021-2027 and already mentioned several times the importance of the definition of the next multiannual financial framework for the future of European projects.

But how does the process of setting and approving European funds and programs in a given period (year or seven-year period) work? This is a very general question, but one that we feel is essential to shed more light on some of the posts we have published and will publish on this issue.

It is also a complex question, which we answer through three successive questions at increasing levels of depth. Get ready for a slightly longer and more articulate post than usual, but hopefully useful, dense, and very informative!

Happy reading!

Q.: What is the community budget?

A.: This very first question is not as simple as it seems. We have attempted an initial, cursory explanation in the opening parts of our Guide. Actually, what has to do with the community budget and is of interest to the readers of our Guide can be broken down into four different aspects:

1. The definition and approval of resources (“own resources“) available for the implementation of European policies and programs and for the operation of community institutions. This very general decision is by no means a foregone conclusion; rather, it is recurring and necessary because the EU does not have its own tax or extra-tax revenue system and cannot issue debt securities. In order to finance its activities it must in fact “beat the drum” with member states. The amount of own resources has an obvious impact on the perimeter of the Multi-Year Financial Framework, individual annual budgets and individual European programs.

• The establishment and approval of a Multi-Year Financial Framework (MFF), which is a planning document that sets maximum annual appropriation amounts, divided by expenditure category, for a seven-year period. Every annual budget must be included in these ceilings, as must every expenditure allocated year after year to EU programs and policies.

• The establishment and approval of an annual Union budget, which details the allocation of resources for a given calendar year. This is a budget largely predetermined by the aforementioned constraints of the Multiannual Financial Framework: it is the MFF and the definition of own resources (rather than individual annual budgets) that catalyze the debate (and political clash) between member states and EU institutions.

• The definition and approval of the Regulations relating to individual European Programs, which identify the operating rules, general objectives, axes, measures, modes of intervention, eligibility criteria and (of course) financial allocations of each program, within the constraints set by the Multiannual Financial Framework.

In all four cases, financial allocations with strong political and strategic significance are implemented. But each decision affects a different level and (as we shall see) follows different paths.

Q.: What procedure leads to the establishment and approval of the community budget?

A.: The procedures are different for each of the four levels defined in the previous answer.

1. The own resources system consists of a series of contribution shares to be paid by member states for the functioning of the Union (based today, for each state, on duties and VAT collected and on gross national income). It is defined by the Council of the European Union (which must approve it unanimously) and the Member States (which must ratify the decision; and by whose ministers the Council itself is made up). Other community institutions express opinions, scenarios and proposals on this topic. The European Parliament itself has only an advisory role in this and expresses a non-binding position.

The procedure is governed by Article 311 of the TFEU (also known as the Treaty on the Functioning of the EU or Lisbon Treaty). You can follow its current legislative process .

• The definition of the Multi-Year Financial Framework starts with an initial proposal from the European Commission. Its approval process requires: 1) the prior consent of the European Parliament, which holds a de facto “right of veto.” 2) the unanimous consent of the European Council (which also has the option of qualified majority voting instead of unanimity). This necessitates an extensive negotiation process between the Council and Parliament and within the Council itself. One of the key aspects of this negotiation is the amount of the overall “package” available for the Multi-Year Financial Framework, obviously linked to the own resources system.

The procedure is governed by Article 312 of the TFEU . You can follow its current legislative process .

• The Union’s annual budget setting follows a much more precise path in terms of institutional steps and timing. Two infographics proposed by the Parliament and the European Council can be viewed here and here. The two institutions have symmetrical powers in this process and have the ability to evaluate and amend, reject and approve each other’s positions, facilitated when necessary by a joint Conciliation Committee. Parliament still has the option of adopting the annual budget even if at the very last stage the consent of the European Council is lacking.

The procedure is governed by Article 314 of the TFEU . Obviously the EU 2020 budget (the last of the 2014-2020 seven-year period) has already been approved (here is the legislative process ).

• The making of Regulations for individual European Programs follows an ordinary legislative procedure in which the Parliament and the European Council consider a proposal prepared by the Commission and their respective positions, through three “reading” stages, at the end of each of which there may (or may not) be adoption of the Regulations. We offer in this regard anexcellent infographic from the European Parliament that clearly explains the various steps in the process with various complementary information, including a full explanation of each step and a summary of the resulting documents (important for navigating the terminology!).

The procedure is governed by Article 294 of the TFEU . Each European Program is the subject of a specific regulation, the legislative process of which can be followed through the appropriate prospectus of our Guide.

Q.: How are these processes applied in practice?

A.: Distinguishing these four dimensions and knowing how they work allows one to correctly interpret the information provided by various sources (our Guide included!) when speaking generically about “community budget.” We propose below some of examples of application of the processes described above and some insights.

As explained, the establishment of the own resources system and the negotiation of the Multi-Year Financial Framework refer to different procedures. However, they are closely related and are often treated together in communications, resolutions and on the web pages of community institutions, as:

• the Commission (which prepares the first MFF proposal) must associate reference amounts with identified needs, programs and expenditure headings;
• Parliament (in its evaluation, negotiation and approval of the MFF) considers (among other things) the adequacy of resources to the identified goals;
• the Council sets the resource ceiling on the basis of both the financial availability of the Member States and how well the MFF headings are perceived to serve their interests.

In the current phase of establishing own resources and the Multi-Year Financial Framework:

• The European Commission submitted two proposals in May 2018, one on the own resources system and one on the Multiannual Financial Framework (with annex). His proposals include increasing available resources by raising some existing rates and introducing three new sources of funding. The rationale for the MFF proposal and the various expenditure headings is explained in detail, in addition to the proposal itself, in a series of summary and thematic documents collected on this page.

The proposal follows a White Paper on the Future of Europe published in March 2017 and a series of subsequent thematic reflections collected on this page.

As the debate on own resources and the Multiannual Financial Framework overlapped with the European Parliament elections (May 2019) and the appointment of the new Commission (November 2019), the Commission produced two additional documents:

1. a contribution (or appeal, directed primarily to the Council) to resume work on the preparation and approval of the new MFF with speed (June 2019);
2. a new contribution (accompanied by explanation for the general public) justifying the importance and urgency of the choices implemented in the MFF proposal (October 2019);
3. a repeated call on the same issues by the new president of the European Commission (Ursula von der Leyen) on the eve of the February 2020 European Council.

Thus, the Commission has played its initiative role in the process of establishing the own resources system and the MFF. It closely monitors the activities of the political interlocutors in the process, namely the Parliament and the European Council.

• The European Parliament has already submitted several resolutions regarding own resources and MFF:
• In March 2018 (its preliminary position on own resources and MFF).
• In May 2018(confirming its position and supporting that of the Commission)
• in November 2018 (its interlocutory position, more detailed than the previous one)
• to April 2019(confirmation of its position and the MFF/own resources link)
• In October 2019(confirmation of his position after the European elections)

Parliament’s position further improves on that of the Commission by providing an additional increase for certain budget items, headings and programs considered strategic.

The European Parliament website has several rich and up-to-date in-depth pages, reflecting extensive activity on these issues:

1. news, which report the interventions of the representatives of the Parliament at important moments (Council proposals, negotiation meetings, own resolutions, etc.).
2. information, showing various useful elements(chronology, summary of Parliament’s position and related data, presentation of negotiators)
3. analysis (review of infographics, explanations, and publications on the subject)

Interesting in terms of Parliament’s role in this part of the decision-making process is the concluding resolution from the previous phase of negotiations (April 2014), in which useful lessons and recommendations for the future are drawn. The 2014-2020 MFF was the first one defined by the rules described in this post (i.e., the TFEU mentioned above), and the 2021-2027 MFF will therefore be the second.

Thus, the European Parliament is energetically playing its negotiating role, as required by the procedure: it cannot make a binding pronouncement on resources and does not (formally) enter into the formulation of the MFF, but its positions and resolutions carry considerable weight by virtue of its necessary assent (or right of veto) on the MFF.

• The European Council has a poorer “history” of official acts regarding MFF and own resources than the Commission and Parliament. The action taken is well summarized in a continuously updated timeline, which shows major steps and resolutions:
• during 2018, the Council merely took note of the proposals and urged Parliament to take a position on them. In November 2018, the Austrian presidency presented a draft negotiating outline with some thematic notes but without any numerical figures on the planned figures for the new MFF and its different headings. The December 2018 Council set the goal of reaching an agreement in the fall of 2019;
• during 2019 the activity continued at the level of technical working groups of the Council. On the eve of the June 2019 Council meeting, the Romanian presidency presented a new version of the draft negotiating outline, still lacking numerical data. An initial note on own resources was released in July;
• on the eve of the December 2019 Council meeting, the Finnish presidency finally presented a draft negotiating outline with data (down from previous proposals, as commented on here);
• the February 2020 Council (in extraordinary convocation) failed to reach conclusions on the 2021-2027 budget. In fact, the various draft negotiating outlines are an expression of the technical work of the presidency and do not commit the Council. A new council is scheduled to meet at the end of March 2020.

This path expresses the complexity of the purely technical, political and negotiating work done in the Council to mediate between the interests of 27 European states; exacerbated by the need for unanimous agreement; and the need to win the agreement of the European Parliament. Here A (non-institutional) examination of the issue. The road in the Council will not be easy: the appearance of the first data in the draft negotiating outline and the recent convening of special councils confirm that the debate is really coming to a head.

This analysis of the discussion regarding new programming effectively expresses the relative importance of MFF and own resources to the annual budget, which:

• also has its own political and operational relevance, but it is not the ground for equally heated political and institutional debate;
• involves a much more elaborate and legally and procedurally defined discussion and approval procedure, as explained above.

What about the Regulations related to individual European Programs? As explained above, each regulation follows its own very well-defined legislative process(ordinary legislative procedure).

As shown by our prospectus, at present:

• A proposed regulation has been published for all programs by the Commission;
• A European Parliament resolution (first reading) was voted for almost all programs;
• discussions are underway for all programs in the technical committees of the Council, but no official position has been presented on them.

The timing of the submission of the Commission’s proposed regulations (already in the aftermath of the submission of proposals for the MFF and own resources) confirms the close link between them and European programs. Parliament’s position on individual programs is, moreover, consistent with that on the MFF. The Council’s failure to present official positions on individual European programs is equally consistent with the failure (so far) to agree on an overall budget.

For this reason, it is important to maintain:

• an eye to our prospectus on individual programs, where you will find information on the technical structure of individual programs and their official legislative process;
• an eye to our section on new programming 2021-2027, where you will find more general information on this negotiation process, from which various evolutions of the available budget allocations will result.