The European Union Multiannual Financial Framework 2014-2020 negotiations are difficult and comprehensive. They will determine the Union’s policies and actions for the seven years to come. Moreover, they take place in tough times for the European Union, both economically and politically. On one hand it is a classical struggle to match unlimited needs with scarce resources, but happening at the highest European level. On the other hand, the EU is facing rising national interests from the Member States and their unwillingness to contribute to the EU budget. For years the Member States have been trying to keep down their financial contributions towards the European Union. Now, after five years of economic downturn and sovereign debt crisis, this tendency is even stronger.
Background: the crisis and the unfinished business
Since 2008 the EU economy has been suffering from the economic crisis and unclear perspectives. Erratic growth rates and GDP contractions, increasing unemployment and high levels of public debt made many European leaders put their national interests in the first place. These difficult economic circumstances set the stage for the Multiannual Financial Framework 2014-2020 negotiations and their final phase in 2013. In this challenging environment, the new long term budget is expected to deliver funding for new policy priorities which are supposed to bring growth back to Europe. It should be the backbone of the Europe2020 strategy. More ambitions, plans and tasks for the European Union…
Additionally, the final phase of the MFF 2014-2020 negotiations takes place while the European institutions still have some unfinished business rooted in the current programming period. The multiannual financial perspective 2007-2013 was a relatively inflexible framework which in the very first years generated budget surpluses that were returned to the national budgets of the Member States, which gladly took the extra money. As the MFF was proceeding, more and more programmes were taking off and more and more beneficiaries were asking for refunds of their investments. Therefore, contrary to the initial surpluses, the last years of the MFF resulted in growing payment deficit and increasing needs for ad hoc financing from the Member States, but the Member States were reluctant to pay. The deficit escalation took place in 2013 when the European Commission was forced to request an amending budget reaching an unprecedented level of 11.2 billion euro. These additional financial requests were unwelcome by the Member States. Nevertheless, from a legal point of view, the Member States are obliged to cover the EU’s commitments, needless to say that they agreed to them, back in 2006 when deciding the perspectives for 2007-2013. Something often ignored is the even deeper origin of the current payments problem; it is the very architecture of the EU budget. It was constructed decades ago with the assumption that the European funds will not be used entirely. The commitments level could be higher that payments level as the creators of the systems never dreamt of such a high EU funds absorption as we witness nowadays.
Interinstitutional struggle: the European Council takes the high ground
After several unsuccessful rounds of negotiations, the European Council finally reached an agreement on the Multiannual Financial Framework 2014-2020 on 8th February 2013. As proposed by the President Herman Van Rompuy the MFF ceilings were set at 960 billion euro in commitments and 908 billion euro in payments. For the first time in the history of the European integration the heads of states and governments agreed upon a long-term budget lower than in the previous programming period. Although on the 13th of March the European Parliament acknowledged the European Council’s position, it did not approve it as disregarding Parliament’s resolution on the MFF from October 2012. Moreover, the Parliament expressed its concern that the way the negotiations were conducted and the result itself undermined the role of the EP in the MFF legislation process. The Lisbon Treaty not only requires the Council to receive consent from the Parliament, but it also encourages all the EU institutions to take every possible measure to facilitate the adoption of the MFF. The MEPs’ interpretation is that the Council should engage the Parliament into talks that would lead to a conclusion satisfactory for all the parties involved. While the consent should finalize an agreement forged by the Council and the Parliament, the February 2013 agreement was not only one-sided but, due to a lower level of financing, bringing a potentially negative impact for the European integration.
The European Parliament drives the change
After two months of informal talks the MFF negotiations were finally reopened on 6th May. The European Parliament did not question the amounts, but instead focused on improving the way the MFF is executed. The main point of the bargain was to mitigate the lower ceilings through higher flexibility. The Parliament demanded the Council three conditions:
* To improve the flexibility of the Multiannual Financial Framework,
* To agree on the revision of the MFF after the first 3 years,
* To establish a high-level group on own resources in order to rethink the way the EU budget is financed.
Firstly, the European Parliament achieved the Council’s green light to increase the MFF’s flexibility via a set of measures including frontloading and backloading of certain budget lines and the use of global margins carryover from one year to another. The MEPs made the Council to frontload the money for growth- and employment-related programmes to improve as soon as possible the EU economic outlook. In order to tackle the problem of sluggish growth and high unemployment beneficiaries of Erasmus+, Horizon 2020 and COSME (financial assistance for SME sector) will be able to take advantage of increased funding already in 2014 and 2015. Moreover, in the new financial framework the unused margins will not be returned to the Member States. Secondly, the Council agreed that the next legislature EU institutions will be able to undertake the revision of the MFF in 2016. The purpose of such revision would be to evaluate the new flexibility measures and the effectiveness of frontloading of growth-generating programmes, as well as to supply the EU budget with new funding, if necessary. Thirdly, the Council finally agreed to establish a high-level group on own resources, which was pending since its first proposals made by the European Parliament in 2010. The group is expected to deliver a solution for the growing problem of outstanding payments and to redefine the financing of the EU. An additional goal is to increase the transparency of the system including the simplification of the UK rebate and other rebates held by other Member States. No need to say that the group has a tough task ahead…
Overlapping issues: amending budgets 2013 and budget 2014
In parallel to the MFF negotiations the EU institutions are dealing with the amending budgets for 2013 and with EU budget 2014, the first annual budget of the new financial framework. Due to inflexibility of the MFF 2007-2013 the level of outstanding payments was gradually accumulating over the years. The European Parliament’s position is that the EU institutions should minimize the level of unpaid bills carried over to the next programming period in order to create as much of financial liquidity for the new EU initiatives as possible. Meanwhile, the European Parliament’s adopted its position on the budget 2014. The Council introduced significant cuts to the draft budget proposed by the Commission that the Parliament could not agree on. The MEPs decided to reverse almost all cuts made by the Member States and additionally to reinforce growth- and employment-related budget lines. The inevitable clash of the Councils and EP’s positions will make the November budget conciliation very challenging.
Waiting for fulfilling the conditions
The final political agreement on the Multiannual Financial Framework 2014-2020 was reached on 27 June 2014. The Council agreed to fulfil the Parliament’s conditions. It also accepted to cover the outstanding payments of 11.2 billion euro for the year 2013 in two tranches. As for the European Parliament, it confirmed its agreement for lower MFF figures. Despite of the final political deal between the Member States and the European Parliament made in June, mutual trust is limited and the implementation of the agreement worryingly slow. In May 2013 the Council agreed to pay the first tranche of 7.3 billion euro. It has been released commonly by the EU institutions in September. The second tranche remains blocked. Although the Committee of Permanent Representatives reached an agreement on the pending 3.9 billion euro amending budget, the Council of Ministers, which has the final say, did not confirm this decision before the EP plenary session of October. Due to the Council’s delay, the European Parliament could not vote the MFF. It has to be mentioned that some legislative disputes linked to the set of the MFF-related legal bases and the issue of the own resources working group were also not finalised before the second October plenary session of the EP. Unfortunately, even if the Council and the Parliament reach an agreement at the November 2013 plenary session, the outstanding bills will be paid no earlier than January 2014. This delay could have resulted in the Commission running out of money and failing to meet its financial responsibilities. To prevent this from happening the EU institutions struck a last minute deal to cover an additional shortfall of 2.7 billion euro in EU revenue linked to drop in custom duties revenues. The MEPs voted on this 2.7 billion euro amending budget (AB 6) on the 24th of October by means of an extraordinary procedure. This swift response, however, solves the payment problem only temporarily.
Heading towards a jumbo conciliation
The budgetary conciliation which will continue until the midnight of 13 of November is giant in scope: it should solve the problem of deficit of 2013, agree the budget for 2014 and last but definitely not least finalise the MFF 2014-2014. One thing should be clear to all the European institutions: success of the EU budget negotiations is awaited by young people, small and medium enterprises, universities and local authorities that need new EU programmes.