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MFF negotiations blown off course as European Parliament plays poker

Last week (Monday 22 April) the General Affairs Council (GAC) gave ‘guidance’ to the Irish Presidency for the negotiations with the European Parliament on concluding the MFF negotiations. The Irish Presidency’s objective is to reach agreement with the Parliament on the MFF by the end of June and to translate the overall MFF agreement into legal texts.
According to the conclusions of the meeting:

Ministers supported the presidency’s efforts to find a compromise with the European Parliament on the next MFF in a timely manner. Ministers expressed their willingness to discuss the four key elements of the European Parliament’s resolution (flexibility, revision, own resources and unity of the budget). Some ministers also stressed that substantial elements of the Parliament’s demands had already been agreed by the European Council in February, in particular as regards flexibility.

More than two months have passed since the European Council agreed its proposal on 8 February, and the Presidency was anxious to lose no more time. Eamon Gilmore, Irish deputy prime minister and chair of the GAC, announced he would meet with the Parliament’s contact group later in the week in the first of the planned trilogue meetings on Thursday 25 April 2013.
However, last Thursday the Parliament’s contact group refused to meet with the Presidency to start the trilogue process. According to Reimer Böge, co-rapporteur of the European Parliament on the Multiannual Financial Framework (MFF), Parliament denies any responsibility for the delay of the start of the MFF negotiations:

Over the past weeks, the Parliament has been preparing its negotiating position and is thus ready to start negotiations. The situation in the Council, however, is catastrophic and makes real negotiations at this point impossible. Firstly, the Irish Presidency has not managed up until now to receive a formal mandate from the General Affairs Council for the legal texts on the basis of the Council conclusions from February; secondly, ECOFIN has shown absolutely no willingness to cooperate with regard to a swift solution for the draft amending budget.
Given that the Council has given no signs of making concessions on the draft amending budget or on the EP priorities regarding the MFF, the Parliament had no choice but to postpone the start of the negotiations and to invite the Presidents of the Institutions to accelerate the process, making a timely agreement possible.

The Parliament had previously rejected the European Council’s MFF agreement in its resolution of 13 March 2013 which set out the Parliament’s demands. The GAC conclusions give the Presidency scope to explore where agreement might be found (although whether the ‘guidance’ given to the Presidency amounts to a ‘mandate’ appears to be a disputed issue). The European Parliament is now waiting for a formal Irish Presidency response on behalf of the Council to the EP’s resolution and specific demands.
The Parliament’s resolution underlined its willingness to enter into fully fledged negotiations with the Council. It set as a precondition that the Commission should come forward with an amending budget for 2013 devoted to the sole purpose of covering all unpaid claims for 2012. It also demanded a political engagement from the Council that all legal obligations due in 2013 will be paid out by the end of this year.
Disappointingly, the Parliament’s contact group concluded on the Tuesday evening that these preconditions were not met and thus abandoned the trilogue process. In this post I try to unravel some of the issues at stake.
Parliament’s initial MFF reactions
The European Council agreed that the next MFF should shrink as compared to the current one. Total commitment appropriations were set at €960 billion (-3.5% and -€35.2 billion as compared to the current MFF) which is 1% of EU gross national income, while payment appropriations were set at €908 billion (-3.7% and -€34.4 billion as compared to the current MFF).
The Parliament’s initial reactions to the European Council MFF conclusions were marked by a bout of silliness. Under the Treaty of Lisbon, the European Council has no formal legislative powers but it “provide[s] the Union with the necessary impetus for its development and shall define the general political directions and priorities thereof.” (Art. 15, TEU). The Council is also mandated, in accordance with a special legislative framework, to adopt the regulation laying down the MFF, acting unanimously after obtaining the consent of the European Parliament (Article 312, TFEU).
It is understandable that the Parliament, which along with the Commission had sought a higher EU budget, would be disappointed with the Council’s proposal. However, when the EP’s Budget Committee met on 20 February 2013 to consider the Council conclusions, the committee’s chair Alain Lamassoure claimed that the European Council had staged a legal coup d’etat and had ignored the role of the Parliament. This reaction simply ignored the statement in the European Council conclusions that “This is the basis on which the Council will now seek the consent of the European Parliament in accordance with Article 312(2) TFEU which stipulates that the Council shall adopt the MFF regulation after obtaining the consent of the European Parliament.” (Para. 6).
Then there was the idea announced by EP President Martin Schultz in a speech on 7 February 2013 that the Parliament might seek to have a secret vote on its MFF resolution, apparently in a bid to avoid MEPs coming under pressure from national governments to support the European Council position. Fortunately, however, wiser heads also prevailed on this issue.
More serious is the apparent willingness of senior EP figures to countenance a delay in approving the MFF, possibly until after the May 2014 elections to a new European Parliament. This would trigger a system of annual budgets linked to the 2013 level which would make available more money than foreseen under the European Council’s MFF. It may also have the role of a bargaining counter as it would mean that some net contributor countries such as Germany, Netherlands, Austria and Sweden would lose their rebate on their net contribution to the UK rebate after 2013.
However, there is no guarantee that the sectoral legislation which is required to release funds under the EU’s research, cohesion and rural development programmes could be adapted in a way which would allow the continuation of these programmes after 2014. Thus, from the point of view of enabling Europe to invest in growth and employment this is a very dangerous game to play.
The key sticking point now is the Parliament’s linkage between opening trilogue negotiations on the MFF and evidence of the Council’s willingness to reach agreement on the Commission’s second draft amending budget for the 2013 budget. Essentially, this seeks to ensure that sufficient funds are available in the 2013 budget to fully pay all the EU’s commitments which fall due in this year, so that further liabilities are not rolled further into the 2014-2020 MFF.
At last week’s GAC, a number of member states made clear they were not convinced by the Commission’s figures. Member states whose domestic budgets are already under severe pressure do not relish the idea of making a larger-than-expected payment to Brussels.
The Parliament is right to insist that simply refusing to pay bills that have already been incurred is to adopt an ostrich-like attitude. But it is wrong to refuse to open trilogue negotiations on the MFF until there is evidence of progress on the 2013 amending budget. The Parliament’s position that it will not even enter into negotiations until it is clear how the unpaid payment claims for 2012 as well as 2013 claims would be covered is not reasonable. The two issues need to progress in parallel and trilogue negotiations on the MFF need to begin now.
Parliament’s substantive MFF demands

There are five substantive issues mentioned in the EP’s MFF resolution of 13 March 2013 (see also this commentary from Notre Europe written by Jacques Delors and António Vitorino which gives strong support to the Parliament’s position).
Overall size of the MFF
The Parliament has consistently argued for greater spending on growth and employment initiatives, including innovation, R&D, infrastructure and youth, meeting the EU’s climate change and energy objectives, improving education levels and promoting social inclusion (although it has refused to consider reducing the CAP budget to make room for these initiatives).
However, the overall size of the MFF and the amounts allocated to the different headings were not listed in the GAC meeting as a contentious issue in the negotiations with the EP. There appears to be a reluctant acceptance in the Parliament that the numbers in the European Council’s MFF conclusions will not be increased. However, not all political groups in the Parliament are happy with this; there is pressure, in particular, to re-open the amounts devoted to Heading 1(a) Competitiveness.

Revision clause

The Parliament’s stance on revision is set out as follows:

Firmly believes that, in order to ensure full democratic legitimacy, the next European Parliament and Commission – that will come into office following the 2014 European elections – should be in a position to reconfirm the Union’s budgetary priorities and carry out a revision of the MFF 2014-2020; underlines, therefore, its position in favour of a compulsory and comprehensive revision of the MFF, or possibly a sunset clause; considers that the revision should be legally binding, enshrined in the MFF Regulation and decided by qualified majority in the Council, making full use of the passerelle clause of Article 312(2) of the TFEU;

The reference to the passerelle clause is designed to get round a constitutional objection to the EP’s position, namely, that the Lisbon Treaty specifies that the MFF should be adopted by unanimity in the Council. The Treaty introduced passerelle clauses in order to be able to apply the ordinary legislative procedure (i.e. qualified majority voting) to areas for which the Treaties had laid down a special legislative procedure. The specific passerelle clause relevant to the MFF (contained in Article 312) states that: “The European Council may, unanimously, adopt a decision authorising the Council to act by a qualified majority when adopting the regulation referred to in the first subparagraph.”
There are various arguments in favour of including a revision clause in the seven-year MFF. One is that Europe is now in the midst of a recession and that, over a 7-year period, changed circumstances might justify a reordering of priorities. A second argument, used by the Parliament, is that it is wrong for the outgoing Parliament to bind its successor and that the latter should have a renewed opportunity to express its views on the Union’s spending priorities at the beginning of its term. This also justifies its view that the revision should occur as early as 2016. The difficulty here is that there is no support in the Treaty for the view that a new Parliament should have another opportunity to give its consent to the MFF in place at the time of its election.
The Council is willing to consider a revision of the MFF but in a much more limited context. Here the view is, not surprisingly, that what is agreed by unanimity cannot be altered by qualified majority. Revision, in the Council’s view, would be limited to updating the MFF on the basis of more recent macroeconomic indicators which might justify, for example, changes in the shares of cohesion spending. It buttresses its position by arguing that any potential for greater reallocation among headings would lead to uncertainty. For the Council, the revision should take place no earlier than 2017 or half-way through the current MFF.
Flexibility

The EP’s position on flexibility is set out as follows:

Requests that the agreed MFF ceilings for commitment and payment appropriations be used to the fullest extent when establishing the annual EU budgets; considers, therefore, that the maximum overall flexibility between and within headings, as well as between financial years, needs to be ensured in the next MFF and decided by qualified majority in the Council; believes, in particular, that such flexibility should include the possibility of fully utilising the available margins of each heading in one financial year (for commitment appropriations), as well as an automatic carry-over of available margins to other financial years (for both commitment and payment appropriations);

President Barroso has supported the Parliament in its quest for greater flexibility, saying that without this the new MFF cannot work. He has called for the possibility for transfers between headings, carry-over between years, and the n+3 rule for commitments (allowing member states that are not in a position to spend an extra year to draw down their commitments).
The European Council opened the door to meeting the Parliament’s demand for flexibility. Its February 2013 conclusions state that: “Specific and maximum possible flexibility will be implemented in order to comply with Article 323 TFEU to allow the Union to fulfil its obligations. This will be part of the mandate on the basis of which the Presidency will take forward discussions with the European Parliament ….” However, the Council will be reluctant to allow transfers across headings on the basis of qualified majority voting, given that these ceilings are considered an integral part of the MFF which is adopted by unanimity.
Own resources

The European Parliament’s position on own resources is as follows:

Stresses the importance of reaching an agreement on an in-depth reform of the own resources system; emphasises that the EU budget should be financed by genuine own resources, as provided for in the Treaty; states, therefore, its commitment to a reform that reduces the share of GNI-based contributions to the EU budget to a maximum of 40 % and phases out all existing rebates and correction mechanisms;
Reiterates its support for the Commission’s legislative proposals on the own resources package, including a binding roadmap; considers, furthermore, that in the event that the Council waters down these proposals so that they do not result in a significant decrease in the Member States’ GNI-based contributions to the EU budget, the Commission should come forward with additional proposals on the introduction of new genuine own resources; insists that revenues from the Financial Transaction Tax should be allocated at least partly to the EU budget as a genuine own resource;

In its agreement on own resources in the MFF 2014-2020, the European Council reached the following conclusions: collection costs on traditional own resources (customs duties and agricultural levies) should be lowered to 20%; a new VAT resource should be further worked on and could replace the existing one; those member states cooperating on a Financial Transactions Tax (FTT) should examine if this could become an own resource; the UK rebate should be kept and corrections should be granted to Denmark, Germany, the Netherlands and Sweden until 2020 (and to Austria until 2016).
Already, doubts are being raised about the feasibility of implementing the FTT. It is not clear whether and when it will be implemented, let alone whether some of the proceeds would be earmarked for the EU budget. What the Parliament is looking for is a political agreement with the Council including a roadmap that the EU budget should be financed by own resources that are different to national budget resources.
Some member states, including France, favour a timetable for the introduction of additional own resources. However, many member states, including Germany, are opposed to any new own resource because it would be seen as introduction of a new tax.
Unity of the budget

The unity of the budget is an old Parliamentary chestnut and refers to the fact that there are a number of off-budget items (notably the European Development Fund) which are formally not part of the MFF.
The European Council conclusions accepted that the MFF should include, as a rule, all items for which EU financing is foreseen, as a means of ensuring transparency and appropriate budget discipline. However, in addition to the EDF, it also proposed to place the Flexibility Instrument, the Solidarity Fund and the European Globalisation Adjustment Fund outside the MFF.
The Parliament’s demand is that full information on all expenditure and revenue, including borrowing, lending and loan guarantee instruments, should be summarised each year in a document annexed to the draft budget to allow for full information and parliamentary control.
The issue of unpaid appropriations
On 27 March 2013 the Commission forwarded its second draft amending budget for the year 2013 which proposes an increase of payment appropriations of €11.2 billion for all headings in the current MFF except for administration. It would allow all the legal obligations left pending at the end of 2012, as well as those arising before the end of 2013, to be covered in this year’s budget.
The background to this is that the three institutions undertook in a joint declaration at the end of the 2013 budget negotiations to finish 2013 with a “clean sheet”, by settling all unpaid bills incurred by member states for EU programmes before the start of the next MFF. Indeed, the Parliament believes that the sum required is nearer to €16 billion.
The General Affairs Council conclusions noted:

With regard to draft amending budget no 2 for 2013 (by which the Commission proposes to increase the 2013 EU budget by EUR 11.2 billion and which the European Parliament links to the MFF), the Council expressed its willingness to work urgently and constructively on the Commission proposal with a view to reaching agreement in order to meet clearly justified payment needs. The Council will also follow very carefully the evolution of the budget through the year and take any necessary further steps to ensure that the EU can fulfil its obligations.

The Parliament abandons the trilogue

At the EP’s Budget Committee meeting on Wednesday 24 April, the Committee chair explained the rationale behind the Parliament’s refusal to meet with the Presidency and Commission in trilogue. Members of the EP’s contact group had met with two Ministers from the Irish Presidency the previous evening seeking evidence of a commitment to reach agreement on the draft amending budget.
They failed to get the assurances they were seeking – Lamassoure complained that they were not even willing to adjust the calendar for the two sets of trilogues to be sure that they could be completed in parallel – with the result with the EP contact group took the unanimous decision that the preconditions were not in place to begin the MFF trilogue.
Lack of transparency

Another theme of the Parliament is the lack of transparency in the budget negotiations. For example, despite numerous requests, the Parliament does not yet have access to official figures for the national envelopes for each country’s cohesion fund or rural development allocation. Apparently, each institution (European Council, Council and Commission) says it is up to the other institutions to provide this information. This is hardly a satisfactory state of affairs.
According to the Budget Committee which has attempted to produce its own numbers on the cohesion fund allocations, Greece and Spain will lose 30% of their payments in the current MFF period, while the Scandinavian countries will gain. Assuming these numbers are correct, the Parliament wants to know the objective criteria on which such a distribution has been agreed.
I might add my own example: the conclusions of the GAC meeting on 22 April note that the Presidency tabled a draft MFF regulation and IIA (inter-institutional agreement) regulation earlier this month and that work will continue in COREPER (the Permanent Representatives Committee composed of the ambassadors of the 27 EU member states which prepares decisions of the Council). But these documents are not yet publicly available. The Parliament is absolutely right to complain about this lack of transparency.
Next steps

Eamon Gilmore on behalf of the Irish Presidency took the opportunity of a speech in Brussels on Thursday 25 April 2013 to lament the unwillingness of the Parliament to take part in the first planned meeting of the MFF trilogue earlier that day.
According to Gilmore:

The MFF is central to progress on jobs and growth in Europe. If we fail to agree in good time, the Union will struggle to plan, manage and programme the expenditure of 960 billion euro of public money. That puts in jeopardy the efficient planning and spending of 325 billion euro in Cohesion funds for example, money that our regions and citizens are depending on, not least to provide jobs during this economic crisis. And the perception of the Union’s capacity to take hard decisions will suffer if we are unable to agree on a solid financial basis on which to implement the Union’s programmes.

The next step now will be a trilateral summit convened by the Commission (making use of its powers under Article 324, TFEU) comprising the Presidents of the Council, the Parliament and the Commission, which is scheduled for May 6 2013. The EP Budget Committee meeting the following day 7th May will then decide if enough progress has been made to allow the trilogue to begin.
However, the MFF timetable is slipping. Three MFF trilogues had been planned under the Irish Presidency – one end-April, one mid-May and the third mid-June. With the end-April trilogue abandoned and even if the next meeting takes place in mid-May, that leaves only a month to reach a political agreement on the MFF.
It is also necessary to look at the trilogue timetable for the 2013 amending budgets as, politically, these negotiations have to be concluded at the same time.
Under these circumstances, it seems hardly possible that a political agreement on the MFF can be achieved under the Irish Presidency. It would then fall to the Lithuanians, who had hoped to concentrate on pushing through the 2014 budget, to deal also with the outstanding 2013 budget and MFF items.
If so, it is interesting to speculate on what this might mean for the CAP negotiations as the Parliament has also created a linkage between concluding these negotiations and agreeing the MFF.

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