The 2016 mid-term review of the Multi-annual Financial Framework

Imagine a scenario where UK voters go to the polls later this year to vote on whether to remain in or leave the EU, while at the same time in Brussels a debate is in full swing over whether to increase the ceilings for the 2014-2020 Multi-annnual Financial Framework (MFF), and thus the UK contribution to the EU budget. This seems to be the nightmare scenario behind the story carried by Euractiv earlier this week based on the views of an anonymous EU official and which declared that “the major event in the calendar of the Juncker Commission, the midterm review of the European Union’s 7 year budget, has been effectively cancelled”.

The report goes on to explain:

EU officials are too scared to come up with policy recommendations to recalibrate the €960 billion EU budget until 2020 by mid-summer, as such proposals would most likely coincide with the Brexit referendum expected in June.

The story is, I suspect, largely nonsense. First, there is a legal obligation on the Commission to come forward with a mid-term review/revision of the 2014-2020 MFF before the end of 2016. Second, according to the Commission’s own roadmap this is not likely to happen before the second half of the year when information on the working of some aspects of the current MFF becomes available. Third, the EU institutions including both the Council and Parliament are gearing up for the review. The Euractiv story is right to suggest that the Commission. and the Brussels circuit more generally, will hope that the UK referendum is out of the way before the real debate begins, but the suggestion that the mid-term review/revision is effectively cancelled seems far wide of the mark.

Indeed, given the current challenges facing the Union, the 2016 mid-term review of the MFF takes on additional significance. In this post, I discuss the legal background and the substantive agenda, and ask whether the review could lead to significant changes in either agricultural policy or spending.

The legal framework

The legal framework is very well set out in an excellent Working Document prepared by MEPs Jan Olbrycht (EPP) and Isabelle Thomas (S&D) for the European Parliament’s Committee on Budgets last November. From the outset of discussions on the 2014-2020 MFF under the previous Barroso Commission, the Parliament insisted there should be an opportunity to revisit the MFF when the new Parliament was elected. This led to the insertion of Article 2 Mid-term review/revision of the MFF into the MFF Regulation, which reads:

By the end of 2016 at the latest, the Commission shall present a review of the functioning of the MFF taking full account of the economic situation at that time as well as the latest macroeconomic projections. This compulsory review shall, as appropriate, be accompanied by a legislative proposal for the revision of this Regulation in accordance with the procedures set out in the TFEU. Without prejudice to Article 7 of this Regulation, pre-allocated national envelopes shall not be reduced through such a revision.

This Article was accompanied by a Commission declaration annexed to the MFF Regulation, confirming its intention to submit legislative proposals for the revision of the MFF Regulation:

With regard to the provisions of Article 2 MFFR, taking into account the result of the Review, the Commission confirms its intention to submit legislative proposals for a revision of the MFF Regulation. In this context, it will pay particular attention to the functioning of the Global margin for payments in order to ensure that the overall payments ceiling remains available throughout the period. It will also examine the evolution of the Global margin for commitments. The Commission will also take into account the particular requirements of the Horizon 2020 programme. The Commission will also examine aligning its proposals for the next MFF with the political cycles of the Institutions.

A further Joint Declaration by the three institutions on own resources was also attached to the MFF Regulation which reads, in part:

3. The question of own resources requires further work. To this end, a high-level Group will be convened, composed of members appointed by the three institutions. It will take into account all existing or forthcoming input which may be brought by the three European institutions and by National Parliaments. It should draw on appropriate expertise, including from national budgetary and fiscal authorities as well as independent experts.
4. The Group will undertake a general review of the Own Resources system guided by the overall objectives of simplicity, transparency, equity and democratic accountability. A first assessment will be available at the end of 2014. Progress of the work will be assessed at political level by regular meetings, at least once every six months.
5. National Parliaments will be invited to an inter-institutional conference during 2016 to assess the outcome of this work.
6. On the basis of the results of this work, the Commission will assess if new Own Resource initiatives are appropriate. This assessment will be done in parallel to the review referred to in Article 2 of the MFF Regulation with a view to possible reforms to be considered for the period covered by the next multiannual financial framework.

On foot of this, the three institutions established a High Level Group on Own Resources chaired by former Commissioner and Italian Prime Minister Mario Monti. The High Level Group presented its first report at the end of 2014 and is currently drafting its final report. This reflection on the EU’s future own resources is not directly linked to the MFF mid-term review which will be principally concerned with the expenditure side of the current MFF. However, the Joint Declaration makes it clear that the assessment of own resources will be done in parallel with the mid-term review/revision and that it is expected to inform the Commission’s proposals for the next MFF.

The Budgets Committee Working Document draws an important distinction between the review of the MFF and its revision. The purpose of the review is to enable the institutions “to reassess the priorities” (Recital 2), taking account of the changes in the economic situation on the basis of the latest macroeconomic data. It will aim to assess and evaluate the functioning of the MFF against implementation, new economic conditions and upcoming events. However, a review is just that, a review. In itself, it contains no obligation to change the legislative status quo.

A revision, on the other hand, implies a modification of the legislation in place. However, while there is a firm date of the end of 2016 for the review, there is no deadline mentioned for the Commission’s intention to submit legislative proposals for a revision of the MFF. As the Working Document notes: “However, given that Article 25 of the MFF regulation obliges the Commission to present its legislative proposal for the post-2020 MFF before 1 January 2018, it is clear that the mid-term revision process should be concluded before that date.

However, there is another legal requirement which will require a legislative proposal before the end of 2016. Article 7 of the MFF Regulation obliges the Commission in 2016, together with the technical adjustment for the year 2017, to review all Member States’ total allocations under the “Investment for growth and jobs” goal of cohesion policy for the years 2017 to 2020. The purpose here is to make use of the latest economic statistics, together with the allocation key set out in the basic act, to ensure that cohesion funds are directed to those regions most in need.

It is thus conceivable that, in legal terms, any legislative proposal on the mid-term review could be pushed into early 2017 even if Article 2 gives the impression that the MFF mid-term review would be ‘accompanied by’ the Commission’s legislative proposals ‘where appropriate’. However, in practical terms, it would make most sense to bundle these various elements into a Commission legislative proposal before the end of 2016, and it seems the institutions are working towards this goal.

The institutional timetable

On the Commission side, its 2016 work programme lists the mid-term review under ‘New Initiatives’.

The mid-term review of the MFF will address how better to target funding on the priorities the EU faces. The review will also look for ways to further orientate the EU budget towards results and simplify the applicable rules (REFIT) e.g. for the European Structural and Investment Funds (ESIF) and the Common Agricultural Policy (CAP), and will explore the scope for further simplification under Horizon 2020 funding.

Although no specific timetable is presented, the Commission notes that:

By mid-2016, a number of relevant inputs should be available such as the first evaluation of the Youth Employment Initiative (YEI), the first recommendations from the High-level Group on simplification of the European Structural and Investment Funds and the first outputs of the wider “Budget Focused on Results” strategy. The adjustment of the cohesion policy envelopes for 2017-2020 in line with Art.7 of the MFF Regulation will be presented together with the technical adjustment for the year 2017.

This strongly suggests that the Commission proposal will come in the last four months of the year.

This is supported by the future work programme for the Council set out by the Presidency ‘trio’ (Netherlands, Slovakia and Malta) in December 2015 covering the period January 2016 to June 2017. It noted that:

The three Presidencies will work closely together with all the institutions and other stakeholders to further improve the EU budget process and take forward the MFF review with a view to reaching a timely agreement. The Council will follow up the work of the High Level Group on Own Resources, including participating in an inter-institutional conference with national Parliaments.

However, the Dutch Presidency’s own programme for the first six months of the year makes no mention of the mid-term review of the current MFF, strongly hinting that this will fall into the programme of the Slovak Presidency in the second half of the year. Instead, the Dutch Presidency will attempt to steer discussions at an early stage on the next MFF, aimed at potential reforms to the European budget and effective use of EU resources, looking ahead to the period after 2020. On 28 January 2016, it plans a conference to launch discussions about the new Framework, examining the MFF’s set-up and financing, the degree of flexibility desired, and the negotiating process itself. The discussion will continue at ministerial level at the informal General Affairs Council in April.

As mentioned, the European Parliament’s Budgets Committee has already started its preparations for the mid-term review, debating the Working Document prepared by the two rapporteurs last December. The document makes the assumption that the Commission legislative proposal will be adopted in May this year, which for the reasons given above seems too early to me. It sets out a programme of work leading to a strategic report, conveying the EP views on the mid-term review/revision, to provide a political input ahead of the Commission proposal, with adoption tentatively pencilled in for April 2016.

Further, an inter-institutional conference involving national parliaments is planned for June 2016 to discuss the draft conclusions of the Monti High Level Group before it presents its final report to the European Council at the end of 2016.

Substantive issues in the MFF review

The level of ambition for the mid-term review differs across the institutions and its precise focus still remains rather hazy. The preamble to the MFF Regulation refers to the need “to reassess the priorities” while Article 2 refers to a review “of the functioning of the MFF taking full account of the economic situation at that time as well as the latest macroeconomic projections”. One specific commitment in the Regulation is that the three institutions will jointly examine in the context of the mid-term review/revision the most suitable duration for the subsequent MFF before the Commission presents its proposals for the next MFF. This gives the opportunity to respond to the Parliament’s demand that the MFF cycle should be synchronised with the respective terms of office of the Parliament and Commission either as a 5 year or 5+5 year duration.

The Commission Roadmap talks about the opportunity to assess the functioning of the MFF, “both quantitatively and qualitatively”. It lists the following topics to be covered:

• The quantitative review has to address the issue of new internal and external priorities as well as the sufficiency of the payment ceiling. The budget should be reoriented further towards the Juncker Commission priorities of jobs, growth and competitiveness and the review will need to identify margins for manoeuvre for possible new initiatives.
• The possible revision of specific ceilings of the MFF to shift margins for new internal and external priorities, such as migration.
• The functioning of the new financial instruments and the implications of their use on payments.
• The flexibility of the MFF structure.
• Simplification measures (in particular, in agriculture, research and the structural funds).
• The functioning of the global margin for payments in order to ensure that the overall payments ceiling remains available throughout the period.
• The evolution of the global margin for commitments.
• The particular requirements of the Horizon 2020 programme.
• Increasing the performance orientation of the budget and encouraging greater use of performance-based budgeting (Vice-President Georgieva at a meeting with the EP Budgets Committee in October 2015 confirmed her intention to use the MFF review/revision to make some concrete proposals in this respect).

Issues for agriculture in the mid-term review

It is clear that the mid-term review could lead to a Commission proposal to increase either/both the overall MFF ceilings for 2017-2020 and/or to revise specific ceilings within the existing MFF (given the range of new demands on the EU not foreseen at the time of negotiating the current MFF, including the migration and refugee crisis, terrorism and the need for aid to countries in the EU neighbourhood, I think we can safely exclude the option that the Commission will propose a reduction in the MFF ceilings). One issue is whether the agricultural ceilings in Heading 2 might be reduced as part of the process of reviewing priorities.

In this connection, the final sentence in Article 2 of the MFF Regulation which states that “without prejudice to Article 7 of the regulation, pre-allocated national envelopes may not be reduced by the mid-term revision” is significant (the reference to Article 7 refers to the automatic updating of cohesion fund shares in the light of more up-to-date economic information). Whether agriculture is covered under ‘pre-allocated national envelopes’ is obviously vital to knowing whether it is protected by this guarantee or not.

The Budgets Committee Working Document says this includes the cohesion policy, Rural Development and the European Maritime and Fisheries Fund as well as the Asylum, Migration and Integration Fund and the Internal Security Fund. The document explicitly does not include the national envelopes for CAP Pillar 1 direct payments under the ‘pre-allocated national envelopes’ covered by this guarantee. Rather, it signals a weaker level of commitment. “In other policy areas, including direct payments in agriculture, the institutions remain under an obligation … to ensure that the financial means are available to allow the Union to honour its legal obligations in accordance with the corresponding sectoral legislation.

However, the Working Document goes on to remind that the Commission is obliged to present mid-term evaluation reports for many sectoral funding programmes during the course of 2017 and, in some cases, mid-term revisions of the sectoral legislation may follow, as provided in the respective legal bases. It therefore concludes “that the mid-term review/revision of the MFF will not be the moment to revise substance of the legal bases and/or the sectoral policies and programme, as this may be done in the framework of the mid-term sectoral evaluations”. As the CAP Pillar 1 national envelopes are set out in the Direct Payments Regulation, this suggests that the Parliament will not be pushing to re-open these allocations in the mid-term review.

Conclusions

So far, only the Commission and the Parliament have shown their hand with respect to how they would like the mid-term review/revision to shape up. We have yet to learn the Council’s priorities. However, the analysis suggests that we are unlikely to see any major changes in the overall agricultural budget in the coming mid-term review/revision of the MFF.

Nonetheless, some tweaking of the basic CAP legislation may be proposed to reflect two concerns of the Commission and Commissioner Hogan: (1) to emphasise more the jobs, growth and competitiveness agenda, and (2) to pursue the CAP simplification agenda. We will probably have to wait until the autumn before we see the specific nature of these proposals. By then, we may know if the UK will be around to participate in this debate or whether it has decided to begin the process of withdrawal from the EU.

This post was written by Alan Matthews.

Photo credit: Flickr European Parliament photostream

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