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The MFF compromise texts

Euractiv.fr yesterday published the texts of the three documents which make up the compromise package to be put to the Council and Parliament following the trilogue meeting on 19-20 June. The three documents are:

    Draft COUNCIL REGULATION laying down the multiannual financial framework for the years 2014-2020
    Draft Inter-Institutional Agreement between the European Parliament, the Council and the Commission on budgetary discipline, cooperation in budgetary matters and on sound financial management
    Draft declarations relevant to the above two pieces of legislation.

(Note that the texts can be read but not downloaded from the Euractiv.fr website; a downloadable copy of the draft MFF regulation is available here.)
As I reported yesterday, total commitment appropriations in the draft MFF Regulation are exactly the same as those agreed by the European Council in February 2013. However, the Regulation includes the compromises on budget flexibility and MFF revision proposed by the Presidency (it is not accurate to describe these compromises as agreed in the trilogue as the Parliament representatives simply accepted that the compromise drafts could be forwarded for consideration by the Parliament plenary without necessarily agreeing their content, see this statement from Reimer Böge issued on behalf of the EPP Group).
MFF revision

The new Article 1a on revision states:

By the end of 2016 at the latest, the Commission shall present a review of the functioning of the Multiannual Financial Framework 2014-2020 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 enshrined in the Treaty. Without prejudice to Article 5, preallocated national envelopes shall not be reduced through such a revision.

In addition, the Commission has appended a Declaration to the legislation. This states that:

… 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.

Thus, while the Commission is required to undertake this review and, in its declaration, has committed to propose a revision to the MFF, any decision on the revision will require unanimity among the member states. It is not hard to understand the Parliament’s frustration with this clause as the prospects for any significant change to the MFF figures must be deemed to be vanishingly small.
Flexibility

Regarding flexibility, the preamble reiterates the statement in the European Council conclusions that “Specific and maximum possible flexibility should be implemented to allow the Union to fulfil its obligations in compliance with Article 323 TFEU” (this Article simply commits the three institutions to ensure that the financial means are made available to allow the Union to fulfil its legal obligations in respect of third parties).
The new provision on flexibility (Article 3a) reads as follows:

1. Every year, starting in 2015, as part of the technical adjustment referred to in Article 4, the Commission will adjust the payment ceiling for the years 2016-2020 upwards by an amount equivalent to the difference between the executed payments and the MFF payment ceiling of the year n-1.
2. The cumulative effect of the annual adjustments shall not exceed the following maximum amounts (in 2011 prices) as compared to the original payment ceiling of the relevant years :
2016: EUR 3 billion
2017: EUR 3 billion
2018: EUR 4 billion
2019: EUR 6 billion
2020: EUR 8 billion
3. This adjustment shall be made in proportion to amounts referred to in paragraph 2.
4. Any upward adjustment shall be fully offset by a corresponding reduction of the payment
ceiling for year n-1.

The first paragraph meets the Parliament’s demand that unused resources in any year should not be returned to the member states but should be recycled into the EU budget. However, the full impact of this concession is limited by paragraphs 2 and 3. Paragraph 2 is straightforward and simply places a maximum limit on the cumulative amounts that can be carried forward in this manner. Note that, in the context of a one trillion euro budget, the maximum limit of €8 billion in 2020 is still less than 1 percent of the total.
But paragraph 3 seems to make the carry forward even more restrictive. Suppose that payment appropriations were underspent in 2019 by €6 billion. According to paragraph 2, because this amount is less than €8 billion, the full amount could be added to the payment appropriations in 2020. But then what meaning should be given to paragraph 3?
If only an amount in proportion to the €8 billion can be carried forward, then one interpretation is that only 6/8ths or 75 per cent of the €6 billion underspend can be carried forward, i.e. €4.5 billion and not the €6 billion first anticipated. If this interpretation is correct (and the drafting is not immediately clear on this point), then the flexibility provision may not be as generous as it may seem on first sight.
A final flexibility added in comparison with the European Council’s conclusions are Articles 9f and 9g dealing with youth unemployment, and growth and employment generally. Article 9f would allow €2.1 billion to be frontloaded in 2014 and 2015 specifically for policy objectives relating to tackling youth unemployment. However, any expenditure should be fully offset against the appropriations within headings/subheadings such that the total annual ceilings for the whole MFF period and the allocations across headings are not changed.
The global margin for commitments for growth and employment will take any margin left unused below the MFF commitments in the years 2014-2016 and transfer this to increase the MFF ceilings in the years 2017-2020. It would then be up to the budgetary authority (Council and Parliament) to mobilise this additional amount within the context of the annual budgetary procedure. Whether the budgetary authority would want to make use of this option will depend on political preferences and voting procedures at the relevant time, with decisions in the Council taken by qualified majority voting (QMV).

Own resources

The commitment on own resources is contained in one of the draft Joint Declarations accompanying the legislative acts. The Declaration first recalls the European Council conclusions on own resources. It states that the question of own resources requires further work, and proposes the establishment of a high-level Group composed of members appointed by the three institutions to undertake a general review of the own resources system and to come with a first assessment by the end of 2014. Further progress will be reviewed every six months at a political level, to be concluded by an inter-institutional conference during 2016 to assess the outcome of this work. The Commission will then decide, on the basis of the results of this work, if new own resources initiatives are appropriate. This assessment will be done in parallel to the compulsory review of the MFF Regulation with a view to possible reforms to be considered for the period covered by the next MFF.
Personally, I am not a fan of introducing new own resources and I support the continued use of the GNI contribution as best reflecting member states’ ability to contribute to the EU budget. But for the Parliament, which has made the introduction of new own resources a leitmotiv of its campaign, this commitment will be seen as pretty thin gruel.
Budgetary transparency
The new provisions on budgetary transparency are included in a new Paragraph 15a in the Inter-Institutional Agreement, which reads as follows:

The Commission shall prepare an annual report to accompany the EU budget, bringing together available and non-confidential information relating to:
– The assets and liabilities of the Union, including those arising from borrowing and lending operations carried out by the Union pursuant to its powers under the Treaties;
– revenue, expenditure, assets and liabilities of the EDF, EFSF, ESM, and other possible future mechanisms, including trust funds;
– expenditure incurred by Member States in the framework of enhanced cooperation, to the extent that they are not included in the annual budget.

This new provision seems sensible housekeeping and is to be welcomed, but was hardly likely to be the make-or-break issue in the negotiations.
The Parliament’s decision
Examining the Presidency’s text, it is easy to understand the Parliament’s discomfort and the unwillingness of its representatives to recommend the compromise texts for approval. But, at this stage in the proceedings, it is hard to see what the Parliament would gain from an unprecedented second rejection of the MFF.
Emotional arguments about the dignity and self-respect of the Parliament need to be evaluated in the context of a realistic assessment of the costs and benefits of further delaying the MFF for European society. The costs in terms of further delays to the implementation of key EU spending programmes are clear; the likely benefits from rejection in terms of getting a better agreement are zero.
While a new Parliament will be elected next year, it will still face the same Council which, under the Treaty, has the obligation to adopt the MFF under a unanimity voting procedure after obtaining the consent of the Parliament. If Europe continues to stumble along with negligible economic growth, there is the possibility that, if the Council is required to review its MFF decision, it might propose an EU long-term budget even less favourable to the Parliament’s position.
Now is not the time for the Parliament to use the blunderbuss of its veto power and I expect the Parliament to concur with this reasoning and to approve the current texts, not with enthusiasm, at its July plenary. However, the Parliament must also decide when to transmit this decision to the Council, bearing in mind the parallel dispute about the payment of uncovered liabilities in the 2013 budget.
Picture credit European People’s Party

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