Explanatory Memorandum to COM(2018)322 - Multiannual financial framework for the years 2021 to 2027

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dossier COM(2018)322 - Multiannual financial framework for the years 2021 to 2027.
source COM(2018)322 EN
date 03-05-2018



1. CONTEXT OF THE PROPOSAL

Article 312 of the Treaty on the Functioning of the European Union (‘the Treaty’) stipulates that a unanimously adopted Council Regulation shall lay down a Multiannual Financial Framework. It shall determine the amounts of the annual ceilings on commitment appropriations by category of expenditure and of the annual ceiling on payment appropriations and it lay down any other provisions required for the annual budgetary procedure to run smoothly.

The first multiannual financial framework (called financial perspectives at that time) was adopted thirty years ago together with provisions on interinstitutional cooperation and budgetary discipline 1 . This and the following financial frameworks allowed for improving and facilitating the annual budgetary procedure and cooperation between institutions whilst, at the same time, increasing budgetary discipline and predictability of funding for multiannual programmes and investments.

By enshrining the Multiannual financial framework into the Union's primary law, the Treaty has recognised its importance as a cornerstone of the budgetary architecture of the European Union.

The current Multiannual Financial Framework regulation for the years 2014 to 2020 was adopted on 2 December 2013 2 . On the same date, the European Parliament, the Council and the Commission approved the Interinstitutional Agreement on budgetary discipline, on cooperation in budgetary matters and on sound financial management 3 . The MFF Regulation was revised in 2015 4 in accordance with the provisions of its Article 19 to cater for the late programming of funds under shared management and, again, on 20 June 2017 5 , following its mid-term review.

The present explanatory memorandum focuses on elements which are new or which the Commission proposes to amend as compared with the current MFF Regulation, for both the proposal for a Regulation laying down the Multiannual Financial Framework for the years 2021 to 2027 ('the MFF Regulation') and the draft Interinstitutional Agreement on cooperation in budgetary matters and sound financial management 6 (' the draft IIA').

These proposals provide for a date of application as of 1 January 2021 and are presented for a Union of 27 Member States, in line with the notification by the United Kingdom of its intention to withdraw from the European Union and Euratom based on Article 50 of the Treaty on European Union, received by the European Council on 29 March 2017.

2. A new, modern budget.

2.1.Main political guidelines

The proposal for the MFF Regulation and the draft IIA follow the principles and main political objectives outlined in the Commission Communication on 'A modern Budget for a Union that protects, empowers and defends: The Multiannual Financial Framework for the years 2021-2027' adopted on 2 May 2018 7 (the ‘MFF Communication’), in particular with regard to its duration, its structure reflecting political priorities, the need for increased flexibility, and the amounts foreseen for the Multiannual Financial Framework itself.

2.2.MFF Structure and MFF ceilings

The structure of the expenditure headings of the MFF reflects the proposal for a more streamlined and transparent budget, focused on clear policy priorities. The detail of the structure and policies covered under each heading is described in the MFF Communication.

The MFF is structured in seven headings with three sub-ceilings: on Economic, social and territorial cohesion in heading II, on Market related expenditures and direct payments in heading III and on Administrative expenditure of the institutions in heading VII (see table in the Annex to this Regulation).

To support the Union's priorities in a context of EU 27, and to take into account the integration of the European Development Fund into the Union budget, the Commission proposes for the MFF 2021-2027 a ceiling for commitments of EUR 1 134.6 billion in constant prices of 2018 equal to 1.11% of EU GNI and a corresponding payment ceiling of EUR 1 104.8 billion in constant prices of 2018 equal to1.08% of EU GNI.

The Commission is proposing together with this proposal a legislative package for the reform of the Union’s Own resources system, including a proposal for a Council Decision on the system of own resources of the European Union 8 , including an increase of the ceiling for annual calls for own resources for payments to 1.29% of GNI, and 1.35% of GNI in commitments. This increase is reflecting the higher payment needs for the integration of the European Development Fund into the budget and the financing of new priorities while providing a sufficient safety margin in order to ensure that the Union is able – under any circumstances – to fulfil its financial obligations.

2.3.Flexibility

Whilst aimed at ensuring budgetary discipline the financial framework must, at the same time, provide for adequate levels of flexibility to allow for effective resources allocation and a swift Union response to unforeseen circumstances and emergency situations.

In the first years of the Multiannual Financial Framework for the years 2014-2020, the Union was confronted with unforeseen challenges of an unprecedented scale resulting from instability in its neighbourhood occasioning security threats and mass migratory movements. In order to mobilise additional financial means for measures contributing to tackle the above mentioned challenges, the flexibility of the MFF was extensively used, in particular through the mobilisation of special instruments established as part of the MFF Regulation. This allowed the Union to take decisive action, but tested the budget's flexibility to the limit.

Therefore, the functioning of the flexibility toolbox was examined in detail in the context of the mid-term review/revision of the 2014-2020 MFF 9 in 2016 and additional improvements were introduced in the 2017 revision of the MFF Regulation.

A number of parameters, such as the length of the period covered by the financial framework, the number and design of expenditure headings, the share of EU spending pre-allocated to Member States and regions or pre-determined by amounts of reference in co-decided legislation, the margins available within each expenditure ceiling, and the margins left between the financial framework ceilings and the own resources ceiling, have an impact on the degree of flexibility or rigidity of a financial framework. When elaborating its proposals for the next financial framework, the Commission has taken those elements into account.

For the reasons laid out in the MFF Communication, budgetary flexibility will, more than ever, be an essential principle underpinning the next Multiannual Financial Framework. Building on the innovative provisions already included in the 2014-2020 MFF, the focus for the future should be on consolidating, enhancing and streamlining flexibility mechanisms, to create a more agile framework while preserving the stability that the multiannual framework offers.

The Commission therefore proposes the following flexibility provisions to be included in the MFF Regulation and the draft IIA:

1. Maximising the use of the expenditure ceilings through specific and maximum flexibility between headings and years: in addition to keeping a sufficient level of unallocated margins, the Commission proposes to fully exploit the mechanisms of the Global Margin for Payments introduced under the current framework. As a novelty, it proposes to widen the size and scope of the existing Global Margin for Commitments in order to establish a Union Reserve financed from margins left available under the ceilings for commitments of the previous financial year as well as through funds that have been committed to the EU budget but which are ultimately not spent in the implementation of EU programmes and have been decommitted. Also, the Contingency Margin is to be maintained as a last resort instrument.

2. The possibility to differ from the indicative amounts in the programmes adopted by ordinary legislative procedure is proposed to be increased from 10% to 15% to increase flexibility within headings.

3. With regard to special instruments which allow entering appropriations in the budget over and above the ceilings set in the MFF, it should be clarified that this applies to both commitment and payment appropriations mobilised. Furthermore:

(a)the scope of special instruments such as the European Globalisation Adjustment Fund and the Emergency Aid Reserve is revised, and where appropriate extended (for instance, in order to allow the activation of the Emergency Aid Reserve for emergencies inside the Union), coupled with streamlined mobilisation procedures.

(b)the size of the maximum amounts available each year for the European Globalisation Adjustment Fund, the European Union Solidarity Fund, the Emergency Aid Reserve, and the Flexibility instrument is proposed to be increased. Finally, the Flexibility instrument should also be allowed to use the unused portion of the annual amounts of the Emergency Aid Reserve, as it is currently already the case for the European Union Solidary Fund and the European Globalisation Adjustment Fund.

2.4.Adjustments, review and revision of the MFF

The 2021-2027 financial framework is presented in 2018 prices. The procedure for its technical adjustment is maintained as well as the 2% deflator. The annual technical adjustment also includes the calculations of the amounts relating to the global margin for payments, the global margin for commitments (Union reserve), the Flexibility Instrument and the Contingency Margin, in line with the provisions on maximum annual amounts and transfers of unused amounts stemming from previous years provided for in the Regulation. The results of the adjustments should be communicated to the budgetary authority ahead of the budgetary procedure for the year n+1.

The adjustments to the MFF ceilings may also be due to other circumstances. This is the case for example to allow 're-budgeting' of commitments in the case of delayed adoption of new rules or programmes under shared management, or to adapt cohesion policy envelopes to the most recent statistics in relation to the allocation method. It is also the case to enable the re-budgeting of appropriations as a consequence of the lifting of suspension measures which may have been decided under specific basic acts linking effectiveness of funds to sound economic governance or to the protection of the Union’s budget in the case of generalised deficiencies as regards the rule of law in the Member States.

It appears appropriate maintaining the provisions which specify cases for which a revision of the MFF should be foreseen (revision of the Treaties with budgetary implications, enlargement of the Union, re-unification of Cyprus).

A mid-term review of the MFF is foreseen by the end of 2023. This review may, as appropriate, be accompanied by relevant proposals for revision of the Regulation.

Contents

1.

Legal elements of the proposal



3.1.Multiannual Financial Framework Regulation

As per the current Regulation 1311/2013, the provisions of the draft MFF Regulation are structured in Chapters. The order of some of the provisions has been changed to streamline the presentation.

Chapter 1 – General Provisions

Article 1 – Multiannual Financial Framework

The wording of Article 1 specifies the duration of the Multiannual Financial Framework which is set for seven years (from 2021 to 2027) for the reasons set out in the MFF Communication.

Article 2 – Compliance with the ceilings of the MFF

The first paragraph of Article 2 refers to the Annex containing the table of the Multiannual Financial Framework ceilings, and lays down an obligation for the institutions to respect the ceilings during the budgetary procedure in compliance with the provisions of the Treaty.

It also provides for the adjustment of the sub-ceiling for market related expenditure and direct payments in accordance with application of the flexibility between the two pillars of the Common Agricultural Policy (CAP) as set out in the CAP legislation.

The second paragraph introduces the Special instruments which are further defined in Chapter 3 of the draft Regulation (Articles 9 to 14), with the principle that these instruments are not included in the Multiannual Financial Framework and that their financing in specific circumstances is provided over and above the ceilings of the Multiannual Financial Framework, both for commitment and corresponding payment appropriations. In order to maintain the current level of flexibility and the roles of the institutions in the mobilisation of these instruments, the procedures applicable for the mobilisation of these instruments are included in the draft IIA.

The third paragraph reproduces the text of current Article 3(3), aligning it to the definition of Financial assistance to Member States set out in Title X of the Financial Regulation 10 . This includes any loan to Member States which may be provided under the Balance of Payments Facility ("BoP") 11 and the European Financial Stabilisation Mechanism ("EFSM") 12 , as well as the new European Investment Stabilisation Function providing loans to Member States experiencing a severe asymmetric shock. The principle that provides that if the repayment of a guaranteed loan under Financial assistance to Member States has to be covered from the Union's budget, such potential expenditure should be excluded from the financial framework (i.e. the amounts would be mobilised over and above the ceilings of the Multiannual Financial Framework) is maintained.

The relevant ceiling constraining the Union's capacity to guarantee lending from the Union's budget is the own resources ceiling, not the MFF ceiling.

Article 3 – Respect of own resources ceiling

This Article reproduces the text of Article 4 of the current Regulation. The compliance with the own resources ceiling must be ensured for each year. Should the ceilings for payment appropriations result in call-in rate for own resources exceeding the own resources ceiling, the ceilings of the financial framework have to be adjusted.

Chapter 2 – Adjustments to the MFF

Article 4 – Global Margin for Payments

This Article reproduces the text of Article 5 of the current Regulation for the period 2022-2027, however without any restriction in terms of the amount of the adjustment of ceilings to ensure specific and maximum flexibility.

Article 5 – Technical adjustment

This Article reproduces the text of Article 6 of the current Regulation. The financial framework is presented in 2018 prices. The procedure for its annual technical adjustment is maintained as well as the 2% deflator. In paragraph 1, the order of paragraphs (d) to (f) is amended to reflect the order of articles in Chapter 3.

Article 6 – Adjustment of cohesion policy envelopes

This Article reproduces the text of Article 7 of the current Regulation in relation to the adjustment of cohesion policy envelopes based on the most recent statistical data, with the exception of the eligibility review of the Cohesion Fund. The changes introduced reflect the timing for the 2021-2027 MFF.

Article 7 – Adjustments related to measures linked to sound economic governance or to the protection of the Union’s budget in the case of generalised deficiencies as regards the rule of law in the Member States.

In relation to macro-economic conditionality, this Article reproduces the text of Article 8 of the current Regulation. It is proposed to extend this mechanism to adjust the MFF ceilings in the case of lifting of measures related to the protection of the Union’s budget in the case of generalised deficiencies as regards the rule of law in the Member States 13 . In both cases, the maximum time period allowed for re-entering suspended commitments in the budget is proposed to be limited to n+2 years.

Article 8 – Adjustment following new rules or programmes under shared management

It is proposed to make the modification of ceilings in case of delayed adoption of new rules or programmes under shared management through a technical adjustment rather than a revision as it is currently the case (Article 19 of the current MFF Regulation), as this is essentially an automatic and mechanical modification, which needs to be implemented swiftly so as to facilitate the finalisation of the programming process. It is proposed to transfer the allocations not used in 2021 in equal tranches to the four subsequent years 2022 to 2025.

Chapter 3 – Special instruments

The order of presentation of Special instruments is changed, to include first the two special instruments (European Globalisation Adjustment Fund, European Union Solidarity Fund) linked to specific basic acts. The provisions on mobilisation are streamlined in the Regulation and the draft IIA, taking into account the provisions already included in the specific sectoral basic acts and in the Financial Regulation.

Article 9 – European Globalisation Adjustment Fund

This Article reproduces the text of Article 12 of the current Regulation. The definition of the objectives and scope of the European Globalisation Adjustment Fund will be defined in the specific basic act (Regulation (EU) XXXX/XX 14 ). The maximum annual amount is increased to EUR 200 million (in 2018 prices).

Article 10 – European Union Solidarity Fund

This Article reproduces the text of Article 10 of the current Regulation. The definition of the objectives and scope of the European Union Solidarity Fund are defined in the specific basic act (Regulation (EC) No 2012/2002 as amended by Regulation (EU) No 661/2014 of the European Parliament and of the Council of 15 May 2014), for which no amendment is proposed. The maximum annual amount is increased to EUR 600 million (in 2018 prices).

Article 11 – Emergency Aid Reserve

This Article corresponds to Article 9 of the current Regulation. Taking into account the need to ensure the responsiveness of the Union budget and the new challenges the Union has been and continues to be confronted with, it is proposed to extend the scope of the Emergency Aid Reserve to operations inside the EU, to provide a common mechanism to financially reinforce EU actions in response to all kinds of crises (natural disasters, migration management emergencies, humanitarian emergencies, health epidemics, etc.) and in all geographic locations. To maximise the EU budget response capacity, there is no earmarking or priority use for specific programmes. However, temporary limitations of use would apply through the year to ensure the capacity to respond at all times to internal or external crises and to ensure that funds can be mobilised to cover needs that may arise towards the end of the year. The maximum annual amount is increased to EUR 600 million (in 2018 prices).

Article 12 – Global Margin for Commitments (Union Reserve)

This Article corresponds to Article 14 of the current Regulation. In addition to the margins left available below the MFF ceilings for commitments of year n-1, applicable as soon as 2022, it is proposed that, as of 2023, the resources of the Global margin for Commitments (Union reserve) are increased with amounts corresponding to de-committed appropriations of the year n-2, with the exception of de-committed appropriations made available again under specific rules set out in article 15] of the Financial Regulation. The provisions on mobilisation remain unchanged from the current Global Margin for Commitments.

Article 13 – Flexibility Instrument

This Article corresponds to Article 11 of the current Regulation. The maximum annual amount is increased to EUR 1 billion (in 2018 prices).Moreover, it is proposed to add to the Flexibility Instrument the unused amounts of the Emergency Aid Reserve which have lapsed in the previous year, as is already the case for the European Union Solidarity Fund and the European Globalisation Adjustment Fund under the current Regulation. The calculation of the amounts available under the Flexibility Instrument will continue to be communicated under the annual technical adjustment set out in Article 5.

Article 14 – Contingency Margin

This Article reproduces the text of Article 13 of the current Regulation.

Chapter 4 – Review and revision of the MFF

Article 15 – Revision of the MFF

The wording of this Article corresponds to Article 17 of the current Regulation. The text of paragraph 3 in relation to the examination of possibilities of redeployment within the relevant MFF heading was simplified.

Article 16 – Mid-term review of the MFF

This Article corresponds to Article 2 of the current Regulation. It is proposed that the Commission presents by the end of 2023 a review of the functioning of the MFF, accompanied as appropriate by relevant proposals for the remainder of the period, including a proposal for the revision of the MFF (Article 15(1)).

Article 17 – Revision related to implementation

The wording of this Article corresponds to Article 18 of the current Regulation. The general rule concerning the timing of the adoption of the revision is removed, so as not to restrict in time the possibility to revise the MFF on the basis of implementation, should such need arise.

Article 18 – Revision of the MFF in case of a revision of the Treaties

This Article reproduces the text of Article 20 of the current Regulation.

Article 19 – Revision of the MFF in the event of enlargement of the Union

This Article reproduces the text of Article 21 of the current Regulation.

Article 20 – Revision of the MFF in the event of the reunification of Cyprus

This Article reproduces the text of Article 22 of the current Regulation.

Chapter 5 – Contribution to the financing of large scale projects

Article 21 – Contribution to the financing of large scale projects

This Article corresponds to Article 16 of the current Regulation. It is proposed to maintain for the period 2021 to 2027 provisions setting maximum amounts for the contributions from the Union's budget to large-scale infrastructure projects which are financed within the MFF ceilings but whose lifetime extends well beyond the period set for the financial framework.

This would concern large scale projects under the proposed European Space Programme as well as the International Thermonuclear Experimental Reactor project (ITER).

Consequently, the proposed provision foresees a ring-fencing of the amount available for the 2021 – 2027 MFF. The legislative acts concerning the above mentioned programmes shall comply with the financial provisions set in the present Regulation.

Chapter 6 – Interinstitutional cooperation in the budgetary procedure

Article 22 – Interinstitutional cooperation in the budgetary procedure

This Article reproduces the text of Article 23 of the current Regulation.

Article 23 – Unity of the budget

This Article reproduces the text of Article 24 of the current Regulation.

Chapter 7 – Final provisions

2.

Article 24 - Transition towards the next financial framework


The wording of this Article corresponds to Article 25 of the current Regulation. It lays down the obligation for the Commission to present a new financial framework before 1 July 2025.

The rules in case no new financial framework is agreed by the end of the financial framework covered by the Regulation are defined by primary law (Article 312 i TFEU) and need not be reproduced in the Regulation. They are recalled in recital 15.

3.

Article 25 - Entry into force


The final Article of the draft MFF Regulation sets the date of entry into force and the date of applicability of the Regulation. The IIA should enter into force on the same day as the two legal texts complement each other.

3.2.Interinstitutional Agreement on cooperation in budgetary matters and on sound financial management

Introduction – Points 1 to 6 of the draft IIA

The introductory part of the draft IIA introduces the Treaty reference (Article 295), the binding nature of this agreement, its coherence with other legal acts linked to the multiannual financial framework and the budgetary procedure, describes the structure of the Agreement, and stipulates the date of its entry into force (the same date as the MFF Regulation).

It reproduces the wording of Points 1 to 6 of the current IIA.

Part I – provisions related to the financial framework

4.

A. Provisions related to the financial framework


Point 7 of the IIA concerns the margins beneath the ceilings. The MFF Regulation establishes the ceilings for all headings that have to be respected during each annual budgetary procedure as required by the Treaty. However, the practice to ensure as far as possible sufficient margins beneath the ceilings should be preserved. It constitutes an element of the interinstitutional cooperation and good will of the institutions in the budgetary procedure. The provision is kept without any change from point 8 of the current IIA, save for the reference to the sub-heading Economic, Social and territorial cohesion as no such sub-heading is proposed under the new MFF structure.

Point 8 provides for an update of forecast for payment appropriations after 2027 in the fourth year of the MFF, according to the current practice and point 9 of the current IIA.

5.

B. Provisions related to special instruments


Points 9 to 13 correspond to points 10 to 14 of the current IIA and define the procedures applicable for the mobilisation of the following special instruments which are set out in the MFF Regulation: European Globalisation Adjustment Fund, European Union Solidarity Fund, Emergency Aid Reserve, Flexibility Instrument and Contingency Margin. The order of the provisions is changed to reflect the order of the draft MFF Regulation.

The text of the provisions is amended to:

·align the voting rules required for the mobilisation of the European Globalisation Adjustment Fund, the European Union Solidarity Fund and the Flexibility Instrument to the rules applicable to the adoption of the EU budget under Article 314 TFEU;

·simplify and streamline the text where specific provisions are already included in the Financial Regulation or the relevant sectoral basic act: rules applicable to transfers (European Globalisation Adjustment Fund and Emergency Aid Reserve), mobilisation decision (European Globalisation Adjustment Fund and European Union Solidarity Fund).

Part II – improvement of interinstitutional cooperation in budgetary procedure

6.

A. The interinstitutional collaboration procedure


Point 14 refers to the details of the interinstitutional cooperation during the budgetary procedure, which are included in the Annex to the IIA.

Point 15 on budgetary transparency maintains the wording of point 16 of the current IIA, with modifications to take into account reports for which detailed provisions are now included in the Financial Regulation (e.g. Trust Funds in Articles and 41(6) and 252, 5 year forecast on inflows and outflows in Article 247(1)(c)). The text is also amended to reflect the proposal to integrate the European Development Fund in the Union budget as of 2021. The reporting on the European Development Fund under point 15 of the IIA should thus apply only to outstanding issues of the previous European Development Funds.

7.

B. Incorporation of financial provisions in legislative acts


The provisions of the current IIA are maintained. The possibility to depart from the amounts included in the legislative acts is increased from 10% to 15% in order to increase flexibility within the headings (point 16). This provision does not apply to amount pre-allocated to Member States for the whole duration of the financial framework , nor to the large scale projects referred in Article 21 of the MFF Regulation.

Point 17 is revised to align terminology with TFEU. The reference to the Joint Declaration of the European Parliament, the Council and the Commission of 4 March 1975 is deleted as it is now obsolete.

8.

C. Expenditure relating to fisheries agreements


The text of the current IIA for provisions related to cooperation and information related to budgetary matters in relation to fisheries agreements is maintained, except to take into account the fact that, since the - non-budgetary - issue of participation in conferences negotiating on international agreements is already set out in points 25 and 26 of the Framework Agreement on relations between the European Parliament and the European Commission of 20 October 2010 15 , it is better to avoid a parallel text in the IIA.

9.

D. Financing of the Common Foreign and Security policy


Point 20 reproduces the text of point 23 of the current Interinstitutional Agreement.

The wording of point 21 largely reproduces the wording of point 24 of the current IIA, with a re-ordering of paragraphs and a clarification of terminology ('operations' rather than instruments). The reference to the Emergency Aid Reserve is removed, bearing in mind that under the extended scope proposed under Article 11 of the draft MFF Regulation, it will remain possible to mobilise the Emergency Aid Reserve for the purposes of urgent reinforcement of the Common Foreign and Security Policy budget.

In point 22, it is proposed to set a fixed date (30 November each year) for the agreement on the annual timetable for the joint consultation meetings to be held in the subsequent year for the purposes of the regular dialogue between the European Parliament and the High Representative.

10.

E. Involvement of the institutions as regards development policy issues


The provision of point 23 is amended to take into account the proposed integration of the European Development Fund in the Union budget.

Part III – Sound financial management of EU funds

Points 28 and 29 of the current IIA on joint management and on the annual evaluation report provided for in Article 318 TFEU are deleted as these reports are now covered by specific provisions of the Financial Regulation (Articles 41(3)(g) and 247(1)(e), respectively).

Point 24 on Financial programming reproduces the text of point 30 of the current IIA, with adjustments to align the dates with those defined in article 41(2) of the Financial Regulation.

Section B on Agencies and European Schools (points 25 to 28) are unchanged from the current IIA.

Annex – Interinstitutional cooperation during the budgetary procedure

The provisions included in the Annex are unchanged from the current IIA, as they have proved to be a sound basis for the cooperation between institutions, except for two modifications:

–The text of point 9 in relation to letters of amendment to the draft budget is aligned with the wording of article 42 of the Financial Regulation;

–To reflect current practice, and in order to align the wording with point 20 of the Annex, the word implementability is replaced by executability.