Einzeltitel

The Multiannual Framework Explained

von Mathias Koch

The Key Terms for the Upcoming Months

2019 wird ein entscheidendes Jahr für die Verhandlungen des nächsten Mehrjährigen Finanzrahmens der EU (MFR). In diesem Glossar erklären wir die entscheidenden Begriffe für die nächsten Monate.

Annual Budget: The annual budget is adopted under a special legislative procedure by the Council and the European Parliament based on a draft budget by the Commission (budgetary codecision). The budget must comply with the Multiannual Financial Framework (Article 312 TFEU). The annual EU budget is usually lower than the expenditure ceilings set out in the MFF, except in the area of cohesion policy where the MFF ceiling is actually considered as an expenditure objective.

Appropriations: The MFF regulation specifies both commitment appropriations and payment appropriations.

Commitment Appropriations: The total financial obligations that the EU can commit itself to in any given financial year (through contracts, grant agreements or decisions). In other words, the commitment appropriations reflect how much the EU can pledge to spend in any given year, not how much it can actually spend.

Payment Appropriations: The total costs of actual transfers from the EU budget to creditors in any given financial year, resulting from past commitments. In other words, the payment appropriations reflect how much the EU can actually spend in any given year. Commitments and payments only differ for multiannual projects: The commitment appropriations would be made in one year, while the payments would be distributed across several years.

Reste à liquider (RAL): The sum of commitments which have been agreed to but that have not yet translated into payments.

Budgetary Codecision: see ‘Annual Budget’

Call rate: see ‘Own Resources’

Ceilings: Refers to different limits of expenditure or revenue, specified in the Multiannual Financial Framework and the Own Resources Decision, in particular the annual ceiling on commitments, the annual ceiling on payments as well as the ceiling of revenue that can be raised from own resources.

Cohesion Policy: The Lisbon Treaty stipulates that the EU should seek to “strengthen its economic, social and territorial cohesion” and to “reduce the disparities between the levels of development of the various regions” (Article 174 TFEU). The EU does so through an extensive investment policy – known as the Cohesion Policy. In the 2014-2020 MFF, €351.8 billion is reserved for the Cohesion Policy, which constitutes 32.5 % of the EU budget. The Cohesion Policy compromises the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund.

Commitments: see ‘Appropriations’

Common Agricultural Policy (CAP): The Common Agricultural Policy is one of the oldest common policies of the European Union, having been established in 1962. Still marked by a shortage of food after World War II, the goal of the young European community was to make Europe self-sufficient in food. In the 2014-2020 MFF, €408.31 billion is reserved for CAP. This represents approximately 38 % of the EU's total budget, making CAP the biggest single item of expenditure.

Correction mechanisms (rebates): Since 1985, the United Kingdom has profited from a reduction of its contribution to the EU budget equivalent to two thirds of the difference between its contribution (excluding traditional own resources) and what it receives back from the budget. This rebate is compensated by all other Member States except Germany, the Netherlands, Austria and Sweden. The same group of countries as well as Denmark themselves profit from rebates on their VAT- and GNI-based contributions (see ‘Own Resources’).

Current vs. constant prices: Comparing the size and structure of the future MFF with the present one is difficult for a number of reasons (see also ‘Virtual MFF 2014-2020’). Given the MFF’s duration of seven years, inflation is an important factor. Technically, the figures in the MFF regulation for each of the seven years covered are constant prices with 2018 as the year of reference (as the proposal was published in that year). In other words, the figures express the actual purchasing power allocated to the different headings throughout the duration of the MFF. However, to account for inflation, these prices need to be adjusted each year to ensure that the heading retains its initial purchasing power (current prices).

In an ostensible effort towards more transparency, the Commission published its proposal for the next MFF in both constant as well as current prices, the latter having been calculated assuming annual inflation of 2.0%. As a result, comparing expenditure under different headings as well as the overall size of the MFF can yield different results depending on which figures are used. The interinstitutional negotiations will be based on constant prices.

Deficit: The annual EU budget must be balanced, as the EU cannot run a deficit (see ‘Own Resources’).

Headings, Policy Clusters, Programmes: The MFF and consequently the annual budgets that fall under it are divided into different parts, known as headings. For the next MFF, the Commission is proposing to increase the number of headings from five to seven to achieve a better alignment with the EU’s priorities. Distributed across the seven headings would be 17 policy clusters, which give a more detailed overview over the Union’s ambitions. Finally, each policy cluster contains a number of programmes, through which EU policies are implemented. The current MFF contains 58 programmes, a number that the Commission proposes to reduce to 37 for the next MFF.

Multiannual Financial Framework (MFF): The Multiannual Financial Framework regulates the annual EU budget for a length of at least five years, usually for seven years. The concept of the MFF was developed in response to a series of budget crises in the years 1979, 1984, 1985 and 1987 when the Council and the European Parliament were not able to agree in time on the budget for the following year. Whereas the first four MFFs were implemented as inter-institutional agreements, since the Lisbon Treaty the MFF is a legally binding act as set out by Article 312 of the Treaty on the Functioning of the European Union. Specifically, the MFF is a regulation adopted through a special legislative procedure, with the Council acting unanimously after receiving Parliament's consent expressed by absolute majority.

Negotiation Box: An evolving document prepared by the Council Presidency setting out the state of play of the Council Negotiations, reflecting the different positions of the Member States and including different options for potential compromise. Not all negotiation boxes are created equal, however, as the Cypriot Presidency for example struggled to put forward a balanced set of proposals during the negotiations of the last MFF. The negotiation box forms the basis for an agreement between Member States.

Net-Payers & Net-Recipients: The difference between a Member State’s contribution to the EU budget and what it receives back determines whether the state is a net-payer or a net-recipient. Importantly, these figures do not take into account the overall benefits of EU membership, such as access to the single market, a common foreign and security policy or increased educational mobility. Measured in relation to their respective GDP, France, Belgium, Germany, Austria and the United Kingdom were the biggest net-payers in 2016, followed by Denmark, Sweden, Finland, Italy and the Netherlands. The biggest net-recipients relative to the size of their economies were Bulgaria, Romania, Hungary and Lithuania, while Poland is the biggest net-recipient in absolute t terms.

New Hanseatic League: An informal cooperation of Ireland, the Netherlands, Denmark, Sweden, Finland, Estonia, Latvia and Lithuania. These fiscally conservative Member States aim to counterweigh the influence of France and Germany after the withdrawal of the United Kingdom, particularly in the reform process of the Economic and Monetary Union.

Own Resources: Today, by far the largest part of EU revenue comes from the own resources. Own resources are defined as revenue that is allocated irrevocably to the EU without the need for any subsequent decision by the national authorities. There are presently three types of own resources.

Own Resource

Explanation

Percentage of total revenue, 2016

Traditional Own Resources

Custom duties, agricultural duties, sugar and isoglucose levies

14 %

VAT-based Own Resource

A percentage of the estimated VAT collected by the Member States. The percentage used in the calculation is known as the Call Rate.

11 %

GNI-based Own Resource

Levy on Member States’ GNI of a uniform percentage. Because the EU budget cannot run a deficit, the GNI-based resource balances the budget by financing the annual expenditure not covered by the other streams of revenue. For this reason, its GNI call rate changes every year.

65 %

Own Resources Decision: Determines both the types of own resources and the amount that can be raised through them. The Own Resources Decision is negotiated together with MFF and adopted unanimously by the Council. As the Own Resources Decision does not have an expiry date it continues to be valid until a new decision enters into force.

Payments: see ‘Appropriations’

Policy Clusters: see ‘Headings, Policy Clusters, Programmes’

Programme: see ‘Headings, Policy Clusters, Programmes

Rebates: see ‘Correction mechanism’

Reste à liquider (RAL): see ‘Appropriations’

Sectoral legislations: In addition to the MFF regulation and the Own Resources Decision, a number of legal texts need to be adopted to specify the rules and functioning of individual programmes. Sectoral legislations fall under the co-decision procedure in which the decision is taken by both the Council and the European Parliament. Almost 80 sectoral legislative proposals were proposed by the Commission for the previous MFF.

Virtual MFF 2014-2020: Comparing the size and structure of the future MFF with the present one is difficult for a number of reasons (see also ‘Current vs. constant prices’). One of the main reasons is the departure of the United Kingdom. To allow for a more useful comparison between old and new MFF, the Commission has calculated a virtual MFF 2014-2020, which excludes the amounts allocated to the United Kingdom from the actual MFF 2014-2020. The virtual MFF 2014-2020 does however include the European Development Fund, which is outside the actual MFF 2014-2020 but which would be integrated in the upcoming MFF according to the Commission’s proposal.

Ansprechpartner

Dr. Hardy Ostry

Dr

Leiter des Europabüros Brüssel

hardy.ostry@kas.de +32 2 66931-51 +32 2 66931-62
Ansprechpartner

Mathias Koch

Mathias Koch bild

Wissenschaftlicher Mitarbeiter Europabüro Brüssel

mathias.koch@kas.de +32 2 66931-53 +32 2 66931-62

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