(21) EU Integration

How is the budget decided?

eu budget 2015 en

EU budgetary process

The EU budget is a contentious issue that has, on occasion, been the cause of considerable debate and conflict among the member states. Because of the controversies of the early 1980s, it was agreed at the 1988 Brussels Summit that it would be better if there was agreement between the institutions on the overall size and structure of the Union’s income and expenditure for a period of five or seven years ahead. In the Interinstitutional Agreement on Budgetary Discipline and Improvement of the Budgetary Procedure, it was accepted that there should be a financial framework for the immediate years ahead. This became known as the financial perspective (FP) and it covered the period 1988-1992 (Delors I). Subsequently, the other financial perspectives have been fixed for 1993-1999 (Delors II), 2000-2006, 2007-2013 and 2014-2018.

Financial perspective

The financial perspective is a multi-annual financial planning framework which sets limits on European Union expenditure. It is compulsory in the sense that the financial perspective ceilings must be respected in the annual budgetary procedure. It is agreed by the European Parliament, the Council and the Commission and lays down maximum amounts by major heading of expenditure within which the annual budget must be established over the period in question. Effectively, it translates into financial terms the priorities set for the Union’s policies and is at the same time an instrument of budgetary discipline and planning, and determines the limits on the financing of the EU budget.

The financial perspective is, then, an interinstitutional agreement between three elements, but it is the European Council which decides by unanimity on the figures, on the basis of a Commission proposal. The European Parliament must give its consent. Parliament approved the current FP by simple majority.

The financial perspectives are a cause of major controversy, each settlement usually requiring the allocation of much time and effort at more than one Council meeting. In particular, there was much controversy over the adoption of the 2007-2013 FP, for it revived a number of issues on which strong national positions had in the past been taken up – most obviously, the agricultural reform which Britain was urging and the curtailment or removal of Britain’s budgetary rebate in which the other twenty-four countries had an interest. Some long-standing member states were worried about the burdens they were bearing as net contributors to the Community and wanted to see action to reduce their outgoings. In addition, the states about to join in the Fifth Enlargement (Central and Eastern part i) were looking for more generous treatment than that which they believed they had received under the terms of the previous perspective.

Whatever the heat they generate, the setting of these perspectives has clear advantages. They do ensure that strict budgetary discipline is imposed, by setting limits to expenditure in any one area of EU spending, and they allow for medium-term planning of EU funding and policies. They also have the benefit of limiting the full-scale rows to once every few years, rather than having them arise every time the annual budget is discussed.

2007-2013 financial perspective (%)

Farm and rural support 42.8

Cohesion aid 35.4

Competitiveness 8.3

Foreign policy 5.8

Administration 5.8

Justice and security 1.2

Other 0.7

Devising the annual budget

The establishment of these broad outlines has done much to ease the path of negotiations over the preparation of the annual budget. The phrase ‘budgetary discipline’ denotes the broad constraints under which it is drawn up, ensuring that there is a balance of revenue and expenditure.

The budget is covered by a special procedure, with Parliament and the Council together forming the budgetary authority. The Maastricht Treaty set out the framework via which the annual budget is prepared. However, each year’s budget is different, there sometimes being particular necessities and problems that have to be handled. There is therefore no typical format for the determination of the budget. But it is possible to detect a standard pattern for the process. It begins with the estimates of expenditure being sent to Directorate General XIX of the Commission, which has responsibility for formulating the budget.

These estimates arrive in the summer of the year prior to which the budget will apply. The likely revenue for the coming year is then calculated. The budget is drafted in a preliminary form by the Commission before the first day of September, and submitted to the Council in the form of a Preliminary Draft Budget (PDB). The Council considers this document – acting by qualified majority – and sends its own revised version (the ‘draft budget’) to the European Parliament by 5 October. Parliament has forty-five days to debate the amended budget and propose its own amendments, before returning it to the Council.

The proposals go back and forth between the Council and the Parliament, the two institutions that together form the budget authority. In the case of ‘compulsory’ expenditure (mainly the money spent on the CAP), the Council has the final word. In the case of other ‘non-compulsory’ expenditure (e.g. the size of the Social Fund), Parliament has the final say and can modify expenditure according to conditions laid down in the Treaties. It must not increase the overall budgetary expenditure beyond the ceiling devised by the Council.

There can be much conflict between the Council and the Parliament, who experience what Nicoll and Salmon11 call an ‘uneasy partnership’. The procedure can be slow, so that on occasions there is no settlement by the end of the year. In this case, the Union is allowed to spend each month one-twelfth of the provision made in the previous year’s budget, so that the machinery of the EU may continue to function.

After difficulties over the budget in 1980, an attempt was made in the following year to improve the machinery. A Trilogue was created, comprising the president of the Budget Council, the president of the Commission (maybe with the relevant commissioner) and the president of the Parliament (maybe with the president of the Committee on Budgets). In 1988, it managed to bring about an agreement after a period of deadlock.

It is Parliament that ultimately adopts the budget and it has used its budgetary powers to the full in order to influence Union policies. This determination, together with the long-running threat that the Union budget might be stifled by a ceiling on ‘own resources’, explains why the budget procedure has often sparked off disputes between Parliament and the Council.

Overall, the influence of Parliament is uneven. It has almost no say over the sources of revenue and on key issues such as agricultural spending it is the Council which has the final say. On the other hand, the budget is only finally approved when the president of Parliament appends his signature to it. Moreover, the fact that pressure-group spokespersons lobby parliament so much at the time when the settlement is being negotiated suggests that lobbyists recognize that on some spending areas including the regions and social policy its influence is considerable.

Monitoring the budget

To ensure that money has been spent as was intended, Parliament’s Committee on Budget Control conducts an annual assessment of the management of the budget before giving – on the basis of the Annual Report of the Court of Auditors (ECA) – a ‘full discharge’. Because of the complexity of the Community budget, individual members of the Committee specialize in particular Community policies and prepare the EP’s response to ECA special reports in their field, often in the form of working papers for the guidance of the general rapporteur on the discharge. All matters relating to the budget will have been closely scrutinized by the ECA, within which there are groups dealing with specific budgetary questions such as the CAP or the Regional Fund. Since Maastricht the Court of Auditors has extended its activities from concern over financial rectitude to a wider monitoring of policy effectiveness. The Court not only checks that both revenue and expenditure observe legal regulations but also ensures that the Community is getting value for money by checking how far financial objectives have been met.

The Community has an established and complex procedure for the determination of policy-making and legislation in which national representatives can take part and which involves all the institutions of the Community. Provisions of the SEA, TEU and Amsterdam Treaty are leading to a reduction in the democratic deficit through increased powers for the European Parliament in an extended legislative process.

Broadly, in those areas where there has been a transfer of responsibility from national governments to the EU, its institutions – and especially the Commission-are deeply involved in the creation of policy. Where the competence of the EU is more modest – as in education and health – most of what happens is decided in the member states and the Union has little involvement. Yet circumstances can change. As we have seen with the JHA policy sector, the participation of the EU has increased. At first, EU activity on JHA-related matters was mainly of the intergovernmental kind, but it is now in some respects supranational in character.

For those areas of policy that fall within the competence of the EU, there is no typical process of policy-making or decision-making. The situation is complicated, the procedure varying according to the issue being discussed. As Nugent observes: ‘A host of actors, operating within the context of numerous EU and national-level institutions, interact with one another on the basis of an array of different decision-making rules and procedures’.

The range and complexity of EU policy- and decision-making processes is remarkable, twenty-eight having been identified by the Constitutional Convention. The involvement of the various institutions differs according to the area in question. Where the Community method applies – broadly those areas that fall within the First Pillar – decisions are taken according to the interaction of three institutions: the Council of Ministers, the Commission and the European Parliament. But the role that each plays is dependent on what is being discussed. On most issues other than agriculture, JHA and trade, the role of Parliament is now extensive, because they are subject to co-decision; EMU is not, for decisions in this area are taken largely by the Council of Ministers and the officials who serve it and the European Central Bank. For pillars two and three, which are intergovernmental in character, the Council remains the main player, the roles of the Commission and Parliament being subordinate. Sometimes, the momentum for decision-making is provided at gatherings of the European Council.


Financial perspective - The financial perspective is an agreement on the key priority tasks of EU budget expenditure for multi-annual periods. It lays down the basic framework of the EU policies in the following years. Multi-annual interinstitutional agreements on budgetary discipline were first introduced in 1988 to give stability to annual budgets and better support EU priorities. They provide for an adequate level of resources, strong budgetary discipline and an enhanced focus on EU priorities.

Green Paper - A set of proposals put forward by the Commission as a basis for discussion in a given policy area.

Transparency - A mode of institutional operation in which nearly all decision-making is carried out publicly. All draft documents, all arguments for and against a proposal, the decisions about the decision-making process itself and all final decisions, are made publicly and remain publicly archived.

White Paper - An official set of proposals from the Commission in a given policy area. They may follow publication of a Green Paper. A notable example was the 1985 White Paper drawn up by Lord Cockfield outlining proposals for action to bring about the completion of the single market by 1992.



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