The European Parliament has recently adopted, by a vast majority, a resolution on the European Council’s political agreement on the Multiannual Financial Framework. The MEPs rejected the long-term budget for 2014-2020, successfully negotiated by David Cameron and agreed by all EU’s leaders, and stressed that cannot accept it “without the fulfilment of certain essential conditions;” They presented, therefore, their own demands for negotiations with the member states on the multi-annual financial framework for 2014-20. Particularly, the European Parliament’s resolution has shown the MEPs determination to resolve the issue of unpaid bills from last year’s budget.

It is important to recall that the European Commission has tabled a draft-amending budget for 2012 to fill a gap of €9 billion between the payments foreseen in the 2012 budget and the commitments in areas such as research, the Erasmus student exchange programme and EU social and development funds. The member states could not accept this, as they would have to make further contributions to make up for shortfalls in last year’s EU budget. Unsurprisingly, the European Parliament has endorsed the Commission’s proposal for a €9 billion increase on the budget. Nevertheless, the Council and the European Parliament agreed to add €6 billion to the budget for 2012. However, the €2.9bn gap will have to be filled by the 2013 budget. In fact, the European Parliament, has only approved the 2013 budget after having assurance that the 2.9bn would be covered by the EU's member states, adding up to the agreed budget of €132.84 billion. Martin Schulz said in a statement on the EU budget 2013, “Bills for the budget year 2012 cannot be financed through shifting within the already underfinanced budget 2013, but must be provided by the Member States additionally”. The European Parliament, the Council and the European Commission agreed that the Commission will “present at an early stage in the year 2013 a draft amending budget devoted to the sole purpose of covering the 2012 suspended claims” and “without prejudice to the proper implementation of the 2013 budget.” Hence, they promised “to add fresh money during 2013 as soon as this proves necessary to pay outstanding bills from 2012 or to cover the gap between the level of payments adopted and the estimated needs.”

Unsurprisingly, the European Parliament’s resolution recalled the declaration annexed to the EU Budget 2013, above-mentioned, which calls upon the Commission to present a draft amending budget to cover all unpaid payment claims for 2012. In fact, the European Parliament stressed “that it will not start negotiations on the MFF until the Commission comes forward with an Amending Budget corresponding to this political commitment, and will not conclude these negotiations before the final adoption by Council and Parliament of this Amending Budget”. Obviously, this will entail an increase in national contributions, and consequently, member states will not take it lightly.

Unsurprisingly, it has not taken long for the European Commission to reply to the European Parliament demands, as it presented yesterday a draft-amending budget. The Commission is hoping that that its proposal will facilitate negotiations between the member states and the MEPs on the EU's next multi-annual budget for 2014-20, so that a deal can be reached as soon as possible.

The Commission is requesting €11.2 billion in extra funding from the member states “to reimburse beneficiaries of EU funded programmes completed across Europe in 2012 as well as to honour the Cohesion Policy claims that will fall due in 2013.”

Janusz Lewandowski, Commissioner for Financial Planning and Budget, said “This cannot come as a surprise”, as “in recent years, voted EU budget have been increasingly below the real needs based on estimates from Member States; this is creating a snowballing effect of unpaid claims transferred onto the following year.” Then, he stressed, “The ostrich policy can only work for so long: postponing payment of a bill will not make it go away.”

The Financial Secretary to the Treasury, Greg Clark, described the Commission request as "totally unacceptable." He said that it is "extraordinary that the commission should demand an increase in the EU budget that is bigger than the rescue package that was agreed for Cyprus."

It is important to note that both the European Parliament and the Council must approve the draft-amending budget. Moreover, the UK would be unable to veto it, as the request for extra funds can be approved if a qualified majority of member states supports it. The UK can be therefore outvoted. The Government would have to work with other EU allies to try to achieve a blocking minority. Nevertheless, it is important to recall that the European Parliament has made clear that it won't accept any proposal from the Member States on the multi-annual financial framework for 2014-20, in fact, it won’t even enter into negotiations, until the existing funding gaps for 2012 and 2013 are covered.

It seems that the MEPs prefer the EU to work under the emergency arrangements than to vote in favour of the European Council’s deal. Martin Schulz has been saying, "If there is no deal, we can live with an annual budget”. It is important to mention that under Article 321 (4) TFEU if the financial framework has not been adopted “ by the end of the previous financial framework, the ceilings and other provisions corresponding to the last year of that framework shall be extended until such time as that act is adopted.” Hence, if there is no agreement by the end of 2013, the 2013 ceilings plus inflation will be extended to 2014 until a new MFF is adopted. Under an Interinstitutional Agreement between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management, the European Commission is responsible for making technical adjustments to the financial framework “on the basis of a fixed deflator of 2 % a year.”

The European Parliament pointed out that if there is no agreement, “it would be ready to reach a swift agreement with the Council and Commission to adapt the internal structure of the MFF to reflect the Union's political priorities, and to ensure that the appropriate legal bases are in place for all EU policies and programmes by 2014”. David Cameron noted, “If no deal is reached, the existing ceilings are simply rolled over and annual budgets are negotiated on a year-by year-basis, taking account of those ceilings”. He stressed that the UK “would not get the reduction we need in the seven-year budget ceilings negotiated by the last Government.” In fact, it would €60bn more than the European Council’s deal.

The Member States will have to return to the negotiating table in order to find a compromise with the European Parliament over the EU’s long-term budget. It remains to be seen what will come out of the negotiations.