The 2011 budget is the first budget to be negotiated under the Lisbon Treaty, which has conferred further powers on the European Parliament. It has abolished the distinction between compulsory and non-compulsory expenditure, hence the Council has no longer the final say on compulsory expenditure (CAP expenditure and funding of international agreements). Consequently, the European Parliament is on equal foot with the Council, being able to influence the entire budget.
At a time of severe strain on the majority of Member States’ public finances, the European Commission proposed last April, the 2011 draft budget – €142.6 billion in commitments and €130.1 billion in payments, which represents an increase of 5.9 percent on the 2010 budget. The Council adopted, last July, by QMV its position on the EU draft budget 2011. It has agreed to a budget of €141.777 billion in commitment appropriations ( an increase of 0.2% compared to 2010) and €126.527 billion in payment appropriations (an increase of 2.9% compared to 2010). The European Parliament rejected the €3.6 billion in cuts proposed by member states and demanded a 6.2% increase in next year's EU budget compared to 2010. As the European Parliament amended the draft budget and rejected the Council position, the Lisbon Treaty provides for a conciliation committee to be convened. The conciliation committee on 2011 budget, composed of 27 Council representatives and 27 MEPs, met for the first time on 27 October.
It is important to recall that last month the MPs debated the Draft EU Budget 2011. Bill Cash’s amendment “…calls on the Government to reject European Parliament proposals to increase the budget” was passed. During the debate Bill Cash said “I went ahead with my amendment, because I have to recognise that the Government are about to engage in some incredibly important negotiations. They have to achieve a blocking minority,…. That is not just a technical question, but a question of whether the Government can, first, get enough people to vote on the conciliation agreement, assuming that we reach such a point, and then achieve a blocking minority so that the Commission has to propose a new budget. That is what we are fighting for.” And that was achieved.
On 15 November, the conciliation committee did not reach an agreement on the 2011 budget negotiation package. At the European Parliament insistence, other elements also formed part of the negotiations, the so called “Lisbon package”, including a draft regulation laying down the multiannual financial framework for the years 2007-2013, a new draft interinstitutional agreement between the European Parliament, the Council and the Commission on cooperation in budgetary matters and a draft regulation amending the financial regulation.
The Council and the MEPs have agreed, in principle, to limit the total amount of payments for the 2011 EU budget to €126.527 billion. It has been reported that such arrangement will, nevertheless increase the UK’s contribution to the EU budget by about £435m.
However, the European Parliament has insisted to link the negotiations on the EU 2011 budget to issues that have nothing to do with it, such as the European Parliament's involvement in the negotiations on the next multiannual financial framework, the EU own resources as well as the issue of the flexibility for the revision of the multiannual financial framework.
The European Parliament was willing to accept to limit the increase to 2.9% as proposed by the Council, not because it acknowledged that national budgets are already overburden, but in exchange of having a stronger voice over future EU spending. Jerzy Buzek, President of the European Parliament, said "The Parliament is ready to have a deal on figures if there is an agreement on our political demands.” Moreover, he stressed that the MEPs “want a serious agreement on how we will work together in the future on EU financing including a new system of own resources, which could be the best way to reduce national contributions to the EU budget.” The European Parliament has demanded, therefore, far reaching political concessions from Member States.
The financial perspectives have been the subject of the Interinstitutional Agreement on budgetary discipline. The Lisbon Treaty has provided for a legal base for it, now called "multiannual financial framework." Under the TFEU, the Council, acting unanimously, through a special legislative procedure (assent procedure) shall adopt the multiannual financial framework, after obtaining the consent of the European Parliament. The European Parliament may accept or reject the proposal but cannot amend it. However, the European Parliament wants to have a bigger role and a stronger said in the negotiations of the new multiannual financial framework. It has suggested having three MEPs participating in all negotiations, as observers, in order “to facilitate adoption in Parliament of the text proposed and avoid a deadlock.”
It is important to mention that the European Commission has recently adopted a Communication on the EU budget review, starting up the discussion on the financial framework post 2013. Its main focus has been the reform of the EU financial resources. The idea of introducing an EU wide tax is not new, the European Commission and the European Parliament have been pressure for different funding systems for the EU for some time. In fact, one could say that the European Commission present Communication on the budget review reflects the European Parliament demands for new own resources. The Commission make clear that it is planning to propose direct EU taxes to finance the EU's budget. Such proposals would entail a major transfer of powers to Brussels and would encroach on national tax sovereignty. The idea of direct EU taxes has not only been rejected by the UK but also by Germany and France.
The European Parliament has also demanded member states, in return of decreasing the budget, to “open up discussions on new sources of income for the EU”, including a EU wide tax, and, obviously, to be involved in such discussions. However, it seems that the European Parliament demands go beyond the Lisbon Treaty 's provisions. Under the provisions concerning the system of own resources, the Council acting unanimously, on a proposal from the Commission, through the special legislative procedure (consultation), shall adopt a decision setting up provisions concerning the system of own resources of the Union. Therefore, the Lisbon Treaty has retained the European Parliament marginal influential role. The European Parliament must be consulted before the Council vote on the Commission proposal, but the Council is not bound by the Parliament’s opinion. Moreover, it is provided that such “decision shall not enter into force until it is approved by the Member States in accordance with their respective constitutional requirements."
Presently, the Council may adapt the multiannual financial framework within a margin for unforeseen expenditure by up to 0.03% of the Gross National Income (GNI), but, it seems, the European Parliament also wants to change this. The European Parliament has stressed “Moving funds between different parts of the budget is currently very difficult.” Hence, the European Parliament wants “the budget framework (=limits) for 2012 and 2013 to be flexible enough to make room for the new tasks the EU has taken on since the framework was decided five years ago.” According to the MEPs “the possibility to move funds from one budget area to another” should be increased.
The conciliation committee has not reached an agreement on these issues. A group of member states, lead by the UK, refused to concede to the European Parliament unacceptable demands, which would have granted further powers to the MEPs. In fact, they refused to discuss such issues. Justine Greening, economic secretary to the Treasury, said “We tried to get a deal but, in the end, no deal is better than a bad deal for the UK taxpayer,”
Five Member States, including the UK, could not accept a political declaration, draft by the Belgian Presidency, on the cooperation for the decision on the next multiannual financial framework, which would have granted MEPs a greater say in the upcoming negotiations on the new the multiannual financial framework.
The European Parliament and the Council failed, therefore, to reach an agreement before the deadline – 15 November. The 21 days conciliation period, provided in the Treaty, has now expired, consequently the Commission has to put forward a new draft budget for 2011. Although there is no deadline, one could expect the Commission to do it as soon as possible. Then, the Council has one month to adopt its position and the European Parliament 42 days to react to it. Obviously, the aim would be to reach an agreement as quicker as possible and, possibly, in December. According to the EuropeanVoice Belgium's finance minister is planning to convene an extraordinary meeting of finance and budget ministers on 16 December. The European Council will discuss the EU budget on its 16-17 December summit.
The EU 2011 budget is very unlikely to be approved before the end of the year. According to the EU Budget Commissioner Janusz Lewandowski "It is likely that the whole process will take several months."
If the 2011 budget is not adopted before 1 January, the Treaty provides that “(…) a sum equivalent to not more than one twelfth of the budget appropriations for the preceding financial year (2010) may be spent each month in respect of any chapter or other subdivision of the budget (…)” but "that sum shall not, however, exceed one twelfth of the appropriations provided for in the same chapter of the draft budget." The Council, on a proposal from the Commission, acting by a QMV, “may authorize expenditure in excess of one twelfth” subject to the European Parliament approval.
Hence, until a new EU 2011 budget has been adopted, spending is frozen at 2010 levels and the EU institutions would have to live on a month-by-month basis with reduced funding. The EU Institutions would have therefore to work under the system of the "provisional twelfth" which means, as explained by the European Commission “For each chapter of the budget, the corresponding amounts for 2010 are divided in 12 equal parts. These "twelfths" are available monthly, nothing less, nothing more.” This is definitely a welcome outcome.
The European Commission has already warned of the consequences of the application of the provisional twelfths as the implementation of new initiatives and the creation of new bodies will be delayed. The Commission has pointed out that “Programmes, initiatives and bodies that had a budget for the last months of the year will receive one 12th of that amount on a monthly basis.” Moreover, it stressed that “Any new body or initiative that did not have a budget line in 2010 will not be funded until a budget is adopted by Council and Parliament.” Hence, funding for the European External Action Service and the three new financial supervision authorities will be affected.
The letters of amendment to the draft budget for 2011 were also part of the negotiations. The letter of amendment No 1 creates a new section X in the 2011 budget for the European External Action Service (EEAS). In 2011 the administrative expenditure of the EU's new diplomatic service amounts to EUR 475,8 million, of which €359.2m will be transferred from the 2011 draft budget of European Commission, €82.2m from the 2011 draft budget of the Council however additional EUR 29,2 million are required to cover the expenditure of the new posts required in draft amending budget 6/2010 and €5.2m to cover the costs of 18 new posts and to enhanced the security of the EEAS premises. The draft amending letter has not been adopted in the framework of the conciliation procedure. The Commission has noted “should the system of provisional twelfths have to be applied from 1st January 2011 onwards, this could not provide the EEAS budget section with any appropriations, since the provisional twelfths are calculated on the basis of the appropriations entered in the budget of the previous year.”
There was also the letter of amendment No 2 to the draft EU budget for 2011 to provide funds for the three new Financial Supervision Authorities – €1.22 million. The EU budget will fund 40% of the costs of ESAs. The Commission has stressed “Without an EU budget, they would not receive the EU budget contribution” consequently “These agencies will not have an “establishment plan” and therefore would not be able to recruit staff.” So what if they have to face shortfall in their initial funding!? The majority of EU member states have had to introduce serious spending cuts so why the EU budget should not face more austerity!?
The Conciliation Committee could also not agree on extra funds to ITER. The ITER project is a nuclear fusion reactor being constructed in southern France, 45% of the funding for the project comes from the EU budget while the rest will come from the other partners, China, India, Japan, South Korea, Russia, and the US. However, whereas in 2001 the construction costs were at around €5.9 billion now they have tripled to €16 billion. The EU has budgeted €4bn for the project but now is short of money. It has been estimated that ITER needs further EUR 1.4 billion in 2012 and 2013. The Commission has proposed, as it did with the Galileo project, a revision of the multiannual financial framework so that a transfer of EUR 940 million of the margin from the (sub-)headings 2, 3a and 5 in 2010 to sub-heading 1a in 2012 and 2013 could be allowed. Moreover, it proposed that an amount of EUR 460 million should be redeployed from the Seventh Research Framework Programme within sub-heading 1a. Hence, an agreement over the abovementioned “flexibility mechanism” would have facilitated such transfers.
