The structure of the EU budget and its allocation

The structure of the EU budget and its allocation.

The (EU) is a union of 27 member states. The of the Union has a , a and a that is distinct from those of the member states. These arms administer the application of treaties, laws and agreements between the member states and their expenditure on common policies throughout the Union. To pay for this, the EU had an agreed budget of €120.7 billion for the year 2007 and €864.3 billion for the period 2007–2013, representing 1.10% and 1.05% of the EU-27's forecast for the respective periods. By comparison, the UK expenditure for 2004 alone was estimated at about €759 billion and France was estimated at about €801 billion.

The Administration of the European Union has three elements to its government: the , the and the . In addition, the is funded from the budget of the Administration. All three take a part in setting the annual budget. The budget for a year, or period of years, is determined in advance, but final calculations of payments required from each member state are not completed until after the budget year is over and information about revenue and expenditure is available. The is one of the last elements of the budget to be calculated (though it is estimated in advance) as it depends upon the balance of all EU revenue to and from the UK.

Overall structure of the EU budget

The budget consists of:

General revenue
Revenue and expenditure by section:

Section I – Parliament
Section II – European Council and Council
Section III – Commission
Section IV – Court of Justice
Section V – Court of Auditors
Section VI – Economic and Social Committee
Section VII – Committee of the Regions
Section VIII – European Ombudsman
Section IX – European Data Protection Supervisor
Section X – European External Action Service

The vast majority – 95% of the EU budget – goes to fund concrete activities on the ground in the many areas of EU policy. This expenditure ("operational appropriations") is paid out by the Commission (Section III).

However, section III also includes a small amount of administrative expenditure necessary for the Commission to function.

All the other sections of the budget deal solely with the administrative expenditure of the institutions.

ESTABLISHING THE INITIAL BUDGET

Budgetary procedure 2010

The Commission adopted the Preliminary Draft Budget for 2010 on 29 April 2009. Commitment appropriations were set at EUR 138 564 million, 1.5 % higher than the 2009 budget, and equivalent to 1.17 % of GNI. The level of payment appropriations proposed increased by 5.3 %, to a total of EUR 122 322 million, or 1.03 % of GNI. The margins remaining under the ceilings of the

Multiannual Financial Framework were EUR 1 754 million for commitments and EUR 12 162 million for payments.

In July 2009, the Council took its first reading and established the Draft Budget 2010. The Council set commitment appropriations at EUR 137 944 million, a cut of EUR 619 million compared to the PDB1. Payment appropriations were reduced by EUR 1 801 million to EUR 120 521 million, or

1.02 % of GNI. The biggest cuts were made in Heading 2 Preservation and management of natural

resources (EUR 363 million in commitments and EUR 492 million in payments), in sub-heading 1a

Competitiveness for growth and employment (EUR 100 million in commitments and

EUR 408 million in payments), and in sub-heading 1b Cohesion for growth and employment

(EUR 293 million in payments).

The European Parliament’s first reading of the Draft Budget 2010 took place in October 2009. Total commitment appropriations were set at EUR 141 745 million; EUR 3 801 million higher than

Council’s first reading. The level of payments was set at EUR 127 526 million (1.08 % of GNI);

EUR 7 006 million higher than the Council’s Draft Budget.

During the course of the procedure, the Commission presented three letters of amendment to the PDB. Amending Letter n°1/2010 mainly proposed the mobilisation of new funds for an amount of EUR 95 million in commitment and EUR 60 million in payment appropriations to support the

Palestinian Authority and the reconstruction efforts in Gaza, as well as EUR 50 million in

commitment and EUR 20 million in payment appropriations in view of a successful outcome of the

December 2009 Copenhagen Climate Change Conference.

Shortly after the Parliament's first reading, the Commission presented Amending Letter n°2/2010 updating the budget requests for the agricultural sector, in accordance with the Interinstitutional Agreement on budgetary discipline and sound financial management of 17 May 2006 (OJ C 139/2006). In addition, this Amending Letter included additional appropriations related to the second stage of the European Economic Recovery Package (EERP), as well as additional appropriations to provide continued support for the decommissioning of the Kozloduy nuclear power ...

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commitment and EUR 20 million in payment appropriations in view of a successful outcome of the

December 2009 Copenhagen Climate Change Conference.

An overall increase for Heading 2 Preservation and management of natural resources of EUR 685 million in commitments and EUR 264 million in payments was proposed, as a consequence of an upwards revision of the estimated needs for agricultural expenditure (+ EUR 305 million, mostly due to the exceptional "milk" measures) and the proposed additional needs related to the rural development part of the second stage of the EERP (+ EUR 420 million in commitments). Furthermore, the "energy projects" part of the second stage of the EERP (EUR 1 587 million in commitments and EUR 378 million in payments) and the additional financing for the decommissioning of Kozloduy (+ EUR 75 million in commitments) led to a proposed increase of expenditure under sub-heading 1a Competitiveness for growth and employment of EUR 1 662 million in commitments and EUR 378 million in payments.

Finally, the Commission presented Amending Letter n°3/2010, to take into account the additional expenditure (+ EUR 24 million) resulting from the entry into force of the Lisbon Treaty for the Council and the European Council, in the Council's Section of the budget.

The net effect of the three letters of amendment was to increase the Commission's PDB to EUR 141 466 million in commitments and EUR 123 061 million in payments (1.04 % of GNI).

• Agreement on payment appropriations of EUR 122 937 million (1.04 % of GNI).

• Agreement on Amending Budget n°10/2009 reducing appropriations and updating revenue

needs, as amended by the Commission and including the budgetary aspects relating to the

financing of the EERP.

• Agreement on Amending Letter n°2/2010 and the revision of the financial framework for the

years 2009 and 2010 in view of the full financing of the second stage of the EERP in 2010,

as well as on the mobilisation of the flexibility instrument for the EERP (EUR 120 million)

and Kozloduy (EUR 75 million).

• Agreement on Amending Letter n°3/2010 as proposed by the Commission.

This compromise was reflected in the second readings of both Council and Parliament.

The voted budget included following reserves:

• European Globalisation Adjustment Fund EUR 500 million in commitment appropriations.

• Emergency Aid Reserve EUR 249 million both in commitment and payment appropriations.

• Provisional appropriations of EUR 537 million in commitment appropriations and

EUR 410 million in payment appropriations.

The above table shows the full implementation of all available appropriations including amounts carried over from 2009 into 2010 and assigned revenue. Focusing on the implementation of the initial budget without the unmobilised reserve for European Globalisation Adjustment Fund (EUR 415 million), the implementation of commitments amounted to 99 %, leaving a balance of EUR 209 million unused.

The largest variation between initial appropriations and their actual implementation in implementation took place on Energy Projects to aid Economic Recovery (underimplementation of EUR 147 million). Implementation of payments amounted to 94% of the credits in the initially voted budget, leaving a balance of EUR 641 million unused. The largest variation in implementation took place on Energy Projects to aid Economic Recovery (under-implementation of EUR 402 million), Competitiveness and Innovation (under-implementation of EUR 132 million), Trans-European Networks (under-implementation of EUR 77 million), European Globalisation Adjustment Fund (over-implementation of EUR 64 million) and Heading 1a Other Programmes (under-implementation of EUR 30 million).

Unused payment appropriations of EUR 270 million are carried forward to 2011.

In payments, the variation between initial appropriations and their actual implementation concerns principally:

• Entrepreneurship and Innovation Programme, under-implementation of EUR 92 million.

The financial crisis had a major effect on the disbursement profile of financial instruments, particularly those in the area of venture capital. Moreover, in order to avoid excessive balances on the trust accounts, the EIF and the Commission services reviewed the method of calculating payment appropriations and agreed to a number of adjustments to improve their precision. No payments were therefore made in 2010 and it was thus possible to redeploy payment credits of EUR 57 million in 2010 to finance other programmes. The remaining payment credits of EUR 34.6 million are being carried forward to 2011.

• Completion of programme for enterprises: improvement of the financial environment for

small and middle-sized enterprises (SMEs), under-implementation of EUR 35 million.

Consequently, for similar reasons to those outlined above, no payments were made in 2010 and payment credits of EUR 14 million are being carried forward to 2011.

In commitments, the variation between initial appropriations and their actual implementation concerns:

• Energy projects to aid economic recovery - Energy networks, under-implementation of

EUR 97 million. The under-implementation concerns one project of interconnection for

which the call for proposal attracted no candidate and nine other projects for which the

beneficiaries requested less co-financing than was foreseen in the regulation. The unused

credits will be carried forward to 2011 to finance a new financial facility supporting energy

efficiency and renewable energy which will be operational in 2011.

• Energy projects to aid economic recovery - Carbon Capture and Storage (CCS), underimplementation of EUR 50 million.The under-implementation concerns one project of

carbon capture and storage for which the evaluation was not positive. The unused credits will

be carried forward to 2011 to finance a new financial facility supporting energy efficiency

and renewable energy which will be operational in 2011.

In payments the variation concerns principally:

• Energy projects to aid economic recovery - Energy networks, under-implementation of

EUR 238 million. Contrary to expectations, some beneficiaries have not requested prefinancing payments because certain conditions were not met, e.g. bank guarantees,

environmental permits or a formal investment decision. Others minimised the number of

intermediate payments requests to avoid the production of costly audit certificates.

• Energy projects to aid economic recovery - European Offshore wind grid system, underimplementation of EUR 107 million. When the requirements for payment appropriations

were estimated, the projects had not yet been negotiated. It appears that beneficiaries of six

projects have foregone pre-financing because of the need to provide bank guarantees. On the

other hand, their reporting timetable is now tighter. Pre-financing requirements were

therefore lower than expected. Most of the under execution amount has been reused for the

European Union Solidarity Fund or made available as part of the global transfer.

• Energy projects to aid economic recovery - Carbon Capture and Storage (CCS), underimplementation of EUR 55 million.

The under execution concerns mainly a project which is under suspension as a parent company went bankrupt.

European Regional Development Fund

The Structural Funds and the Cohesion Fund are financial tools set up to implement the also referred to as the . They aim to reduce regional disparities in terms of income, wealth and opportunities. Europe's poorer regions receive most of the support, but all European regions are eligible for funding under the policy's various funds and programmes.

The Structural Funds are made up of the (ERDF) and the (ESF). Together with the (CAP), the Structural Funds and the Cohesion Fund make up the great bulk of EU funding, and the majority of total EU spending.

Apart from funds under the Cohesion policy, there are other funds that have the potential to contribute to the regional development. These are:

Funds under the CAP, namely the (EAGF) and the (EAFRD)
(EFF) established for the programming period 2007-2013 with the Council Regulation (EC) No 1198/2006 of 27 July 2006.

The European Regional Development Fund (ERDF)

The ERDF supports programmes addressing regional development, economic change, enhanced competitiveness and territorial co-operation throughout the EU. Funding priorities include modernising economic structures, creating sustainable jobs and economic growth, research and innovation, environmental protection and risk prevention. Investment in infrastructure also retains an important role, especially in the least-developed regions.

The European Social Fund (ESF)

The ESF focuses on four key areas: increasing the adaptability of workers and enterprises, enhancing access to employment and participation in the labour market, reinforcing social inclusion by combating discrimination and facilitating access to the labour market for disadvantaged people, and promoting partnership for reform in the fields of employment and inclusion.

The Cohesion Fund

The Cohesion Fund contributes to interventions in the field of the environment and . It applies to member states with a Gross National Income (GNI) of less than 90% of the EU average. As such, it covers all 12 new member states as well as Greece and Portugal. Spain is also eligible for the Cohesion Fund, but on a transitional basis (so-called "phasing out").

For Regional Policy and the Cohesion Fund, the variation between initial payment appropriations and their actual implementation concerns principally:

• European Regional Development Fund (ERDF) – Convergence: Convergence programmes

for the new period are progressing much better than was predicted, and therefore it was

possible to make payments of EUR 1 109 million more than entered in the budget.

The discipline imposed by the "n+2 rule" continues to encourage Member States to submit

payment claims regularly, and the simplifications introduced in the current programming

period lead to more rapid payments.

• Completion of European Regional Development Fund (ERDF) - Objective 1 (2000 to 2006),

under-implementation of EUR 729 million. Analysis of the closure documents (final reports

and winding-up declarations) by the desk-officers and by the auditors has taken longer than anticipated, and so the closure payments are expected in 2011 and 2012.

• European Regional Development Fund (ERDF) - Regional competitiveness and employment:

Programmes for the new period are progressing much better than was predicted, and

therefore it was possible to make payments of EUR 522 million more than entered in the

budget. The discipline imposed by the "n+2 rule" continues to encourage Member States to

submit payment claims regularly, and the simplifications introduced in the current

programming period lead to more rapid payments.

• Completion of European Regional Development Fund (ERDF) - Objective 2 (2000 to 2006):

Unblocking of blocked payments to Spain meant that interim payments were EUR 126 million above the planned amounts.

• Completion of Interreg III Community initiative (2000 to 2006), under-implementation of

EUR 112 million, Analysis of the closure documents (final reports and winding-up

declarations) by the desk-officers and by the auditors has taken longer than anticipated, and

so the closure payments are expected in 2011 and 2012.

• European Regional Development Fund (ERDF) - European territorial cooperation. The

Territorial Cooperation programmes are by definition more complicated than other

programmes, and the involvement of several Member States causes longer lead-times in the

preparation and certification of payment claims. Claims received late in 2010 and paid in

early 2011 exceed the difference of EUR 68 million between implementations and final

appropriations.

• European Regional Development Fund (ERDF) - PEACE, The PEACE programme is

progressing faster than was predicted, and it was possible to make EUR 12 million more

payments for than entered in the budget.

For Rural Development, the variation between initial payment appropriations and their actual implementation concerns principally:

• Rural Development Programme 2007-2013 (EAFRD): The revised forecast submitted by

Member States in September 2010 showed that the declarations of expenditure from Member

States would be below the available appropriations.

Consequently, an amount of EUR 1 160 million was redeployed for other programmes through the Global Transfer. The reasons for the low level of payments continued to be the current economic situation, which still makes it difficult in some cases to provide national co-financing, and the impact on the payments profile of the late approval of certain programmes. The actual amount finally declared for the third quarter was even lower than the September Member States' revised forecasts and, moreover, for part of the claims received from several Members States, it was not possible to make any reimbursement because the commitment appropriations of the year were already exhausted. Thus at year end a further EUR 330 million is being carried over to 2011 through a non-automatic carry-over.

• Completion of the European Agricultural Guidance and Guarantee Fund, Guidance Section -

Objective 1 regions (2000 to 2006), under-implementation of EUR 357 million. The payment

appropriations in the budget were intended for the closure of Objective 1 programmes.

However, the number of programmes closed and the amounts involved were below the initial plans.

• Completion of Leader (2000 to 2006), under-implementation of EUR 37 million, after

including EUR 14 million in the Global Transfer. The number of programmes closed and the

amounts involved were below the initial plans and, in many cases, the final payment requests

were submitted very close to the final deadline.

Funds Management

Although the Structural Funds are part of the EU budget, the way they are spent is based on a system of shared responsibility between the European Commission and the member state authorities:

The Commission negotiates and approves the NSRFs and OPs proposed by the member states, and uses these as a basis for allocating resources.
The member states and their regions manage the programmes. This includes implementing the OPs by selecting individual projects, controlling and assessing them.
The Commission is involved in overall programme monitoring, pays out approved expenditure and verifies the national control systems.

BREAKDOWN OF THE TOTAL AMOUNT OF OWN RESOURCES BY MEMBER STATE

IMPLEMENTATION OF OWN RESOURCES

The custom duties collected amounted to 99.47 % of the amounts forecasted. The budgetary estimates were modified at the time the Amending Budget No 4/2010 was established (they were increased by EUR 1.5 billion). These adjustments were based, on the new macroeconomic forecasts of spring 2010 being more optimistic than the previous ones. Actual amounts versus budgetary estimates for sugar levies reached 118.0 %.

The Member States' VAT and GNI payments corresponded closely to the budgetary estimate. The differences between the estimated twelfths and the amounts actually paid are explained by the differences in the euro rates used for budgetary purposes (see Article 10 (3) of Regulation No 1150/2000) and the rates in force at the time when the Member States (not part of the EMU) actually made their payments. The changes in the exchange rates during 2010 had a positive impact of EUR 115 million and EUR 674 million for VAT and GNI respectively.

According to Council Decision No. 2007/436 on the system of the European Communities’ own resources, the United Kingdom is granted a correction in respect of budgetary imbalances. As this amount is financed by the other Member States there should be no net effect on the budget.

However, a negative amount of EUR 128 million was registered. This was caused by differences in the exchange rates similar to those for the VAT/GNI resources.

According to Council Decision No. 2007/436 the Netherlands and Sweden benefit from a gross reduction in their annual GNI-based contributions for the period 2007 - 2013. The gross reduction for the Netherlands and Sweden, which equals respectively EUR 605 million and EUR 150 million in 2004 prices, is adjusted to current prices by applying the GDP deflator for the EU expressed in Euro and granted after financing of the correction mechanism in favour of the UK. Similarly to the UK correction, this amount is financed by the other Member States so there should be no net effect on the budget.

However, a negative amount of EUR 3 million was registered, which was caused by

differences in the exchange rates similar to those for the VAT/GNI resources.