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  1. 1. The European Union budget at a glance What is the money spent on? Where does the money come from? How is the budget decided? How is the money spent and controlled? How is the money accounted for? EUROPEAN COMMISSION kg703655EN.indd 1 9/03/07 13:24:48
  2. 2. What is the money spent on? A small amount — around 1 % of the Union’s national time. These are grouped under broad spending cate- wealth, which is equivalent to about EUR 235 per per- gories (known as ‘headings’) and 31 different policy son — comes into the EU’s annual budget. is money areas. is used with the aim of improving the everyday lives of people. For students, this could be in the form of op- e EU budget nances actions and projects in policy portunities to study abroad. For small businesses, it domains where all EU countries have agreed to act at could imply easier access to larger markets and a fair Union level. Such decisions are taken for very practical business environment. For researchers, it could mean reasons. Joining forces in these areas can yield greater more chances to develop their ideas. For jobseekers, it results and costs less. could be new training possibilities. ere are other policies, however, where the EU coun- Directly or indirectly, we all bene t from some activity tries decided not to act at Union level. For example, funded from the EU budget, be it in the form of cleaner national social security, pension, health or education beaches, safer food on our plates, better roads or the systems are all paid for by national, regional or local guaranteeing of our fundamental rights. governments. e ‘subsidiarity principle’ ensures that activities best managed at national, regional or local Actions and projects funded by the EU budget re- level are funded at the most appropriate level and that f lect the priorities set by the EU countries at a given the Union does not intervene. 44.2% Competitiveness and cohesion 43% Natural resources: Agriculture, rural development, environment and sheries 1.2% Citizenship, freedom, security and justice 5.7% The EU as a global player 5.9% Other including administrative expenditure % of EU spending (2007-2013 average) 50 45 40 35 30 25 20 15 10 5 0 2 kg703655EN.indd 2 9/03/07 13:24:56
  3. 3. Growth and jobs For the next seven years, the EU countries have decided to dedicate a considerable part of their joint e orts and of the EU budget to creating more economic growth and jobs. Sustainable growth has become one of the main priorities of the Union. e EU economy needs to be more competitive and less prosperous regions need to catch up with the others. A more competitive economy requires more invest- ment in research and education, extended transport and energy networks and better employment conditions, all at the same time. As a result, a simple idea developed in a laboratory could be picked up by a small business across the EU and marketed throughout the Union, with full protection of consumers’ rights. In this case, funding a simple idea provides employment to the re- searcher, the entrepreneur, the distributor and protec- tion to the consumer. Achieving long-term growth also depends on tapping ing the regions to train their workforce and adopt the and increasing the EU’s growth potential. is priority, latest technologies in production. e EU budget also known as ‘Cohesion’, calls for helping especially less supports facilitating economic and social cooperation advantaged regions transform their economy to face across regional and national borders. e EU action of- global competition. Innovation and the knowledge econ- ten involves sharing experience and know-how, which omy provide an unprecedented window of opportunity can be much more useful for the less prosperous re- to trigger growth in these regions. gions. e Union’s e orts are directed to achieving cohe- Over the period 2007–2013, out of every euro spent sion focus on developing in- from the EU’s annual budget, 44 cents will go to com- frastructures and help- petitiveness and cohesion activities. Our natural resources anks to their geographic and cli- have two main goals. First, what is produced must cor- matic diversity, the EU countries respond to what consumers want, including high safety produce a large variety of agricul- and quality for agricultural products. Second, on the tural products, which European production side, the farming community should be able consumers can buy at reasonable to plan and adapt production to consumers’ demands prices. e EU e orts in this eld swhile respecting the environment. 3 kg703655EN.indd 3 9/03/07 13:24:57
  4. 4. In addition, successful management and protection of do not stop at national borders. Such threats require ex- our natural resources must also include direct measures tensive action on many fronts and in several countries. to protect the environment, restructure and diversify Over the period 2007–13, 43 cents out of every euro the rural economy and promote sustainable shing. will be spent from the EU budget each year in favour of A er all, animal infections, oil spills and air pollution our natural resources. Fundamental freedoms, security and justice Similarly, the ght against terrorism, organised crime into the Union and extensive cooperation in criminal and illegal immigration is much more e ective when and judicial matters as well as secure societies based on EU countries share information and act together. e the rule of law. About one cent in every euro from the EU strives for a better management of migration ows EU budget will be spent to this end. Being European: Debate, dialogue and culture More than 495 million of us live in the EU. We speak of the European Union: cultural diversity built on many di erent languages and have di erent cultural common values. e EU budget promotes and protects backgrounds. Together we form the invaluable wealth this cultural heritage and richness, while encouraging Since its creation in 1987, the Erasmus programme has given more than 1.2 million European students the opportunity to pursue a part of their higher education in another EU country. 4 kg703655EN.indd 4 9/03/07 13:24:58
  5. 5. In addition to the EU’s long-term assistance, 77 developing countries in the African, the Caribbean and Paci c regions can also bene t from the Help centre for children a ected by the earthquake in Algeria, funded by the Union’s humanitarian aid department ECHO. European Development Fund (outside the EU budget) to reform their education, health and transport systems and to strengthen their institutions. active participation in social debates around us. It also During the period 2008–13, this extra assistance aims to protect public health and consumer interests. will correspond to about 3 % of the EU’s annual About one cent in every euro will go to such activities spending. under this heading known as ‘Citizenship’. Global player e impact of EU funds does not stop at our external perity, stability and security. About six cents in every borders. For many, the EU budget delivers the most euro go to cooperation with countries about to join the needed emergency aid in the a ermath of a natural dis- Union, other neighbouring countries, and indeed to aster. For others, it is a long-term assistance for pros- poorer regions and countries around the world. Administrative costs Around six cents in every euro from the EU budget European Parliament, Council of Ministers, European are spent on running the Union. is covers the sta Commission, European Court of Justice and European and building costs of all EU institutions, including the Court of Auditors. 5 kg703655EN.indd 5 9/03/07 13:24:59
  6. 6. Where does the money come from? e European Union has its ‘own resources’ to nance • Traditional own resources (TOR) — these main- its expenditure. Legally, these resources belong to the ly consist of duties that are charged on imports of Union. Member States collect them on behalf of the EU products coming from a non-EU State. ey bring and transfer them to the EU budget. in approximately 15 % of the total revenue. Own resources are of three kinds (the gures below re- • e resource based on value added tax (VAT) is fer to the 2007 revenue estimates and are given as an a uniform percentage rate that is applied to each example). Member State’s harmonised VAT revenue. e VAT-based resource accounts for 15 % of total rev- enue. Where does the money come from? • e resource based on gross national income (GNI) is a uniform percentage rate (0.73 %) applied 80 to the GNI of each Member State. Although it is a 70 69 balancing item, it has become the largest source of 1996 revenue and today accounts for some 69 % of total 2007 estimates revenue. 60 51 50 e budget also receives other revenue, such as taxes % of total revenue paid by EU sta on their salaries, contributions from 40 non-EU countries to certain EU programmes and nes on companies that breach competition or other laws. 30 30 ese miscellaneous resources add up to around 1 % of 19 the budget. 20 15 15 e total EU revenue foreseen for 2007 amounts to some 10 EUR 115.5 billion, while the total of the funds commit- ted under di erent policies is slightly higher. e dif- 0 Traditional own VAT-based GNI-based ference mainly results from the budgetary practice of resources resources resources the EU, where the European Commission commits, i.e. blocks, the total amount required for a multiannual Own resources of the EU budget project in the rst year of the project. e actual pay- 6 kg703655EN.indd 6 9/03/07 13:25:03
  7. 7. DID YOU KNOW? EU budget revenue and expenditure is limited by… — The treaties: the Union budget is not allowed ments, however, are made in several instalments during to be in de cit, which means that revenue the project period. has to cover the entire expenditure. Revenue ows into the budget in a way which is roughly — A maximum spending limit agreed by the Member proportionate to the wealth of the Member States. e States’ governments and parliaments. Known as the ‘own resources ceiling’, this limit is UK, the Netherlands, Germany, Austria and Sweden, currently set at 1.24 % of the Union’s gross national however, bene t from some adjustments when calcu- income (GNI) for payments made from the EU lating their contributions. budget. This corresponds to approximately EUR 293 per EU citizen on average. On the other hand, EU funds ow out to the Member States in accordance with the priorities that the Union — A nancial framework agreed by the European has identi ed. Less prosperous Member States receive Parliament, the Council of Ministers and the proportionately more than the richer ones and most European Commission, which controls the countries receive more than they pay into the budget. evolution of the EU budget by expenditure category over a set period of time. 7 kg703655EN.indd 7 9/03/07 13:25:04
  8. 8. How is the budget decided? e Commission, Parliament and Council of Ministers have di erent roles and powers in deciding the budget. IN FEW WORDS As a rst step, these three institutions conclude a bind- The EU budget is decided democratically at all stages ing agreement to ensure budgetary discipline and long- In addition to the approval of the annual budget by term planning and to enhance cooperation in connection the European Parliament and the Council, almost all with annual budgets. is ‘interinstitutional agreement’ activities require a Community law before they can includes the multiannual nancial framework, which be carried out. This takes the form of an authorising establishes annual upper limits (known as ‘ceilings’) per act or legal base, proposed by the Commission, and heading. Annual budgets must respect these ceilings. approved by the legislative authority — the Council alone or with the Parliament in many cases. e most recent nancial frameworks cover the seven- year periods from 2000 to 2006 and 2007 to 2013. e budgetary procedure as established in the EU trea- ties lasts from 1 September to 31 December. In practice, it begins much earlier. For example, preparations for the 2007 budget started before the end of 2005. ere are two types of budget expenditure: compul- sory and non-compulsory expenditure. Compulsory expenditure covers all expenditure resulting from inter- national agreements and the EU treaties. All other ex- penditure is classi ed as non-compulsory. e Council of Ministers has the nal word on compul- sory expenditure and the European Parliament on non- compulsory expenditure. e importance of this dis- tinction has declined with successive interinstitutional agreements as they collaborate closely at all stages. Commissioner Grybauskaitė discussing budgetary issues at the European Parliament. 8 kg703655EN.indd 8 9/03/07 13:25:07
  9. 9. Commission’s preliminary draft budget All EU institutions and bodies draw up their estimates for the preliminary dra budget according to their in- ternal procedures. e Commission consolidates these estimates and es- tablishes the ‘preliminary dra budget’, which takes into account the guidelines or priorities for the coming budget year. e Commission submits the preliminary dra budget to the Council of the Union in April or early May before the budget Council meets in July. e Council of Min- isters and the Parliament must work on the basis of this proposal from the Commission. Council’s rst reading of the budget A er a conciliation meeting with the Parliament, the Council of Ministers adopts the dra budget with amendments, if any, and it is forwarded to the Parlia- ment in September. Economic and Financial A airs Council. Parliament’s rst reading At its rst reading in October, the Parliament may de- cide to amend the Council’s dra . It will discuss contro- versial matters in ‘trialogue’ meetings with the Council Presidency and the Commission beforehand. Parlia- ment’s rst reading, along with its suggestions, is then referred back to the Council. Council’s second reading Before its second reading in November, the Council has a further conciliation meeting with the Parliament and tries to reach an agreement on the whole of the budget. It then adopts its second reading. 9 kg703655EN.indd 9 9/03/07 13:25:11
  10. 10. Parliament adopts or rejects the budget (second reading) e Parliament may modify the Council’s latest text be- fore it votes on the nal budget in December. If approved, the President of the Parliament signs the budget into law. e Parliament may also reject the budget. Similar procedures apply to the adoption of letters of amendment to the preliminary dra budget (presented when new information comes to light before the adop- tion of the budget) and of amending budgets (in the case of inevitable, exceptional or unforeseen circum- stances occurring a er the budget has been adopted). Hans-Gert Poettering, President of the European Parliament (2007-2009). COMMISSION Preliminary draft budget in April/May (PDB) Draft budget (DB) in July (quali ed majority) THE BUDGET PROCEDURE COUNCIL PARLIAMENT First reading of the DB in October Amendments of non-compulsory expenditure Proposed modi cations to compulsory expenditure COUNCIL Second reading of amendents/modi cations YES NO YES NO Quali ed majority Quali ed majority Council xes PARLIAMENT Second reading of non-compulsory expenditure in December YES NO Amount and remarks voted First reading/New amount (Majority of members + 3/5 votes) Majority of members/Majority of 2/3 votes: can reject the budget 10 kg703655EN.indd 10 9/03/07 13:25:13
  11. 11. How is the money spent and controlled? Responsibility for managing the budget Key thought e ultimate responsibility for the implementation of the budget lies with the European Commission. In EU funds must be used in accordance with the practice, the lion’s share of the EU funds (some 76 %) principle of sound nancial management. Put simply, this means that those managing the money must is spent under what is known as shared management. make every e ort to obtain the best possible value for Under these arrangements, it is the authorities in the money spent. This requires strict adherence to all the Member States, rather than the Commission that man- rules and regulations as well as regular evaluations to age the expenditure. A whole set of checks and balances verify that this is the case. is put in place to help ensure that the funds in question Who manages EU funds? 100 are managed properly and in accordance with the rules in force. 80 76% e Commission must recover amounts unduly paid, whether by error, irregularity or deliberate fraud. e Member States are equally responsible for protecting 60 the EU’s nancial interests. To this end, they work in co- % of EU funds operation with the Commission and with OLAF — the European Anti-Fraud O ce — which carries out inves- 40 tigations into potential cases of fraud and helps ‘fraud- proof ’ EU legislation. 22% 20 Activity-based budgeting 1% 1% 0 For greater transparency, i.e. over what policies are pur- Commission Commission Third countries Commission and jointly with sued, how much money is spent on each of them, and Member States international partners and how many people work on them, the EU budget is sepa- others rated into 31 policy areas. Each of these policy areas is 11 kg703655EN.indd 11 9/03/07 13:25:14
  12. 12. broken down to show the di erent activities nanced tection of forests activity is nanced under the environ- under the policy and their total cost in terms of both ment policy heading). is way of organising the budget nancial and human resources (for example, the pro- is called activity-based budgeting. Rules governing expenditure e main rules governing the actual spending of EU funds are contained in the nancial regulation. A sec- ond set of rules, implementing rules, explains in detail how the nancial regulation is to be applied. Furthermore, with very few exceptions, each and every programme launched must be covered by a speci c au- thorising act, or legal base, before funds can be released. ese legal bases set out the objectives of the activity in question and the cost, and o en impose multiannual spending limits. Management, audit and internal control On the Commission’s side, EU programmes and activ- sta (usually the Director-General) is nominated as ities are managed by the sta of the Commission’s policy ‘authorising o cer’ and has to assume full and nal re- departments (called directorates-general) in liaison with sponsibility for operations in his or her eld of compe- their counterparts in the EU Member States as necessary. tence, although all EU sta of course bear disciplinary In each Commission department, one member of the and pecuniary responsibility for their actions. 12 kg703655EN.indd 12 9/03/07 13:25:17
  13. 13. Internal controls are enhanced by a set of clear stand- Since 2002, all Commission departments issue an an- ards, controls by management before and a er opera- nual activity report to the Members of the Commission tions, independent internal auditing on the basis of risk setting out their achievements for the year in question assessments, and regular reporting on activities to the and suggestions to remedy any shortcomings. A synthe- individual Commissioners. sis report is then sent to the Parliament and Council. is report now constitutes one of the pillars on which the European Court of Auditors bases its annual decla- ration of assurance on the EU’s management of its re- sources. The Union monitors its subsidised agricultural activities by remote sensing (Monitoring Agriculture through Remote Sensing - MARS project). How does the Commission make payments? e Commission has bank accounts with Member State e Commission deals with over 200 000 third parties, treasuries, central banks and commercial banks and mainly bene ciaries of grants and suppliers of goods is a participant in SWIFT (the Society for Worldwide and services. To handle these transactions, it uses what Interbank Financial Telecommunication). All payment is known as a computerised legal entity le (LEF) for instructions and other related messages are sent elec- each third party (which can be an individual or a com- tronically in encrypted form and with a coded authen- pany). All of these legal entity les have to be authorised ti cation key. and validated before any payment can be made. 13 kg703655EN.indd 13 9/03/07 13:25:22
  14. 14. How is the money accounted for and to whom? The dual nature of EU accounting and reporting Key thought e EU accounts consist of two types: (a) budgetary Every year, the EU accounts are published and submitted for external audit by the Court of Auditors. accounts (which provide a detailed record of budget The nal assessment, called ‘discharge’, is given by implementation) and (b) general accounts (which are the Parliament after taking into account the Council’s used to prepare the balance sheet and economic out- recommendations. turn). e budgetary accounts are based on the modi ed cash accounting principle, which means that transactions (expenditure and income) are recorded only when cash expenditure throughout the nancial year. e general is paid out or received. accounts are used for establishing the economic outturn and the balance sheet of assets and liabilities, which is e general accounts (or general ledger) use the double- drawn up to show the nancial position of the EU at entry method of bookkeeping to record all revenue and 31 December of each year. Reporting on the implementation of the budget e Commission publishes the state of budget imple- mentation every month on its website. ese monthly reports show how the money is actually being used. e information is given for each chapter of the budget and by policy area. Weekly gures are also kept by the rel- evant policy departments. An overview of the results of evaluations made during the year and of the planned follow-up is provided in the annual evaluation review. José Manuel Barroso, President of the European Commission e Commission also publishes the annual accounts and Hubert Weber, President of the Court of Auditors. of the European Communities, which include consoli- 14 kg703655EN.indd 14 9/03/07 13:25:26
  15. 15. dated reports on the implementation of the budget and On 1 January 2005, the Commission took a crucial the balance sheet. Prepared in accordance with the In- step in modernising its accounts with the move from ternational Public Sector Accounting Standards (IP- cash-based to accrual accounting. Accrual accounting SAS), they consolidate the accounts of all the EU insti- recognises transactions when they occur (and not only tutions and bodies, as well as those of most agencies. when cash is paid), and it gives a full view of all the EU’s assets and liabilities. As a result, policymakers, budget A er a preliminary audit of the provisional accounts by control authorities, managers of EU funds and EU citi- the Court of Auditors, the Commission approves the zens now have access to more accurate nancial infor- nal accounts, which are then sent to the discharge au- mation, which is essential to e ective management and thorities: the European Parliament and the Council. control of public money. External audit In addition to regular internal audits and controls, • the reliability of the accounts (i.e. if the books are the EU’s annual accounts and resource management kept well); and are subject to an external and independent audit by the European Court of Auditors. Each year the Court • the legality and regularity of the underlying trans- of Auditors draws up a report for the Parliament and actions (i.e. the revenue collected and payments Council of Ministers. Together with this annual report, made). it issues an opinion called statement of assurance on: Accountability to the European Parliament Following the publication of the Court of Auditors’ an- nual report and the nalisation of the annual accounts, the Council submits its recommendations to the Par- liament. Based on these, the European Parliament pronounces on the Commission’s management for the nancial year in question. If the Parliament considers that the Commission managed the EU budget appropri- ately, it grants discharge to the Commission. When granting discharge, the Parliament o en rec- ommends follow-up action to be taken by the Com- mission. In response, the Commission identi es the measures it could take and informs the Parliament and the Council. European Parliament grants discharge for the EU budget. 15 kg703655EN.indd 15 9/03/07 13:25:29
  16. 16. KV-76-06-329-EN-C For more information on the EU budget and nancial programming EU budget: (available in English, French and German) European Commission Directorate-General for Budget: Dalia Grybaukaitė, Commissionner for Financial Programming and Budget: For feedback on the brochure: Europe Direct is a service to help you nd answers to your questions about the European Union Freephone number (*): 00 800 6 7 8 9 10 11 (*) Certain mobile telephone operators do not allow access to 00 800 numbers or these calls may be billed. Photo credit: Corbis, cover and pages 3, 9; Ingram publishing, page 3; GettyImage, page 7; European Communities, pages 4, 5, 8, 10, 12, 13, 14,15; ESA/J. Huart, page 9. A great deal of additional information on the European Union is available on the Internet. It can be accessed through the Europa server ( Luxembourg: O ce for O cial Publications of the European Communities, 2007 ISBN 92-79-03037-X © European Communities, 2007 Reproduction is authorised provided the source is acknowledged. Printed in Belgium PRINTED ON WHITE CHLORINE-FREE PAPER ISBN 92-79-03037-X ,!7IJ2H9-adadhg! kg703655EN.indd 16 9/03/07 13:25:31