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The Multiannual Financial Framework explained

 

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The MFF: the EU long-term spending plan

The multiannual financial framework (MFF) lays down the maximum annual amounts ('ceilings') which the EU may spend in different political fields ('headings') over a period of at least 5 years. The upcoming MFF covers seven years: from 2014 to 2020.

The MFF is not the budget of the EU for seven years. It provides a framework for financial programming and budgetary discipline by ensuring that EU spending is predictable and stays within the agreed limits. It also allows the EU to carry out common policies over a period that is long enough to make them effective. This long term vision is important for potential beneficiaries of EU funds, co-financing authorities as well as national treasuries.

By defining in which areas the EU should invest more or less over the seven years, the MFF is an expression of political priorities as much as a budgetary planning tool. The annual budget is adopted within this framework and usually remains below the MFF expenditure ceilings in order to retain some flexibility to cope with unforeseen needs.

Proposed by the European Commission, the regulation laying down the MFF must be adopted by the Council by unanimity after obtaining the consent of the European Parliament.

The MFF is part of a comprehensive package which also comprises the EU own resources and a set of sector-specific legislations defining the conditions of eligibility and the criteria for the allocation of funds for each EU spending programme.

The functioning of the MFF 2014-20 will be reviewed by the Commission in 2016 taking full account of the economic situation at the time as well as the latest macroeconomic projections.  

MFF Structure and Content

Headings – The EU policy areas

For the period 2014-2020, the MFF sets a maximum amount of EUR 960 billion for commitment appropriations and EUR 908 billion for payment appropriations. The MFF 2014-20 is divided into six categories of expense ('headings') corresponding to different areas of EU activities:

  1. Smart and Inclusive Growth
    1. Competitiveness for growth and jobs: includes research and innovation; education and training; trans-European networks in energy, transport and telecommunications; social policy; development of enterprises etc.
    2. Economic, social and territorial cohesion: covers regional policy which aims at helping the least developed EU countries and regions to catch up with thr rest, strengthening all regions' competitiveness and developing inter-regional cooperation.
  2. Sustainable Growth: Natural Resources: includes the common agricultural policy, common fisheries policy, rural development and environmental measures.
  3. Security and citizenship: includes justice and home affairs, border protection, immigration and asylum policy, public health, consumer protection, culture, youth, information and dialogue with citizens.
  4. Global Europe: covers all external action ('foreign policy') by the EU such as development assistance or humanitarian aid with the exception of the European Development Fund (EDF) which provids aid for development cooperation with African, Caribbean and Pacific countries, as well as overseas countries and territories. As it is not funded from the EU budget but from direct contributions from EU Member States, the EDF does not fall under the MFF.
  5. Administration: covers the administrative expenditure of all the European institutions, pensions and European Schools.
  6. Compensations: temporary payments designed to ensure that Croatia, who joined the EU in July 2013, does not contribute more to the EU budget than it benefits from it in the first year following its accession.

Ceilings – The maximum annual amounts

The MFF lays down the maximum annual amounts ('ceilings') which the EU may spend in these six policy areas and overall over the 2014-20 period. There are two types of expenditure ceilings:

  • An annual ceiling for each heading, expressed in commitment appropriations (legally binding promises to spend money which will not necessarily be paid out in the same year but may be disbursed over several financial years);
  • An overall annual ceiling:
    • for commitment appropriations corresponding to the sum of each heading ceilings;
    • for payment appropriations: the actual amounts authorized for disbursement in a given year. As a rule, budgeted amounts correspond to the sum of payments scheduled for each category. The annual payment appropriations must be covered entirely by total annual revenue.

The overall ceiling is also expressed as a percentage of the EU's estimated GNI. This percentage is updated every year on the basis of the latest available GNI forecasts in order to check that the EU's total estimated level of payments does not exceed the maximum amount of own resources which the EU may raise during a year (1.23 % of the EU's GNI).

The difference ('margin') between budgeted payment appropriations and the annual payment ceiling and the margin between the budgeted commitment appropriations and the expenditure ceiling per heading provide room for manoeuvre in case of unforeseen needs and emergencies.

Flexibility and Special instruments

Flexibility mechanisms enable the EU to mobilise the necessary funds to react to unforeseen events such as crisis and emergency situations. Their scope, financial allocation and operating modalities are provided for in the MFF regulation and the Interinstitutional Agreement. In the current context of reduced expenditure, they also ensure that budgetary resources can respond to evolving priorities, so that every euro is used where it is most needed. Most of the flexibility mechanisms are therefore kept outside the MFF and the funding can be mobilised above the expenditure ceilings.

Taking into account past experience, the scope for intervention for some special instruments, such as the Emergency Aid Reserve has been broadened, the maximum allocation increased and the carrying over of unused amounts to the following year(s) has been allowed.

  • Emergency Aid Reserve – maximum €280 million per year

    The Emergency Aid Reserve is designed to finance humanitarian, civilian crisis management and protection operations in non-EU countries in order to quickly respond to unforeseen events. For example, the Emergency Aid Reserve was mobilised in 2012 following the outbreak of conflict in Syria, the conflicts in Mali and the drought in the Sahel.

  • Solidarity Fund - maximum €500 million per year

    The EU Solidarity Fund aims to release emergency financial aid following a major disaster in a Member State or candidate country, such as the 2009 earthquake in the Italian Abruzzo region or the 2012 floods in Germany. Aid is managed by the recipient country, and should be used to rebuild basic infrastructure, fund emergency services, temporary accommodation or clean-up operations, or counter immediate health risks.

  • Flexibility instrument - maximum €471 million per year

    The Flexibility instrument provides funding for clearly identified expenses which cannot be covered by the EU budget without exceeding the maximum annual amount for expenditure set out in the MFF. For exemple, the Flexibility instrument was used in 2009 to contribute to the financing of energy projects in the context of the European Economic Recovery Plan and to the decommissioning of a nuclear power plant in Bulgaria.

  • European Globalisation Adjustment Fund - maximum €150 million per year

    The European Globalisation Fund aims to help workers reintegrate into the labour market after they have been made redundant as a result of major structural changes in world trade patterns (e.g: as a consequence of the global financial and economic crisis). For example, it supported Belgian workers after the General Motors Antwerp plant closed-down.

In addition to these existing instruments, new flexibility measures have been introduced in the MFF 2014-20:

  • Flexibility for payments: under certain conditions and within the overall ceilings set in the MFF, unused payment appropriations and margins can be carried over from one financial year to the next. The payment ceiling of the years in which the unused margins arise must be cut accordingly in order to leave the overall ceiling unchanged.
  • Flexibility for commitments in growth and employment: commitment appropriations left unused in 2014-17 will form a reserve for additional expenditure in 2016-20 in the area of growth and employment (in particular for youth employment).
  • Special flexibility for youth employment and research: in order to concentrate a maximum of funds where they are the most needed as early as possible, up to €2.1 billion can be brought forward to 2014-15 for the Youth Employment Initiative and up to €400 million for research, Erasmus and SMEs.
  • Flexibility for aid to the most deprived: on a voluntary basis, Member States can increase their allocation for the aid to the most deprived by €1 billion.
  • Contingency Margin: this is a last resort instrument to react to unforeseen circumstances and amounts to 0.03 % of the EU's gross national income (GNI).

 

Related links:

Publication:

MFF 2014-2020 and EU budget 2014