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The EU budget is an important tool that puts EU policies into practice. It finances actions that Member States cannot fund on their own or that they can fund more economically by pooling their resources.
The EU budget is adopted through a democratic procedure: it is prepared by the European Commission (the EU’s executive body) and is then discussed and agreed by the Council of the EU (representing EU Member States, including Luxembourg) and by the European Parliament (where the democratically elected Luxembourgish representatives sit).
Once adopted, the budget is then managed either jointly by the EU Member States and the Commission, or directly by the Commission.
In practice, 80 % of the EU budget is managed by national or regional governments. Through grants, loans and other forms of financing, the EU budget provides financial support to hundreds of thousands of beneficiaries such as students, scientists, NGOs, SMEs and towns and regions.
The EU budget is largely financed by ‘own resources’ which are based on three kinds of sources:
This system has been unanimously decided on by the EU Member States for a 7-year period, and has been ratified by all the national parliaments. Its aim is to provide a reliable and sufficient level of revenue for the EU budget, while at the same time taking into account the Member States’ ability to pay. Each Member State thus contributes in line with its wealth.
The other sources of revenue for the EU budget include taxes on EU staff salaries, fines on companies for breaching competition laws and bank interest, etc. There is no direct EU tax. EU countries remain in control of their taxes.
Some 94 % of EU money is spent on the various EU policies, and most of it goes back to Member States. In many cases the EU budget supports large and complex projects. One of them is the European Partnership Action against Cancer, where collective European effort helps to prevent the disease and find a cure for it.
Approximately 6 % of the EU budget is spent on the functioning of the EU institutions. This is used to pay for the salaries and pensions of EU employees, translation and interpretation, security, buildings and IT systems etc. This expenditure is necessary in order to allow the EU to work.
There are around 55 000 EU civil servants and other employees serving 508 million Europeans and countless people in need around the world.
Furthermore, in order to adapt to the harsh economic situation in Europe, the EU institutions are also cutting costs: the Commission’s wide-ranging staff reform is expected to save EUR 8 billion by 2020, reducing its staff by 5 %, while at the same time increasing its working hours.
The charts below provide an overview of how much the EU invested in each of its Member States in 2013, and show the contribution of European funding to each country’s wealth. In Luxembourg, EU funding represents 5.1 % of the country’s GNI (Gross National Income), one of the highest proportions among EU members. This is largely due to the costs generated by the fact that many EU institutions are based in Luxembourg.
The Commission has put into place robust internal control measures in order to ensure that funds are spent efficiently and effectively.
As 80 % of the EU budget is managed by national or regional governments, Member States also play an important role in ensuring that rules are observed, and in detecting and addressing irregularities and fraud.
Additionally, the European Court of Auditors reviews the EU accounts every year. For several years the Court has confirmed that the EU accounts are properly kept, but also points out errors in procedures (e.g. accounting errors by national programme participants or claims for non-eligible costs). Errors do not mean that EU money is lost, wasted or affected by fraud. A large part of the money spent in error is recovered.
In addition, the European Parliament approves how the Commission has spent the budget following the end of every financial year.
If you want to see which entities have received EU funding, the financial transparency system will show you which entities have received payments from the EU budget.
Although the EU budget is adopted every year, it must be established within the limits of the multiannual financial framework (MFF). The MFF is an expenditure plan setting the maximum annual amounts which the EU can spend in different fields of activities over a 7-year period. It therefore shapes the EU’s political priorities for 7 years.
For the 2014-20 funding period, the EU wants to meet the targets of the Europe 2020 growth strategy, focusing on what Europe needs in order to overcome the economic and financial crisis and concentrating on areas where it can make a genuine difference. Some of the Commission’s proposals for radical reform were watered down by the Member States, but very important changes remain. Key elements of the 2014-20 MFF include:
In 2013, Luxembourg’s public expenditure amounted to around EUR 20 billion – that is much less than the EUR 144 billion EU budget for the same year. However, it represented 64 % of the country’s GNI, whereas the EU budget for the 28 Member States was roughly 1 % of the Union’s GNI.
The EU and national budgets serve different, yet complementary purposes. The EU budget targets areas where EU money can generate added value. For example, a project of such magnitude as the European satellite navigation system Galileo could not be financed by a single Member State alone.
Unlike Luxembourg’s budget – or any other national budget – the EU budget does not fund defence expenditure or social protection, but is mostly spent on structural projects and capacity building. For instance, EU funding supports the University of the Greater Region, a partnership between the University of Luxembourg and six other universities in Belgium, France and Germany.
Putting aside the administrative costs, Luxembourg pays more into the EU budget than it receives from it. However, this net balance does not accurately reflect the many benefits of EU membership. Many of them, such as peace, political stability, security and freedom to live, work, study and travel anywhere in the Union cannot be measured. In addition, European investments are intended to benefit the EU as a whole, and European funding in one country can benefit other EU members as well.
Operating budgetary balance: the difference between what a country receives from and pays into the EU budget. There are many possible methods of calculating budgetary balances. In its financial report,the Commission uses a method based on the same principles as the calculation of the correction of budgetary imbalances granted to the United Kingdom (the UK correction). It is, however, important to point out that constructing estimates of budgetary balances is merely an accounting exercise of the purely financial costs and benefits that each Member State derives from the Union and it gives no indication of many of the other benefits gained from EU policies such as those relating to the internal market and economic integration, not to mention political stability and security.
Because Luxembourg City hosts several EU institutions such the European Court of Justice, the European Court of Auditors, a significant part of the European Commission administration, the Secretariat General of the European Parliament, the European Investment Bank, the European Financial Stability Facility (EFSF) and more recently the European stability mechanism (ESM), the biggest share of the money that the country receives from the EU budget (85 % in 2013) goes on administrative expenditure. It covers costs such as the organisation of EU Council meetings, security, the institution buildings etc. Some 12 900 EU officials work in Luxembourg, generating considerable economic spin-offs.
The second largest share of the money that Luxembourg receives goes on research, an area crucial for its competitiveness and economic development. Research and innovation are at the top of the EU’s agenda for growth and jobs, and are particularly important for a country like Luxembourg which is making targeted investments in sophisticated and high-added-value areas like biomedicine, ICT, green technologies, logistics and outer space research. The Union wants 3 % of its wealth to be invested in research and development by 2020. This investment will not only create jobs and growth, but is also essential to tackle the biggest issues of our time, such as energy, food security, climate change and an ageing population. For example, a European research team including Luxembourgish researchers will demonstrate that chemicals, materials and biofuels can be produced from biomass (straws, forestry residues etc.) and help to reduce our dependence on petroleum-based plastics production.
The rest of the money goes mostly on agriculture and Luxembourg’s regions. EU agricultural policy supports farmers and promotes safe and good food, but it also looks after the environment and stimulates rural economies. Thanks to the EU's regional development fund, wine producers from the Moselle valley in Luxembourg, France and Germany have come together to promote their products and tackle their common difficulties. European regional policy aims at reducing the economic, social and territorial disparities between Europe’s regions. The limited amounts that Luxembourg receives for this policy are focused on research and innovation as well as the environment.
EU countries have made agriculture a European rather than a national policy. It is the only policy almost entirely funded by the EU. That is why it represents a large proportion of the EU budget. It is also less costly for EU countries as a whole, than implementing 28 different national policies.
The common agricultural policy has undergone a major reform, whereby its share of the EU budget has fallen from 70 % in 1985 to around 40 % today, and is set to continue falling to 33 % in 2020. A new reform which came into force in 2014 further strengthens European agricultural competitiveness, making it more environmentally friendly and reducing the gap for countries receiving less money than the EU average.
A shuttle train service has been started between Bettembourg and the port of Trieste (Italy) to transport containers and semi-trailers with goods originating in Turkey and arriving at Trieste by sea. Each trailer on the train represents one less on European roads. The project thus reduces road congestion and, in the long run, will enable a 75 % reduction of CO2 emissions compared to road transportation. (EU funding: EUR 2.9 million)
The EU is helping wine producers from the Moselle valley, which covers three EU countries (Luxembourg, Germany and France) to work together to promote their wines and tackle shared difficulties. Common initiatives include joint participation in international fairs, wine tastings and preparation of training for tourist guides. Producers from the three countries will gain greater European and international visibility. (EU funding: EUR 202 861)
Scientists from the Centre Hospitalier in Luxembourg are taking part in an EU-funded research project investigating a new treatment for strokes. The technique involves cooling the patient's brain and could significantly reduce the number of stroke-related deaths and disabilities. (EU funding: EUR 10.9 million)
Luxembourgish researchers have joined a European research team looking to demonstrate that 70 % of today's polymers can be derived from biomass, reducing our dependence on petroleum-based plastics production. The Biocore project will conceive and analyse the industrial feasibility of converting by-products such as straw and forestry residue into a wide range of products including biofuels, chemical products, polymers and materials. (EU funding: EUR 13.9 million)
A major part of this budget is used to encourage key players from across Europe and beyond to join forces in collaborative research projects to find new ways to fight cancer and help patients.
The University of Luxembourg, together with six other universities in France, Germany and Belgium have come together to create the University of the Greater Region. With more than 100 000 students, the university network is characterised by outstanding study conditions and excellence in research. Students and PhD candidates can profit from the study offer of the partner universities, do research together and study abroad. (EU funding: EUR 3.2 million)
Some 405 students from Luxembourg studied or worked abroad in 2012-13 thanks to the Erasmus exchange programme. They received a grant from the European Commission towards the extra costs of living abroad. Just one of many examples: student teacher Laurence Kremer studied for 1 year in Heidelberg (Germany), where she also had the chance to work as an intern in a primary school: 'Studying in a foreign country was an enriching experience,' she says. 'It has sharpened my appetite for further travels abroad.'
Erasmus+ is not only for students: the programme allows new entrepreneurs to spend some time in an enterprise in another EU country in order to acquire the relevant skills for managing a small or medium-sized enterprise. The stay is partly financed by the European Commission.
The 'LuxBuild2020' project is training blue-collar workers from the building industry in the skills necessary to build passive houses. From 2017, nearly zero-energy houses will be the obligatory standard for new construction in Luxembourg and the programme aims to sustain a culture of change in the construction business. (EU funding: EUR 336 832)
Twenty-one organisations across Germany, France, Luxembourg, the Netherlands and the United Kingdom have combined efforts to preserve the diversity of north-west Europe's forests and to use them sustainably in a changed climate. The projects studied the effects of climate change on forests and developed recommendations for transnationally harmonised forest management and protection strategies. (EU funding: EUR 5.7 million)
Thanks to EU funds, Luxembourg is now one of the 50 countries to have a hotline for people wishing to report cases of corruption. With a simple phone call or e-mail, anyone who witnesses or is a victim of corruption can get the information and help that they need to report or stop corruption. (EU funding: EUR 1.1 million)