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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 Latvia) and by the European Parliament (where the democratically elected Latvian 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. By comparison, the German Finance Ministry alone employs more people than the European Commission’s services responsible for financial affairs, taxation and budget (1 850 v 1 542).
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 Latvia, EU funding represents 4.6 % of the country’s GNI (Gross National Income), one of the highest proportions among EU members.
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, Latvia’s public expenditure amounted to around EUR 8 billion – that is much less than the EUR 144 billion EU budget for the same year. However, it represented 36 % 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 Latvia’s budget – or any other national budget – the EU budget does not fund defence expenditure or social protection, but is mostly investment spending. For example, as an economy will not grow without an effective transport network, the EU is contributing EUR 71.4 million for the modernisation of Riga airport.
Latvia is one of the EU members receiving more from the EU budget than it contributes, and will remain so throughout the next budgetary period (2014-20). Bear in mind that 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.
The biggest share of the money that Latvia receives from the EU budget goes to its regions. EU regional policy aims to reduce the economic, social and territorial disparities between Europe’s regions and countries. It invests in projects supporting job creation, competitiveness, economic growth, improved quality of life and sustainable development. The environment and transport have been top priorities for Latvia. For example, regional funds helped the city of Tukums change to a heating system using renewable sources of energy.
Some 33 % of EU funds went to agriculture in Latvia in 2013. The EU agricultural policy supports farmers and promotes safe and good food: thanks to EU support, agricultural income increased by 51 % between 2004, when Latvia joined the EU, and 2012. Some of this growth came from the modernisation of farms, including one in Kurzeme that was given a complete facelift thanks to EU funding. However, farming is not just about food but also about the countryside, its rural communities and natural resources. Thus an important part of agricultural policy is to stuimulate rural economies and protect the environment through projects supporting local businesses, attracting tourists, making life in the countryside easier and preserving landscapes and natural resources.
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 like Latvia receiving less money than the EU average.
Thanks to the internal market, which makes it easier for companies to do business with counterparts in European countries, Latvian exports more than doubled between 2004 and 2013. During the same period, the country has also been steadily catching-up with the European average in terms of development: its growth rate increasing from 47 % to 67 % of the EU average.
All values in national currencies have been converted using exchange rates from October 2013.
By 2014, Riga international airport will be able to process 5 to 6 million passengers each year thanks to a little help from the EU. New taxiways, de-icing platforms, runway lighting and upgraded tarmac will all improve the passenger experience, safety and the airport’s environmental credentials (EU funding: LVL 50.2 million – EUR 71.4 million)
A new section of motorway and several connecting roads along the East-West corridor – connecting transit routes from the east to Latvian ports – will shorten journey times while stepping up safety and accommodating traffic growth. Heavy vehicles will be diverted, improving quality of life for families in nearby towns and villages. (EU funding: LVL 86.7 million – EUR 123.4 million)
Children and young people interested in fishing and environmental protection may learn everything they need to know through courses run by the Burtnieku Angling and Tourism School. EU funds enabled the association to purchase equipment and create a small-scale recreational infrastructure. It is now receiving more visitors than ever before and plans to expand its activities. (EU funding: LVL 8 012 – EUR 11 400)
An old Soviet-style farm was able to purchase new equipment and meet modern environmental standards when it received an EU grant. The investment enabled the farm to increase its livestock numbers, produce more milk and reduce the environmental risk associated with manure spillage. (EU funding: LVL 317 947 – EUR 452 400)
Latvian 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 plastic production. The project Biocore will conceive a methodology – and analyse its industrial feasibility – for converting by-products such as straw and forestry residue etc. into a wide range of products, including biofuels, chemical products, polymers and materials. (EU Funding: LVL 9.8 million – EUR 13.9 million)
Scientists from Riga Eastern Clinical University Hospital are taking part in an EU-funded research project investigating a new treatment for strokes. The new technique involves cooling the patient’s brain and could significantly reduce the number of stroke-related deaths and disabilities. (EU funding: LVL 7.7 million – EUR 10.9 million)
The Ditton Driving Chain company, which produces driving chains for the automotive industry, has expanded and upgraded its Daugavpils factory thanks to EU investment. In addition to building larger premises, new manufacturing equipment was installed, improving the quality of driving chains. The project also funded measures to increase energy savings and upgrade working conditions. Some 37 new jobs were created. (EU funding: LVL 3 million – EUR 4.3 million)
The JOSEFIN project helped SMEs in the Baltic Sea region to find the investment that they needed to expand internationally. Help took the form of individual coaching and tailor-made advice. The European counter guarantee fund backed up SME loans, guarantees and seed or venture capital. (EU funding: LVL 2 million – EUR 2.9 million)
The European Progress Microfinance Facility provides micro-loans (less than EUR 25 000) to micro-entrepreneurs, the unemployed and those at risk of losing their jobs who want to set up their own micro-enterprises. It focuses especially on groups with limited access to the conventional credit market, such as women, young people, minority groups and people with disabilities.
Thanks to EU support, libraries throughout Latvia have been able to benefit from fast access to information using the latest equipment, including new computers for librarians and vastly improved Internet connections. The development and acquisition of software for a library information system and the creation of a library portal were key features of the project. (EU funding: EUR 1 760 000)
Since 2008, Latvia has been running a training programme for medical staff. Its aim is to offer medical professionals the opportunity to update their skills through short courses. Some are able to go abroad to gain experience. More than 35 000 doctors, nurses and others have taken part in the programme so far.
The Latvian education system has been subject to considerable reforms in recent years. Over 27 000 teachers took part in a project to help them adapt to these changes through training in the knowledge and skills needed for teaching a wider variety of classes and subjects, including at higher education level, special needs classes or new subjects. (EU funding: EUR 24 million)
Some 2 149 Latvian students 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. The experience enriches students' lives academically and professionally, but also improves language and intercultural skills.
The city of Tukums was one of several cities taking part in the ‘Baltic Biomass Network’. For Tukums, involvement led to a regional bioenergy development strategy and the phasing out of fossil fuels from the district heating system. The town has now made the change to renewable sources of energy, providing energy price stability and local employment while cutting greenhouse gas emissions. (EU funding: EUR 1.67 million)
Latvia received EUR 9.5 million from the EU Solidarity Fund to help it deal with the consequences of strong winds that caused significant damage in northern Europe in January 2005.
All values in national currencies have been converted using exchange rates from October 2013.