Definition, historical background and procedures
What is the Multiannual Financial Framework (MFF)?
The Multiannual Financial Framework (MFF) translates into financial terms the Union's political priorities for at least 5 years. Article 312 of the Lisbon Treaty provides that the MFF is laid down in a regulation adopted unanimously by Council after obtaining the consent (adopts or rejects the whole package, no amendments) from the European Parliament. It sets annual maximum amounts (ceilings) for EU expenditure as a whole and for the main categories of expenditure (headings). It is not as detailed as an annual budget.
Why do we need a Multiannual Financial Framework?
By specifying the spending limits for each category of expenditure, the MFF imposes budgetary discipline and ensures that the Union's expenditure develops in an orderly manner within the limits of its own resources and in line with Union's policy objectives. In addition, this system ensures a predictable inflow of resources for the Union's long-term priorities and gives greater certainty to beneficiaries of EU funds, such as SME's, regions catching up, students, researchers, civil society organisations.
The MFF sets the cornerstones for the annual budgetary procedure. It considerably facilitates agreement on the yearly budget between the European Parliament and the Council which are the two branches of the Union's budgetary authority. At the same time it ensures continuity towards achieving the priorities set for the benefit of Europe. The financial framework also lays down any other provisions required for the annual budgetary procedure to run smoothly.
Have we always dealt with budget through multiannual frameworks?
The MFF is part of the European Union's functioning since 1988 and has covered periods varying from 5 to 7 years.
- The first Financial Framework, the so called Delors Package I, covered the years 1988-1992 and focused on establishing the Internal Market and consolidating the multi annual research and development framework programme.
- The second framework 1993-1999, the Delors Package II, gave priority to social and cohesion policy and the introduction of the euro.
- The "Agenda 2000" covered the period 2000-2006 and focused on the enlargement of the Union.
- Finally, the MFF 2007-2013 gave priority to sustainable growth and competitiveness, in order to create more jobs.
The next MFF will present the budgetary priorities of the Union for the years 2014 to 2020.
How does the entry into force of the Lisbon Treaty in 2009 affects the MFF 2014-2020?
Prior to the entry into force of the Lisbon Treaty, MFF was the result of an interinstitutional agreement. Yet, the article 312 of the Treaty on the Functioning of the European Union also confers a legally binding value to the Multiannual Financial Framework to determine "the amounts of the annual ceilings on commitment appropriations by category of expenditure and of the annual ceiling on payment appropriations". Besides, under the new treaty, the decision on the MFF will have to be taken by the Council deciding unanimously after receiving the Parliament's consent.
Why should the Financial Framework be agreed no later than 2012?
It takes 12-18 months to agree on the legal bases for all the multi-annual programmes and projects which will be financed under the MFF, in areas such as research, education, cohesion, development aid, neighbourhood policy etc. In order to allow these programmes to start in January 2014, a political agreement on the ceiling in the MFF should be taken no later than one and a half year before the framework enters into force. Furthermore, the political agreement will need to be translated into a Council Regulation requiring the consent of the European Parliament.
What happens if there is no agreement?
If there is no agreement before the end of 2013, the 2013 ceilings will be extended to 2014, plus a 2% inflation adjustment. The Treaty also foresees the extension of the "other provisions" corresponding to the last year of the financial framework. This means that all the provisions on the adjustments and revisions of the financial framework and instruments outside the financial framework would be extended.
Whether or not there is an agreement on the next MFF, there will be financial framework ceilings in place for 2014 and the budget could thus be adopted in conformity with the Treaty.
The absence of an agreed financial framework 2014-20 would considerably complicate the adoption of new programmes. And in the absence of new legal bases, including their indicative financial envelopes, no commitments could be made for those multiannual spending programmes for which the legal base expires in 2013.
So, as in the case of late agreement, the 2014 budget would probably only cover the agricultural payments and the payments on outstanding commitments. In other terms, citizens benefiting from EU-funds, such as researchers, students, civil society organisations, would face severe drawbacks.
Novelties on expenditure side of the MFF
What is new for Common Agriculture Policy?
The Commission proposes to allocate 36,2% of the MFF to CAP as compared to 39.4% in the previous exercise (41.5% in 2013).
The basic two pillar structure of the Common Agricultural Policy (CAP) will be maintained. The main changes proposed by the Commission are as follows:
Greening of direct payments: to ensure that the CAP helps the EU to deliver on its environmental and climate action objectives, 30 % of direct support will be made conditional on "greening". This means that all farmers must engage in environmentally supportive practices which will be defined in legislation and which will be verifiable. The impact will be to shift the agricultural sector significantly in a more sustainable direction, with farmers receiving payments to deliver public goods to their fellow citizens.
Convergence of payments: the levels of direct support per hectare will be progressively adjusted (while taking account of the differences that still exist in wage levels and input costs) in order to ensure a more equal distribution of direct payments.
- The allocation of rural development funds will be revised on the basis of more objective criteria and better targeted to the objectives of the policy. This will ensure a fairer treatment of farmers performing the same activities.
Capping the level of direct payments by limiting the basic layer of direct income support that large agricultural holdings may receive, while taking account of the economies of scale of larger structures and the direct employment these structures generate. The Commission proposes that the savings be recycled into the budgetary allocation for rural development and retained within the national envelopes of the Member States in which they originate.
The Commission proposes to allocate €281.8 billion for Pillar I of the Common Agricultural Policy and €89.9 billion for rural development for the 2014-2020 period. This funding will be complemented by a further €15.2 billion.
What is new for Cohesion policy?
The Commission proposes to allocate 36,7% of the MFF to Cohesion policy as compared to 35% in the previous exercise.
The main changes proposed by the Commission are as follows:
- The proposal foresees the creation of a category of intermediate regions whose GDP is between 75% and 90% of the average EU GDP. This new category will complement the two existing ones (convergence regions and competitiveness regions).Those "transition regions" should retain two thirds of their previous allocations for the next MFF period. The poorest regions and Member States of the European Union would then be helped in priority in order for them to catch up with the more prosperous Member States.
- Introducing conditionality in cohesion policy: it will be based on results and incentives to implement the reforms needed to ensure effective use of the financial resources. In addition, 5% of the cohesion budget for each Member State will be set aside as a performance reserve and allocated, following a mid-term review, to those Member States whose programmes have contributed most to progress in meeting agreed milestones set in the development and investment partnership contracts.
- The Commission proposes the creation of a common strategic framework for all structural funds to translate the Europe 2020 objectives into investment priorities. In operational terms, the Commission proposes to conclude a partnership contracts with each Member State. These contracts will set out the commitment of partners at national and regional level to utilise the allocated funds to implement the Europe 2020 strategy.
- The European Social Fund (ESF) will continue to play a key role in fighting unemployment and high rates of poverty, and delivering headlines targets of Europe 2020. The ESF will represent 25% of the budget allocated to cohesion policy, i.e. €84 billion.
The Commission proposes to allocate €376 billion to Cohesion policy instruments in general (including the Connecting Europe facility – see below).
What is new for Infrastructure and Interconnection of Internal Market?
The Commission proposes the creation of a Connecting Europe Facility to accelerate the infrastructure development in transport, energy and ICT across the EU to the benefit of all. Experience shows that national budgets will never give sufficiently high priority to multi-country, cross-border investments to equip the Single Market with the infrastructure it needs. EU budget can secure funding for the pan-European projects that connect the centre and the periphery.
This Facility will be centrally managed and will be funded from a new section of the budget. Co-financing rates from the EU budget will be higher when the investments take place in 'convergence' regions than in 'competitiveness' regions. Local and regional infrastructures will be linked to the priority EU infrastructures, connecting all citizens throughout the EU, and can be (co-) financed by the structural funds (cohesion fund and/or ERDF, depending on the situation of each Member State/region).
The Connecting Europe Facility offers opportunities for using innovative financing tools to speed up and secure greater investment than could be achieved only through public funding. The Commission will work closely with the EIB and other public investment banks to combine funding of these projects. In particular, the Commission will promote the use of EU project bonds as a means of bringing forward the realisation of these important projects.
The Commission proposes to allocate €40 billion to this priority, to be complemented by an additional €10 billion ring fenced to related transport investments inside the Cohesion Fund. This amount comprises €9.1 billion for the energy sector, €31.6 billion for transport (including € 10 billion inside the Cohesion Fund) and €9.1 billion for ICT.
What is new for Research policy?
The creation of a common strategic framework in research and development (to be called Horizon 2020), which means that the existing three research and innovation instruments (7th framework programme, Competitiveness and Innovation Framework Programme and the European Institute for Innovation and Technology) will be brought together. It will be closely linked to key sectoral policy priorities such as health, food security and the bio-economy, energy and climate change. The European Institute for Technology will be part of the Horizon 2020 programme and will play an important role in bringing together the three sides of the knowledge triangle – education, innovation and research – through its Knowledge and Innovation Communities.
On the financing side, innovative financial instruments will help leveraging private investments. Public Private Partnerships, as well as Public to Public Partnerships, will be promoted. Funding schemes will be standardized and simplified. Likewise, there will be one single set of rules for participation, audit, support structures, dissemination of results and reimbursement schemes, across all funding schemes.
The Commission proposes to allocate €80 billion for the 2014-2020 period for the Common Strategic Framework for Research and Innovation. This funding will be complemented by important support from the Structural Funds (€60 billion for 2007-2013).
What is new for Environment and Climate action policies?
Environmental policy and Climate change Action priorities will be 'mainstreamed' into all the major EU funding instruments, including cohesion, agriculture, maritime and fisheries, research and innovation, as well as into external aid programmes. The Commission intends to increase the proportion of climate related expenditure to at least 20%, with contributions from different policy fields subject to impact assessment evidence. This approach will maximise synergies between environmental policies and other areas, recognising that the same actions can and should pursue a variety of complementary objectives. This approach will also help to avoid a proliferation of programmes and to minimise administrative burden.
In addition to mainstreaming, the Commission proposes the continuation of a dedicated environmental programme as successor to the current LIFE+ programme. The Commission considers that the future programme should remain centrally managed, but that management tasks could to a large extent be delegated to an existing executive agency, such as the Executive Agency for Competitiveness & Innovation. The Commission proposes to allocate €3.2 billion for 2014-2020 to the LIFE+ programme (0.8bn on climate and 2.4bn for environment).
Is there something new for Education and Training?
A simplification of the current structure to one main programme is foreseen in order to avoid fragmentation, overlapping and/or proliferation of projects lacking the critical mass necessary to a lasting impact. The New Education Europe programme will include three key priorities. First, it will support trans-national learning mobility. Strict quality conditions for mobility, concentration on key policy objectives where critical mass can be achieved and complemented with other EU programmes will be instrumental in ensuring very high European added value. Secondly, it will foster co-operation between education institutions and the world of work in order to promote the modernisation of education, innovation and entrepreneurship. Thirdly, it will provide policy support to gather evidence on the effectiveness of education investments and help Member States to implement effective policies.
The Commission proposes to allocate €15.2 billion in the area of education and training. This funding will be complemented by important support from the Structural Funds (€72.5bn for 2007-2013).
Is there anything for the challenges of migration and home affairs?
The Commission proposes to reduce the number of programmes to two: Migration and Asylum Fund and an Internal Security Fund. Both funds will have an external dimension ensuring continuity of financing, starting in the EU and continuing in third countries (for example concerning the resettlement of refugees, readmission and regional protection programmes). They will simplify the expenditure instruments and ensure the smooth creation of an area without internal borders, where EU citizens and third-country nationals with legal rights of entry and residence may enter, move around, live and work.
The Commission also foresees a move away from annual programming towards results-driven, multi-annual programming, thus reducing workload for the Commission, the Member States and the final beneficiaries.
The Commission proposes to allocate €8.2 billion for the 2014-2020 period in the area of home affairs.
What about Enlargement, Neighbourhood and External relations?
Several important changes are to be noted including the establishment of a single integrated pre-accession instrument.
The Commission proposes to allocate €70 billion for the 2014-2020 period for traditional external instruments. This will be complemented by funding out the budget and the MFF for the European Development Fund (€29.9 billion).