The standard annual budget procedure
Based on the multiannual financial framework Regulation in force and the budget guidelines for the coming year, the European Commission prepares the draft budget and submits it by 1 September to the Council and the European Parliament. The Council first adopts its position on the draft budget by 1 October (including amendments). The position of the Parliament follows within 42 days (also including eventual amendments).
In case of divergent positions of the Council and the Parliament, a Conciliation Committee is convened with the task of reaching agreement on a joint text within a period of 21 days following the adoption of the European Parliament's position. This joint text is then subject to the approval of the Council and the Parliament within 14 days of the agreement.
Commitments and payments
A key characteristic of the EU budget is that there are separate decisions on commitments and payments.
- A budgetary commitment is a reservation of appropriations to cover for subsequent expenses. It is the total cost of legal obligations (contracts, grant agreements/decisions) that could be signed in a financial year;
- Payments are appropriations covering expenditure due in the current year, arising from legal commitments entered in the current year and/or earlier years.
A decision on commitments creates an entitlement to payments, but only if certain conditions are fulfilled. This approach ensures strong budgetary control. Commitments are spread relatively evenly over a given long-term budget duration (usually seven years) to allow project contracts to be signed.
What is the reste à liquider (RAL)?
The reste à liquider (RAL or outstanding commitments), is the sum of commitments agreed but that have not yet turned into payments.
The EU budget is an investment budget and finances projects that run over a long period of time – just like in any other public or private organisation. As the EU budget finances multiannual projects, payments take place over a number of years.
This leads to situations where payments lag behind commitments – the RAL. It is a natural phenomenon that as such does not reflect any weaknesses. In fact, it means that investment projects are subject to strict financial control and programme conditionality.
The procedure in detail
The annual budgetary procedure as established by article 314 of the Treaty on the Functioning of the European Union lasts from 1 September to 31 December.
All EU institutions draw up their respective statement of estimates according to their internal procedures and transmit them to the European Commission before 1 July.
Commission’s draft budget
The Commission consolidates these statements of estimates and establishes the annual 'draft budget', which is submitted to the Council and the European Parliament by 1 September. In practice, the Commission endeavours to present the draft budget in June ("pragmatic calendar").
The Council adopts its position on the draft budget including amending letters, if any, and passes it to the European Parliament before 1 October. The Council informs the European Parliament of the reasons which led it to adopt its position.
The Parliament has then 42 days to adopt its amendments on the Council's position. The Council may accept the amendments within 10 days and adopt the draft budget.
If the Council does not accept the Parliament's amendments, a Conciliation Committee is set up, composed of the members of the Council or their representatives and an equal number of members representing the European Parliament. The Conciliation Committee is assigned to come up with a joint text within 21 days. If the conciliatory procedure fails, the Commission has to come up with a new draft budget.
Once a joint text is agreed upon by the Conciliation Committee in early November, the Council and the Parliament have 14 days to approve or reject it. The Parliament may adopt the budget even if the Council rejects the joint text, but with a specific majority (majority of component members and three-fifths of the votes cast). In case the Council and the Parliament both reject the joint draft or fail to decide, the budget is rejected and the Commission has to submit a new draft budget.
If, at the beginning of a financial year, the budget has not yet been definitively adopted, a sum equivalent to not more than 1/12 of the budget appropriations for the preceding financial year may be spent each month (system of provisional twelves).
Budget may be amended after adoption
In the event of unavoidable, exceptional or unforeseen circumstances, the Commission may propose during the year, that the budget as adopted be amended; it does this by submitting draft amending budgets.
Amending budgets are also used to enter the balance from the previous year in the budget for the current year.
Similarly, the Commission may, on its own initiative or at the request of the other institutions with their own budget section, present a letter of amendment to the draft budget in the light of information which was not available when the draft was established.
Both amending budgets and letters of amendment are subject to the same procedural rules as the general budget.