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The European Budgetary Galaxy

Abstract

EU budget – Founding vision of budgetary integration – Budget of citizens and not only of states – Corrections, rebates and national net balances – Convention on the Future of Europe – Comprehensible and transparent budget as a prerequisite for democratic legitimacy – Treaty of Lisbon reforms – Post-Lisbon fragmentation leading to a ‘budgetary galaxy’ – Differentiated budgetary integration likely to endure – Final Report of the Monti High Level Group on Own Resources – Necessity for future reforms to take account of the broader galaxy – Return to a citizen-oriented approach – The Union method

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Legal Service of the European Parliament, Unit for Institutional & Budgetary Law. This article is based on a paper presented to a faculty research seminar at the Maastricht Centre for European Law on 21 February 2017. The author would like to thank research supervisors Bruno De Witte and Elise Muir, discussant Phedon Nicolaides, seminar participants and the journal’s reviewers for their helpful comments on that draft. The term ‘budgetary galaxy’ was coined by Jean Arthuis MEP, Chair of the Committee on Budgets, and inspiration has been drawn from the proceedings of a workshop on the theme hosted by that committee on 25 January 2017 (papers available at , visited 26 June 2017). The author bears sole responsibility for the final text and the views expressed may not be attributed to the European Parliament.

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1 Strasser D., The Finances of Europe (Office for Official Publications 1981).

2 The European Development Fund developed outside the Union budget for historical reasons, but its resources are mainly managed by the Commission and its incorporation into the Union budget has long been anticipated. See European Commission, European Union Public Finance, 5th edn. (Publications Office 2014) ch. 22; A. D’Alfonso, ‘European Development Fund: Joint development cooperation and the EU budget: out or in?’, European Parliamentary Research Service In-Depth Analysis, November 2014.

3 On the notion of Union budgetary autonomy, see Potteau A., Recherches sur l’autonomie financière de l’Union européenne (Dalloz 2004); Ehlermann C.D., ‘The Financing of the Community: The distinction between financial contributions and own resources’, 19 CMLRev (1982) p. 571-589 .

4 In this regard, the budgetary domain may be seen as a particular case-study of differentiation in the Union’s legal framework more generally, see De Witte B., Ott A., Vos E., Between Flexibility and Disintegration: The Trajectory of Differentiation in EU Law (Elgar 2017).

5 The interinstitutional Monti Group was established to assess the functioning of the Union’s financing system and present recommendations for reform. The Group’s final report, entitled Future Financing of the EU, is available online at <ec.europa.eu/budget/mff/hlgor>, visited 26 June 2017.

6 See, in particular, the diagrammatic illustration of the galaxy that appears at Annex IV to the Monti Report.

7 Final report of Working Group IX on Simplification, Convention on the Future of Europe, CONV 424/02, Brussels, 29 November 2002, p. 1.

8 Art. 200 EEC, first paragraph.

9 On the financing of the UN, see Larhant M., Le financement de l’ONU, ou la crise permanente (Presses de Sciences Po 2016).

10 Final communiqué of the Conference of Heads of State or Government, The Hague, 1-2 December 1969, point 5.

11 Council Decision 70/243/ECSC, EEC, Euratom of 21 April 1970 on the replacement of financial contributions from Member States by the Communities’ own resources, OJ 1970 L 94/19.

12 Coombes D., The Power of the Purse in the European Communities (Chatham House 1972) p. 62 ; see also the comparative study of European budgetary systems in Coombes D., The Power of the Purse: The Role of European Parliaments in Budgetary Decisions (George Allen & Unwin 1976).

13 On the rationale of compensating the loss of parliamentary influence at national level through greater parliamentary influence at European level, see Coombes (1972), ibid., p. 62; The European Communities’ own resources and the budgetary powers of the European Parliament: Selected documents (European Parliament 1972), De Feo A., History of Budgetary Powers and Politics in the EU: The Role of the European Parliament (Part II) (European Parliamentary Research Service 2015).

14 Treaty amending certain budgetary provisions of the Treaties establishing the European Communities and of the Treaty establishing a Single Council and a Single Commission of the European Communities, signed in Luxembourg on 22 April 1970, OJ 1971 L 2/1.

15 Treaty amending certain financial provisions of the Treaties establishing the European Communities and of the Treaty establishing a Single Council and a Single Commission of the European Communities, signed in Brussels on 22 July 1975, OJ 1977 L 359/1.

16 Act of 20 September 1976 concerning the election of the Members of the EP by direct universal suffrage, OJ 1976 L 278/5.

17 Art. 2(b) of Council Decision 70/243, supra n. 11.

18 Art. 2(a) of Council Decision 70/243, supra n. 11.

19 Art. 4 of Council Decision 70/243, supra n. 11.

20 On the budgetary principles, see European Commission, supra n. 2, ch. 11.

21 See Coombes (1972), supra n. 12, p. 23.

22 ECJ 5 February 1963, Case 26/62, Van Gend en Loos v Nederlandse Administratie der Belastingen.

23 Council Decision 88/376/EEC, Euratom of 24 June 1988 on the system of the Communities’ own resources, OJ 1988 L 185/24, Art. 2(1)(d).

24 See European Commission, supra n. 2, p. 30-32.

25 Art. 3(3)(c) of the 1985 Own Resources Decision (OJ 1985 L 128/15) granted a ‘rebate on the rebate’ to Germany. Subsequent Own Resources Decisions extended this benefit to other member states. See European Commission, supra n. 2, p. 134-135.

26 See European Commission, supra n. 2, p. 29-30.

27 See Monti Report, supra n. 5, p. 57-61.

28 Ibid. On the notion of juste retour, see Citi M., ‘EU Budgetary Politics and the Paradox of Juste retour ’, in S. Becker, M.W. Bauer, A. De Feo (eds.), The New Politics of the European Union Budget (Nomos 2017) p. 83 .

29 Interinstitutional Agreement of 29 June 1988 on budgetary discipline and improvement of the budgetary procedure, OJ 1993, C 331/1.

30 On the history of the multiannual financial framework, see European Commission, supra n. 2, chs. 3-7.

31 ECJ 30 June 1993, Joined Cases C-181/91 and C-248/91 EP v Council and Commission.

32 Ibid., para. 16.

33 Ibid., para. 20.

34 Ibid., para. 22.

35 Ibid., paras. 29-30.

36 ECJ 2 March 1994, Case C-316/91, EP v Council.

37 See Strasser D., ‘Les dispositions financières du Traité de Maastricht’, Revue française de finances publiques (1994) p. 195 at p. 197-198.

38 Art. 28.2 of the Protocol on the Statute of the European System of Central Banks and of the European Central Bank (now Protocol No 4). Similarly, the shareholders of the European Investment Bank are the member states; see Art. 4 of the Protocol on the Statute of the European Investment Bank (now Protocol No 5).

39 J. Fischer, ‘From Confederacy to Federation - Thoughts on the finality of European integration’, Speech at Humboldt University, 12 May 2000.

40 Presidency Conclusions, European Council meeting in Laeken, 14-15 December 2001, Annex I.

41 See Final report of the Working Group, supra n. 7.

42 See Final report of the discussion circle on the budgetary procedure, CONV 679/03, Brussels, 14 April 2003.

43 See Final report of the discussion circle on own resources, CONV 730/03, 8 May 2003.

44 Supra n. 7, p. 1-2.

45 Supra n. 7, p. 21-22.

46 Art. I-55 and Art. III-402 of the Constitutional Treaty.

47 Art. III-404 of the Constitutional Treaty. On the genesis of the new budgetary procedure, see Benedetto G. and Hoyland B., ‘The EU Annual Budgetary Procedure: The Existing Rules and Proposed Reforms of the Convention and Intergovernmental Conference 2002-04’, 54(3) JCMS (2007) p. 565 .

48 See European Commission, supra n. 2, p. 26-27.

49 See Benedetto G., ‘Budget Reform and the Lisbon Treaty’, in G. Benedetto and S. Milio (eds.), European Union Budget Reform: Institutions, Policy and Economic Crisis (Palgrave Macmillan 2012) p. 40 .

50 See Eijsbouts W.T., ‘The Purse and the Power’, 1 EuConst (2005) p. 117 . On possible explanations for the modest approach, see H. Enderlein et al., ‘The EU budget: How much scope for institutional reform?’, ECB Occasional Paper Series, No. 27, April 2005.

51 The European Parliament refused its consent for the draft multiannual financial framework Regulation submitted to it. See European Parliament legislative resolution of 6 July 2011 on the draft Council regulation laying down the multiannual financial framework for the years 2007-2013, P7_TA(2011)0326, OJ 2013 C 33E/362.

52 Council Regulation (EU, Euratom) No 1311/2013 of 2 December 2013 laying down the multiannual financial framework for the years 2014-2020, OJ 2013 L 347/884.

53 See Conclusions of the European Council of 7-8 February 2013 on the multiannual financial framework, EUCO 37/13.

54 On the conduct of the negotiations, see Crowe R., ‘The European Council and the Multiannual Financial Framework’, 18 Cambridge Yearbook of European Legal Studies (2016) p. 69 .

55 Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism, OJ 2010 L 118/1.

56 Council Regulation (EC) No 332/2002 of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States’ balances of payments, OJ 2002 L 53/1.

57 The European Financial Stability Facility was incorporated in Luxembourg on 7 June 2010.

58 Treaty establishing the European Stability Mechanism, Brussels, 1 February 2012. On the various intergovernmental mechanisms that were created during the sovereign debt crisis, see de Gregorio Merinio A., ‘Legal developments in the Economic and Monetary Union during the debt crisis: The mechanisms of financial assistance’, 49 CMLRev (2012) p. 1613 . See also S. Van den Bogaert, V. Borger, ‘Differentiated integration in EMU’, in De Witte, Ott, Vos, supra n. 4, p. 209. On the current state of play, see D. Gros et al., ‘The Instruments Providing Financial Support to EU Member States’, CEPS Study for DG IPOL, European Parliament, January 2017.

59 European Council Decision 2011/199 of 25 March 2011 amending Art. 136 of the TFEU with regard to a stability mechanism for Member States whose currency is the euro, OJ 2011 L 91/1.

60 Art. 8 European Stability Mechanism Treaty, supra n. 58.

61 ECJ 27 November 2012, Case C-370/12 Thomas Pringle v Ireland.

62 Ibid., para. 158.

63 Ibid.

64 Ibid., para. 164. See further Peers S., ‘Towards a New Form of EU Law?: The Use of EU Institutions outside the EU Legal Framework’, 9 EuConst (2013) p. 37 ; Craig P., ‘ Pringle and Use of EU Institutions outside the EU Legal Framework: Foundations, Procedure and Substance’, 9 EuConst (2013) p. 236 .

65 ECJ 20 September 2016, Joined Cases C-8/15P to C-10/15P, Ledra Advertising v Commission and ECB.

66 Ibid, para. 67. See further Dermine P., ‘The End of Impunity? The Legal Duties of “Borrowed” EU Institutions under the European Stability Mechanism Framework’, 13 EuConst (2017) p. 369 ; Poulou A., ‘The Liability of the EU in the ESM framework’, 24(1) Maastricht Journal of European and Comparative Law (2017) p. 126 .

67 See Council Implementing Decision 2015/1181 of 17 July 2015 on European Financial Stability Mechanism assistance to Greece, OJ 2015 L 192/15, Recital 9 and Art. 1(2).

68 This solution for the Greek bridge-financing was given permanent effect by Council Regulation (EU) 2015/1360 of 4 August 2015 amending Regulation (EU) No 407/2010 establishing a European Financial Stability Mechanism, OJ 2015 L 210/1.

69 Communication from the Commission, ‘Towards a Deep and Genuine Economic and Monetary Union The introduction of a Convergence and Competitiveness Instrument’, COM(2013) 165, 20.3.2013.

70 Regulation (EU, Euratom) No 966/2012 of the EP and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002, OJ 2012 L 298/1.

71 European Parliament resolution of 16 February 2017 on a budgetary capacity for the Eurozone, P8_TA(2017)0050.

72 European Commission, ‘White Paper on the Future of Europe: Reflections and scenarios for the EU27 by 2025’, 1 March 2017.

73 COM(2017) 291 of 31 May 2017.

74 COM(2017) 358 of 28 June 2017.

75 See R. Blomeyer, S. Paulo, E. Perreau, ‘The budgetary tools for financing the EU external policy’, Study for DG IPOL, European Parliament, January 2017.

76 Art. 42 of the European Development Fund Financial Regulation allows the Commission also to create trust funds under the European Development Fund. See Council Regulation (EU) 2015/323 of 2 March 2015 on the financial regulation applicable to the 11th European Development Fund, OJ 2015 L 58/17.

77 Art. 187(6) of the Financial Regulation, supra n. 70.

78 Commission Decision C(2014) 9615 of 10 December 2014 on the establishment of an EU Regional Trust Fund (the ‘Madad Fund’) in response to the Syrian crisis, as amended by Commission Decision C(2015) 9691 of 21 December 2015 and revised Agreement establishing the EU Regional Trust Fund in response to the Syrian crisis, “the Madad Fund”, and its internal rules Ares(2016)1329575, 16 March 2016.

79 Commission Decision C(2014) 5019 of 11 July 2014 on the establishment of the EU Trust Fund for Central African Republic (‘Bêkou EU Trust Fund’), and Agreement establishing the European Union Trust Fund for the Central African Republic (‘the Bêkou Trust Fund’), and its internal rules, not published.

80 Commission Implementing Decision C(2016) 1653 of 22 March 2016 on the establishment of a European Union Trust Fund for Colombia, not published and Agreement establishing the European Trust Fund for Colombia, and its internal rules, not published.

81 Commission Decision C(2015) 7293 of 20 October 2015 on the establishment of a European Union Emergency Trust Fund for stability and addressing root causes of irregular migration and displaced persons in Africa, not published, and Agreement between the European Commission and the Kingdom of Spain establishing the European Union Emergency Trust Fund for stability and addressing root causes of irregular migration and displaced persons in Africa and its internal rules, not published.

82 Proposal for a Regulation of the European Parliament and of the Council on the financial rules applicable to the general budget of the Union and amending a series of regulations, COM(2016) 605, Brussels, 14.9.2016, draft Art. 227.

83 See A. D’Alfonso, B. Immenkamp, ‘EU Trust Funds for external action: First uses of a new tool’, European Parliamentary Research Service Briefing, November 2015.

84 See L. den Hertog, ‘EU Budgetary Responses to the Refugee Crisis: Reconfiguring the Funding Landscape’, CEPS Paper in Liberty & Security, No. 93, May 2016.

85 The mechanism was initially called the ‘Refugee Facility for Turkey’, but in order to accommodate certain political sensitivities, the name was later changed to ‘Facility for Refugees in Turkey’ so as to make clear that the assistance is intended for the refugees and not for the state.

86 See Commission Decision C(2015) 9500 of 24 November 2015 on the coordination of the actions of the Union and of the Member States through a coordination mechanism - the Refugee Facility for Turkey, OJ 2015, C 407/8, as amended by Commission Decision of 10 February 2016 on the Facility for Refugees in Turkey amending Commission Decision C(2015) 9500 of 24 November 2015, OJ 2016 C 60/3. See also ‘Common Understanding establishing a governance and conditionality framework for the Refugee Facility for Turkey between the EU Member States and the Commission’ of 3 February 2013 (Council document 5845/16 of 5 February 2016). On the functioning of the facility, see Communication from the Commission to the EP and the Council, ‘First Annual Report on the Facility for Refugees in Turkey’, COM(2017) 130 of 2.3.2017.

87 Commission Decision of 18 April 2017 on the Facility for Refugees in Turkey amending Commission Decision C(2015) 9500 of 24 November 2015, C(2017) 2293, OJ 2017 C 122/4.

88 See Declaration on the establishment of a European Endowment for Democracy, Council document 18764/11, 20 December 2011; see also <www.democracyendowment.eu>, visited 26 June 2017.

89 Council Decision (CFSP) 2015/528 of 27 March 2015 establishing a mechanism to administer the financing of the common costs of European Union operations having military or defence implications (Athena) and repealing Decision 2011/871/CFSP, OJ 2015 L 84/39.

90 See Communication from the Commission, ‘Launching the European Defence Fund’, COM(2017) 295 of 7.6.2017.

91 On the enhanced cooperation mechanism, see S. Peers, ‘Enhanced cooperation: the Cinderella of differentiated integration’, in De Witte, Ott, Vos, supra n. 4, p. 76.

92 See Art. 332 TFEU.

93 Proposal for a Council Directive on a common system of financial transaction tax and amending Directive 2008/7/EC, COM(2011) 594 of 28.9.2011.

94 See Amended proposal for a Council Decision on the system of own resources of the European Union, COM(2011) 739 of 9.11.2011, draft Art. 2(1)(b).

95 See Proposal for a Council Directive implementing enhanced cooperation in the area of financial transaction tax, COM(2013) 71 of 14.2.2013. See also P. Van Cleyenbreugel, W. Devroe, ‘The financial transaction tax project’, in De Witte, Ott, Vos, supra n. 4, p. 282.

96 See the definition of financial instruments set out in Art. 2(p) of the Financial Regulation, supra n. 70. On legal issues relating to Union loans and guarantees, see Vitsentzatos M., ‘Loans and guarantees in the European Union budget’, 15 ERA Forum (2014) p. 131 .

97 Regulation (EU) No 1290/2013 of the EP and of the Council of 11 December 2013 laying down the rules for participation and dissemination in Horizon 2020 – the Framework Programme for Research and Innovation (2014-20) and repealing Regulation (EC) No 1906/2006, OJ 2013 L 347/81.

98 Regulation (EU) No 1316/2013 of the EP and of the Council of 11 December 2013 establishing the Connecting Europe Facility, amending Regulation (EU) No 913/2010 and repealing Regulations (EC) No 680/2007 and (EC) No 67/2010, OJ 2013 L 348/129.

99 Regulation (EU) 2015/1017 of the EP and of the Council of 25 June 2015 on the European Fund for Strategic Investments, OJ 2015 L 169/1.

100 See Commission proposal for ‘EFSI 2.0’, COM(2016) 597 of 14.9.2016.

101 Council Regulation (EC, Euratom) No 480/2009 of 25 May 2009 establishing a Guarantee Fund for external actions, OJ 2009 L 145/10.

102 Proposal for a Regulation of the EP and of the Council on the European Fund for Sustainable Development (EFSD) and establishing the EFSD Guarantee and the EFSD Guarantee Fund, COM(2016) 586 of 14.9.2016.

103 See, for example, the remarks of Court of Auditors President Klaus-Heiner Lehne on financial instruments when presenting the ECA Annual Report for 2015 to the European Parliament on 26 October 2016 (p. 3): <www.eca.europa.eu/Lists/ECADocuments/speech-plenary-AR2015/speech-plenary-AR2015_EN.pdf>, visited 26 June 2017.

104 Art. 13 of the multiannual financial framework Regulation, supra n. 52.

105 Art. 11 of the multiannual financial framework Regulation, supra n. 52.

106 Art. 9 of the multiannual financial framework Regulation, supra n. 52.

107 Art. 12 of the multiannual financial framework Regulation, supra n. 52.

108 Art. 10 of the multiannual financial framework Regulation, supra n. 52.

109 Interinstitutional Agreement of 2 December 2013 between the European Parliament, the Council and the Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, OJ 2013 C 373/1.

110 Supra n. 5, p. 55-56 and 68.

111 Art. 139(8) of the EUIPO Regulation now specifies what should happen in the event of a persistent surplus. See Regulation (EU) 2015/2424 of the EP and of the Council of 16 December 2015, OJ 2015 L 341/21.

112 Of course, revision of the Own Resources Decision would require ratification by the member states in accordance with the third paragraph of Art. 311 TFEU.

113 See Editorial comments, ‘Debt and democracy: “United States then, Europe now”?’, 49 CMLRev (2012) p. 1833 ; Ruffert M., ‘The European Debt Crisis and European Union Law’, 48 CMLRev (2011) p. 1777 .

114 The Commission is expected to propose the incorporation of the European Development Fund into the Union budget for the post-2020 period, following the expiry of the Cotonou Agreement. See D’Alfonso, supra n. 2.

115 See for example, the EP resolution of 16 February 2017, supra n. 71, point i), fifth subpara.

116 B. De Witte, ‘Variable geometry and differentiation as structural features of the EU legal order’, in De Witte, Ott, Vos, supra n. 4, p. 9.

117 See Editorial, ‘In Search of the Union Method’, 11(3) EuConst (2015) p. 425 ; see also ‘Speech by Federal Chancellor Angela Merkel at the opening ceremony of the 61st academic year of the College of Europe’, Bruges, 2 November 2010.

* Legal Service of the European Parliament, Unit for Institutional & Budgetary Law. This article is based on a paper presented to a faculty research seminar at the Maastricht Centre for European Law on 21 February 2017. The author would like to thank research supervisors Bruno De Witte and Elise Muir, discussant Phedon Nicolaides, seminar participants and the journal’s reviewers for their helpful comments on that draft. The term ‘budgetary galaxy’ was coined by Jean Arthuis MEP, Chair of the Committee on Budgets, and inspiration has been drawn from the proceedings of a workshop on the theme hosted by that committee on 25 January 2017 (papers available at <www.europarl.europa.eu/committees/en/budg/events-workshops.html?id=20170118WKS00261>, visited 26 June 2017). The author bears sole responsibility for the final text and the views expressed may not be attributed to the European Parliament.

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