EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 19.10.2010 
SEC(2010) 7000 final 
  
COMMISSION STAFF WORKING DOCUMENT 
TECHNICAL ANNEXES  
 
 
Accompanying document to the 
  
COMMUNICATION FROM THE CO MMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE, THE COMMITTEE OF TH E REGIONS AND THE NATIONAL 
PARLIAMENTS 
 
The EU Budget Review 
{COM(2010) 700 final} 
EN 2   EN TABLE OF CONTENTS 
1. Origins of the budget review........................................................................................ 3 
2. Main results of the public consultation on the budget review ..................................... 4 3. Analysis of the evolution of the EU budget................................................................. 6 4. Flexibility in the multi-annual financial Framework 2007-2013............................... 10 5. The links between the EU budget and economic reform ........................................... 12 6. Intra-EU Trade in Goods and Services ...................................................................... 14 7. The impact of cohesion policy on the EU economy .................................................. 18 8. The role of financial instruments ............................................................................... 21 9. Results of ex-post evaluations.................................................................................... 24 10. Improving sound financial management.................................................................... 28 11. Analysis of potential alternative ow n resources to finance the EU budget................ 31 
EN 3   EN 1. O RIGINS OF THE BUDGET REVIEW  
The December 2005 European Council and the Inter-Institutional Agreement between the 
European Parliament, the Council and th e Commission on budgetary discipline and sound 
financial management of May 2006 mandated the Commission " to undertake a full, wide 
ranging review covering all as pects of EU spending, including the Common Agricultural 
Policy, and of resources, including the Un ited Kingdom rebate, and to report in 2008/ 2009 "1.  
The Commission's general approach to the refo rm was set out in its consultation paper of 
September 20072. A series of external studies have been commissioned and academic experts 
have provided a sound analytical basis for assessing EU finances , notably in the framework of 
an academic conference organised by the Com mission in April 2009 and followed by a series 
of workshops3. A broad consultation with interested parties at local, re gional and national 
levels, backed up by a number of hearings, seminars, workshops and information events, has stimulated a Europe-wide debate on EU political priorities and the role of EU finances to 
promote these priorities.  
The European Parliament made significant contri butions to the preparat ory work leading up to 
the establishment of the review . It engaged in a dialogue with national parliaments on the 
reform of the own resources system. 
The Commission received close to 300 cont ributions in the public consultation
4, reflecting a 
broad range of opinions and appr oaches. They included contributi ons from all Member States 
as well as from national parliaments, region al and local authoritie s, social partners, non-
governmental organisations, universities and academ ic experts, private s ector interest groups 
and individual citizens. Contri butions were also received from the European Court of 
Auditors, the Committee of the Regions, the Eu ropean Economic and Social Committee, the 
European Parliament's Committee on Budgetary Control and some individual Members of the 
European Parliament. A major conference organi sed in November 2008 allowed contributors 
and other stakeholders to express their view s and provided a further opportunity for dialogue 
with the European Parliament5.  
                                                 
1 OJ C 139, 14.6.2006, p. 15 (Declaration No 3). 
2 SEC(2007) 1188, 12.9.2007. 
3 The conference's proceedings and papers are available on:  
http://ec.europa.eu/dgs/policy_advisers/public_finance_conference_en.htm.  
4 The contributions have been published: http://ec.europa.eu/budget/reform/issues/read_en.htm. A short, 
non-exhaustive summary of contributions can be found in SEC(2008) 2739 of 3.11.2008 
(http://ec.europa.eu/budget/reform/library/issue_paper/summary_consulation_doc_final_en.pdf).  
5 Resolution on the Mid-term Review of the 2007-2013 Financial Framework, A6-0110/2009  
EN 4   EN 2. M AIN RESULTS OF THE PUBLIC CONSULTATION ON THE BUDGET REVIEW  
The key conclusions of the public consulta tion can be summarised as follows:  
– Only a minority of respondents were fully satisfied with the current budget structure. Many 
contributors saw the budget as being determined by political trade-offs rather than a well 
grounded allocation decision to advance European objectives; 
– The majority of contributions stated that th e guiding principle should be "European added 
value". EU spending should offer clear and visi ble benefits for the Union and its citizens 
that could not be attained by spendi ng at national/regional/local levels; 
– Maintaining and improving Europe's global comp etitiveness and the fight against climate 
change were seen as being among the most  demanding future cha llenges that should be 
reflected in the EU budget;  
– Other frequently mentioned challenges were: gr eater global responsib ility to deal with 
increasing external pressures, ensuring ener gy supply, promoting Europe's transformation 
into a knowledge and service economy, adap ting to demographic trends, managing 
migration, reducing inequalities and disparit ies, and addressing security threats;  
– There was widespread support fo r reorienting spending prioriti es, with many contributions 
advocating, in particular, reductions in spe nding on agriculture and increased spending on 
research, energy, technologica l development and innovation; 
– There was strong support for strengthening the Union's profile in the areas of migration 
and security. A significant number of contribut ions highlighted the increasing dependence 
of the well-being of Europeans on developm ents outside the EU's borders. Special 
emphasis was therefore placed on the particular  importance of external policies, including 
the external dimension of energy security , climate change and migration, with 
enlargement, the European neighbourhood policy, development action and the common foreign and security policy frequently  being mentioned in that context; 
– The Common Agricultural Policy (CAP) was the policy area most frequently commented 
on in the consultation, w ith a relatively broad consensus ab out the need for further reforms 
to align the policy with current  priorities. To many, agricultur e remains a strategic sector, 
but most respondents advocated modernising th e CAP, making European agriculture more 
competitive at the global level, more responsive in terms of climate change and food safety 
and quality requirements and better targeted  on the objectives it is supposed to achieve; 
– Cohesion policy received str ong support, with, however, opini ons considerably diverging 
on how it should be reformed. The reduction of regional disparities remains a key concern 
in the enlarged Union. A clear majority of c ontributions argued in favour of concentrating 
funds more strongly on less develo ped Member States and regions; 
– The inflexibility within financial frameworks and the perceived inability to adapt quickly 
to changing priorities were seen as problems.  The idea of continuing to work with multi-
annual financial frameworks received general support. However, only a minority of contributors stated that the existing framework provides an adequate balance between the 
need for stability and the need for flexibilit y. A considerable number  of respondents argued 
that sufficient margins should be foreseen to increase effectiveness and efficiency; 
EN 5   EN – A considerable number of contributors critic ised the net-balance approach, which places 
the emphasis on net cash flows to and from Member States; 
– The most frequently mentioned guiding prin ciples for the own resources system were 
fairness, effectiveness, simplicity, transparency, equity, sufficiency of means, sustainability 
and stability; 
– Two own resources received considerable s upport: moving towards a system exclusively 
based on Traditional Own Resources (TOR) and the resource base d on Gross National 
Income (GNI); 
– A large number of respondents i ndicated that eliminating the re source based on a statistical 
value added tax (VAT) could contribute to a more transparent and simple financing 
system, without greatly affec ting its current functioning; 
– Many respondents supporte d the idea of financing a larger  part of the EU budget from new 
own resources. Resources related to the envi ronment and, in particular, climate change 
were among the most prominent candidates. More  specifically, contributors referred to the 
allocation of all or part of the reve nues from emission allowance trading; CO 2 or carbon 
taxation; energy, petrol, fuel or kerosene taxa tion; flight duties, maritime transport taxation 
and vehicles taxation. 
– There was very heavy opposition from all categories of contributors to any kind of 
corrections, exceptions or compensations. The clear majority view was that abolishing 
existing exceptions and correction mechanisms is an indispensable step in making the EU 
budget more equitable and transparent;  
– The responses to the consultation also conveye d a clear message in favour of simplification 
and proportionality. Administrative burdens and control requirements are often considered 
excessive in the light of the modesty of  resources involved for certain actions; 
– Most respondents agreed that budget de livery should become more result- and 
performance-oriented, with increased coor dination to achieve synergies and ensure 
coherence; 
– Some contributors took the view that a better balance should be found between the cost of 
controls and the efficiency and benefit of su ch controls. Since aiming at zero risk is 
extremely expensive and not realistic, a clear understanding about the "tolerable risk of 
error" could help to improve the economy of the system.  
EN 6   EN 3. A NALYSIS OF THE EVOLUTION OF THE EU BUDGET  
3.1. Evolution of expenditure ceilings 
The total amount of own res ources allocated to the EU budget to cover annual payment 
appropriations is ultimately constrained by the ceilings laid down in the own resources decision (ORD)
6, which is adopted by the Council by unanimity and after ratification by all 
Member States. 
First introduced in 1988 at 1.15% of EU GNP, the own re sources ceiling was gradually 
increased, first to 1.20% in 1992 and afterwards  to 1.27 % in 1999. Since then, the ceiling has 
remained stable and has been only subject to te chnical adaptations that have maintained the 
absolute amount of the ceiling unchanged7. The own resources ceiling is fixed currently at 
1.23% of EU GNI. The ceiling for commitment a ppropriations developed accordingly and is 
now established at 1.29% of EU GNI. 
The expenditure level of the EU budget is furt her restricted by the ceilings laid down in the 
Multiannual financial framework (MFF), also first introduced in 1988. Until the entry into force of the Lisbon Treaty, the MFF was an integral part of an inter-institutional agreement between the European Parliament, the Counc il and the Commission. EU spending was limited 
to levels which have in general remained well below the ceilings laid down in the ORD. The 
Lisbon Treaty has enshrined the MFF in EU pr imary law and introduced the requirement to 
lay it down in a Council regulati on, to be adopted by unanimity after obtaining the consent of 
the European Parliament. 
During the period 1993-1999, the payment ceiling in  the MFF was on average equivalent to 
1.18% of EU GNP. For the period 2000-2006, increasing pressure to limit th e size of the EU 
budget resulted in an average payment ceiling of 1.06% of EU GNI. The political pressure to 
constrain the growth of the EU budget was even  higher when the current financial framework 
for 2007-2013 was negotiated, resulting in an ag reement to restrict the average payment 
ceiling to 1.00 % of EU GNI. However, due to the impact of the economic crisis in recent 
years and the consequent drop in the absolute level of EU GNI, the average payment ceiling 
for 2007-2013 corresponds currently to 1.07% GNI. 
The actual annual budget execution in payments has remained significantly below the MFF 
ceiling, thus leaving quite signif icant margins available. The average execution was 1.06% of 
EU GNI in the period 1993-1999 (with a signi ficant decreasing trend) and 0.94% in 2000-
2006 (stable over the period), leaving in both cas es an average margin of 0.12% below the 
MFF payment ceilings.  
The evolution of the own resources ceili ng, the MFF payment ceiling and the budget 
execution is illustrated below: 
                                                
 
6 Council Decision No 436 of 7 June 2007 on the system of Communities' own resources 
7 In 2001, the own resources ceiling established as 1. 27 % of EU GNP was recalculated to 1.24% of EU 
GNI. The GNI aggregate replaced th e GNP but the ceiling was adapted in  order to maintain unchanged 
the amount of financial resources put at the disposal of the Union. The same procedure was applied in 
2010, when it was decided to apply financial interm ediary services (FISIM) for GNI for own resources 
purposes 
EN 7   EN 0,85%0,90%0,95%1,00%1,05%1,10%1,15%1,20%1,25%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013% of EU GNI
'93-'99 average 1.18%
'00-'06 average 1.06%'07-'13 avera ge 1.07%
'93-'99 average
1.06%
'00-'06 average
0.94%1.27% of GNP ≡ 1.24% of GNI excl. FISIM
from 1.20% to 1.27% of GNP 1.23% of GNI incl. FISIM
Own Resources ceiling
 Payment agreed in the
 Financial Framework
Payments actually
executed/appropriations
 
3.2. Expenditure of the EU budget 
The profile of EU spending has changed consider ably over time. Historically, the vast bulk of 
the EU budget has been concentrated in a rela tively small number of policy areas. But both 
within and beyond these areas, the focus of spending, the policy objectives pursued and 
consequently the structure of the budget have evolved: 
– CAP expenditure represented 64% of the budget in 1988, including 3% for the EAGGF 
Guidance section and the Fisherie s fund that were structural funds at that time. By 2013, 
the share of CAP spending will have decreas ed to 40 %%, following a decrease of first 
pillar expenditure in real terms in the current financing period.  
– The amounts earmarked for structural actions  corresponded to around 17 % of the budget in 
1988 (14% if the EAGGF Guidance section an d Fisheries fund are excluded), and will 
represent 36% of the EU budget in 2013, w ith at least two-th irds earmarked for 
competitiveness, growth and jobs. The significant increase in cohesion spending was linked to the enlargement of the EU since 2004. 
– Funding for other policies (mainly related to competitiveness and external actions) was 
originally very limited. In the first fi nancial framework, only 7% of the budget was 
reserved for these areas. But the new emphasis on economic development and competitiveness will see the share of the budget for such policies rise to 18% in 2013, of 
which 10% for competitiveness and 6% for external actions.  
– The spending policies for the period 2007-2013 put a new emphasis on the goals of growth 
and employment and on new po licy directions such as freed om, security and justice. 
EN 8   EN Expenditures structure (1988-2013)
0%10%20%30%40%50%60%70%
Common Agricultural
PolicyCohesion Policy Other policies% of total1988
2013
EAGGF Guidance & 
Fisheries
 
3.3. Financing of the EU budget 
Evolution of the own resources 
The system of own resources for the general budget was introduced in 1971 progressively to 
replace financial contributions from Member St ates. Own resources originally consisted of 
traditional own resources (customs and agricultural duties and sugar levies) and a VAT based resource. A new own resource based on Member  States’ GNP was introduced in 1988 as a 
‘balancing item’, automatically providing the additional financing necessary to balance the Community budget. 
The traditional own re sources have stagnated over time due to the effects of trade 
liberalisation. As a result, their share in the financing has gone down. The share of VAT based 
resources decreased significantly as the maximu m rate applicable to the uniform VAT base 
was reduced progressively from 1.4 to 1 % ove r the period 1995–99, and further to 0.75 % in 
2002 and 0.50 % in 2004. Since 2007, the rate of call has been fixed at 0.3%. The balancing GNI based resource, which was originally envi saged as a marginal item, has in parallel 
developed into the most important source of fi nancing (currently representing about 75% of 
the total). 
The shift in the composition of the different types of own resources  between 1988 and 2013 is 
illustrated below: 
EN 9   EN  
Revenues structure (1988-2013)
01020304050607080
Traditional
own
resourcesVAT-based
own resourceGNI-based
own resource% of total1988
2013
 
Evolution of the correction mechanisms 
The issue of budgetary imbalances first emerged with the accession of the United Kingdom to 
the Communities in 1973 and became progressively  the leitmotiv of all financial framework 
negotiations, often overshadowing the discussion s on the content of the EU policies. Even 
though the roots of the problem are generally cons idered to be on the e xpenditure side of the 
budget, correcting measures have been applied mainly8 on the revenue side. 
The UK correction was agreed by the 1984 Fontainebleau European Council and has 
remained in place since then. Although the m echanism has been modified with every 
successive Own Resources Decision, its basic principle has remained unchanged, namely to 
reimburse to the UK 66% of the difference between what the UK pays to and what the UK receives as allocated expe nditures from the EU budget. 
From the very beginning of the UK correction,  Germany received a 1/3 reduction of its share 
in the financing of the UK correction. This "r ebate on the rebate" was widened to three other 
Member States (Austria, Sweden and the Ne therlands) in 2000 and the reduction in their 
financing share increased to 75%.  
The increase in collection costs of Traditiona l Own Resources from 10% to 25%, which has 
been in force since 2000, is also generally c onsidered to represent a correction mechanism. 
Two new corrections were introduced in th e 2007 Own Resources Decision for the period 
2007-2013 only. Germany, Austria, Sweden and the Netherlands benefit from a reduced rate 
of call on the VAT based resource
9. Moreover, the Netherlands and Sweden were granted a 
gross reduction in their GNI resource paymen ts (EUR 605 million for the Netherlands and 
EUR 150 million (in 2004 prices) for Sweden), to be financed by all Member States. 
                                                 
8 Also the expenditure side of the EU budget contains more and more "compensating" payments to 
Member States (especially from the cohesion an d structural funds and rural development fund). 
9 The rate of call is fixed at 0.225% for Austria, 0.15% for Germany and 0.1% for Sweden and the 
Netherlands.  
EN 10   EN 4. FLEXIBILITY IN THE MULTI -ANNUAL FINANCIAL FRAMEWORK 2007-2013 
4.1. Sources of flexibility 2007-2010 
Since their introduction in 1988, the EU's mu ltiannual financial frameworks have ensured 
strict budgetary discipline and medium-term pred ictability of EU expenditure. However, this 
predictability came at the price of limited flexibility.  
The most important sources of flexibility within the MFF are currently: – The revision of the MFF, by qua lified majority in Council if re stricted to 0.03% of the EU 
GNI; 
– The unallocated margins under the various headings; 
– Redeployment of funds within  the headings concerned; 
– The 4 instruments outside the MFF, in particular the Flexibility Instrument. 
Over the first 4 years of the current MFF these sources of flexibility have been extensively 
used (and almost fully exhausted) to perm it the EU budget to c ope with unexpected 
circumstances. An additional EUR 8.4 billion was required for Galileo, the Food Facility and the European Economic Recovery Plan. The fina ncing for these budgetary needs, which were 
provided through a mix of all the existing sources of flexibility (see table below), was in the 
end only possible because of the high margins av ailable in Heading 2,  which provided in 
excess of EUR 6 billion. These exceptionally high margins are however unlikely to persist in future.  
TOTAL
5.376
Com pensation mechanism -5.37 6
Compensation heading 1B -7
Compensation heading 2 -5.064
Compensation heading 3A -5
Compensation heading 5 -300
84
600
1.020
240740
340
8.400FINANCING OF EERP + GALILEO + HIGH FOOD PRICES FACILITY
Financed from the unallocated margin within H1A
Financed from the unallocated margin under heading H2Commitment appropriations (EUR million)
Revision of heading 1A (fully compensated)
Financed through redeployment and reprioritisation under H1A
Financed through redeployment within H4
Use of flexibility instrument
Grand totalUse of emergency aid reserve
 
EN 11   EN In recent months an additional financing need  of EUR 1.4 billion ha s been expressed for 
ITER. 
4.2. Sources of flexibility 2010-2013 
For the second half of the MFF, these sources of flexibility (in particular the margins) have to 
a large extent dried up, which poses legitimate  questions about flexibility for the period 2011-
2013. 
The possibility to revise the MFF has been restricted by the fact that Council only accepted 
the principle of a revision to the extent that it does not incr ease the overall amount of the MFF 
over the period. Since any increase in a ce iling therefore has to be compensated by a 
corresponding decrease of anothe r ceiling, this limits the scope  for revisions in 2011-2013 to 
the emergence of unallocated margins under the va rious headings. This severely restricts the 
flexibility allowed for by the IIA. 
As illustrated in the table below, margins for the remainder of the current MFF have been 
reduced to the bare minimum. For the pe riod 2011-2013, the only margin of any significance 
is the 2011 margin under heading 2. 
Margins currently remaining under the mult iannual financial fr amework ceilings 
2010-2013 (in EUR million) 
 2010 2011 2012 2013
Heading 1A 0 50.1 34 47
Heading 1B 1.4 16.9 1.4 0.4
Heading 2 456.2 851.8 126.2 131.4
Heading 3A 18.5 70.7 26.5 52.9
Heading 3B 0 15.2 18.1 22.8
Heading 4 0 70.3 132.3 134.6
Heading 5 43.5 160.6 122.7 151.3
 
EN 12   EN 5. THE LINKS BETWEEN THE EU BUDGET AND ECONOMIC REFORM  
The European Union has learned many lessons fr om the recent financial and economic crisis. 
In a highly integrated Union, and even more  so in a monetary union, economies and their 
respective successes and weaknesses are li nked. Although the EU has a number of 
instruments for the co-ordination of economic po licy, the crisis has shown that they have not 
been used to the full and that there are gaps in the current governance system. There is broad 
political agreement that this has to change an d that the EU needs to be equipped with a 
broader and more effective set of policy instru ments to ensure its future prosperity and 
standards of living.  
The EU has taken comprehensive and consistent  measures to overcome the crisis and draw 
lessons for the future. The launch of the Eu ropean Economic Recovery Programme in 2008 
helped cushion the shock of the downturn on our economies. Coordinated support was 
provided to EU Member States that needed it as well as to safeguard the stability of the 
Economic and Monetary Union. A set of meas ures to strengthen the supervision and 
regulation of the financial system is under negotiation, in the EU and beyond. Now that the 
framework of the Europe 2020 Strate gy is in place, a se ries of initiatives will follow, designed 
to unlock the EU's potential to boos t growth and create jobs. It is logical to assume that the 
EU budget should be mobilised in support of the obj ectives that have been agreed between the 
EU institutions under the Europe 2020 strategy, a nd that the programmes and instruments to 
be proposed under the next multiannual financial framework should be designed to facilitate 
the delivery of the Europe 2020 strategy in all Member States. 
At the same time, it is recognised that an esse ntial part of the Europe  2020 strategy is the 
introduction of reforms with a medium- to long-term horizon that focus on promoting the 
sustainability of public finances and enhancing potential growth10, particularly following a 
period during which the economic  downturn has had a clear imp act on revenues raised by 
Member States11. The extent of the benefits of su ch reforms depends on their depth and 
breadth and sustained political commitment on the part of the European institutions and the 
governments of the Member States. 
The European Commission has put forward a nu mber of suggestions aiming at enhancing 
European- wide economic policy coordi nation for stability, growth and jobs12: 
– Develop the proposals for greater economic po licy co-ordination a nd surveillance by (i) 
addressing imbalances through stronger macro economic surveillance, including alert and 
sanction mechanisms; (ii) strengthening na tional fiscal frameworks by specifying 
minimum requirements for domestic fiscal frameworks, and notably moving from annual 
to multi-annual budgetary planning; (iii) stre ngthening the Stability and Growth Pact, in 
particular by focusing on the issue of  debt dynamic as well as deficits; 
                                                 
10 European Commission, DG Economic and Financial Affairs, Economic Papers 424, September 2010, 
Quantifying the potential macroeconomic effects of  the Europe 2020 strategy: stylised scenarios. 
11 European Commission, DG Taxation and Customs Union / Eurostat, Taxation trends in the European 
Union, 2010; European Commission, Directorate General for Economic and Financial Affairs, Public 
Finances in EMU 2010, European Economy 4/2010. 
12 COM(2010) 367. 
EN 13   EN – Set out effective enforcement mechanisms to ensure that Member States will act in 
compliance with the EU framework to which they have agreed. Where developments in Member State economies pose a risk to the overall development of the Union, a series of preventive and corrective measures are propose d, including a range of sanctions that could 
be applied where breaches occur;  
– Establish a European semester for policy co-o rdination and explain the process and timing 
that will provide a European input to nationa l policy decisions, leading to more effective 
ex-ante policy co-ordination. This also applie s to the structural reforms and the growth 
enhancing elements of th e Europe 2020 strategy.  
With regard to the strengthening of the stab ility and growth pact, the European Commission 
recently proposed a comprehensive package of reforms
13 through an increa sed focus on public 
debt and fiscal sustainability, the extension of surveillance to  macroeconomic imbalances, and 
more effective enforcement through the use of sa nctions and incentives. The intention is that 
the "European semester" will integrate all revised and new surveillance processes into a comprehensive and effective economic policy fr amework. The monitoring of public finances 
will be based on the new concept of prudent fiscal policy-making that should ensure convergence, while debt developments will be  followed more closely and put on an equal 
footing with deficit developments as regard s decisions linked to the excessive deficit 
procedure. 
Changes in both the preventive and corrective pa rt of the SGP are backed up by a new set of 
gradual financial sanctions for euro-area Member States. The changes are devised so that they 
should facilitate the eventual move to a system  of enforcement linked to the EU budget. The 
newly proposed Excessive Imbalance Procedure (E IP) will comprise a regular assessment of 
the risks of imbalances based on a scoreboa rd composed of economic indicators.  
                                                
 
13 COM(2010) 522; COM(2010) 523; COM(2010) 524; COM(2010) 525; COM(2010) 526; COM(2010) 
527. 
EN 14   EN 6. I NTRA -EU  TRADE IN GOODS AND SERVICES  
Markets are integrated when “economic frontiers ” between them are eliminated. An economic 
frontier is any demarcation over which good s, services, capital , technology, labour and 
communication flows are low or absent. The removal of barriers to intra-EU products, 
services and factor flows inter alia , increases intra-EU trade and facilitates firm entry in the 
various national markets. 
6.1. Intra-EU trade in goods 
INTRA-EU IMPORT PENETRATION, 2000 and 2007: 
Manufactured Imports as a % of GDP 
52
4948
45
43
41
37 37
35
30
2827 27
25
2321 2119 19
17 17 1716
14 13
11 1110
0102030405060
Slovakia
Belgium
Czech Republic
Estonia
Hungary Slovenia Bulgaria
Lithuania
Latvia
Malta
Austria
Luxembourg 
Romania
Poland
Netherlands Portugal
Cyprus
Denmark
Sweden FinlandEU27:
Germany 
IrelandFranceSpain
GreeceItaly
United Kingdom% share of imports on GDP
2000: 2007: 
This chart shows the openness of EU countries to imports coming from other Member States 
in 2000 as compared to 2007. The degree of a c ountry's openness is heavily determined by its 
size. Smaller countries such as Belgium are us ually more open than big countries like France, 
as they are more dependent on the outside world for getting what they need (imports) and for selling their domestically produced goods and serv ices (exports). Ther efore, to assess the 
degree of trade integration insi de the Internal Market, the focus should not only be on the 
degree of openness in any given year, but also  on changes over time. A significant increase 
indicates that a country is becoming more open a nd integrated inside the Internal Market and 
therefore it is “trade creating”.   
Among the most integrated countries in terms of  imports are many of the new Member States, 
whose intra-EU imports account for 40 to 50% of their  GDP (whereas the average EU-27 
ratio is around 17% of GDP). Most of these count ries were already highly integrated in 2000, 
well before their official accession date, due to the intense increase in trade flows driven by 
the "Europe agreements" during the nineties. Th erefore, no major increases in trade were 
commonly expected after accession.  
However, in many new Member States, integr ation has not lost momentum after accession, 
although significant cross-country differences can be observed: while Poland, Lithuania or 
EN 15   EN Latvia have seen further increases in imports during the current decade, countries like Estonia 
or Hungary stayed at their (hi gh) 2000 levels. Overall, enlargem ent can be seen as the major 
driver for further integration within the Internal Market. 
Among the "older" Member States, only some sm all countries exhibit high import penetration 
rates: Belgium (whose imports from other EU countries account for more than 49% of GDP), 
followed by Austria, Luxembourg, the Nether lands and Portugal. As  expected, the big 
economies are the least open ones, with shares of intra-EU imports of GDP ranking between 
9.9 % in the United Kingdom and 16.6 % in Germany. While many of these larger economies 
had shown growing degrees of openness during the nineties (in particular  France and Spain), 
only Germany maintained that mome ntum during the current decade. 
By contrast, the Nordic countries and Austri a, which joined the EU in 1995, are still 
increasing their imports from other EU c ountries. Nevertheless, the highly dynamic trade 
performance of Belgium or Germany shows that th e Internal Market still offers the potential 
also for more trade integration for long-time me mbers – both with regard to small and already 
highly integrated economies (Belgium) and for big economies such as Germany. 
6.2. Intra-EU trade in Services 
Intra-EU trade in services, 2004 and 2007
(Imports as a percentage of GDP)
19,3
12,6
11,3 11,1
9,5
8,7
7,8 7,77,4 7,2
6,56,25,7 5,7 5,75,4
4,6 4,5 4,5 4,5 4,33,8 3,6 3,6
2,65,15,7
4,917,1
0,05,010,015,020,025,0
mtiecy beee dk bg nl athu sk se lvczfi lt side esro ptplukitgrfr
eu27EU12
EU15% of GDP
2004 2007 
This chart indicates, for each EU country, how open it is to the imports coming from other 
Member States. As usual, size is an important determinant of openness: All the big countries – 
old and new (Poland) alike – are clearly belo w the EU average. But not only big countries 
exhibit a low ratio: also Greece, Romania and Portugal are among the countries with 
apparently more closed markets for services. 
EN 16   EN The countries that are most open to other EU service providers are a combination of older 
Member States (Ireland, Denmark, Benelux14, Austria) and newer ones, such as Malta, 
Cyprus, Estonia and Bulgaria. In fact, most  of NMC exhibit relatively high openness: on 
average, EU-12 import share on GDP accounts for 5.7 of GDP against 4.9 for EU-15. 
6.3. The effects of cross-border public proc urement within the internal market 
Cross-border procurement can take place in different ways.  
Direct  cross-border procurement occu rs when firms operating from their home market bid and 
win contracts for invitations to tender  launched in another Member State.  
Indirect  cross-border activities arise when firms bi d for contracts through subsidiaries (i.e. 
when their foreign affiliates bid for tenders la unched by authorities of a country different from 
the home country where the firm has its hea dquarters or where the parent company is 
located). Indirect cross-border procurement can also occur when a domestic firm imports goods in order to supply them to  a contracting authority or ent ity. Finally, foreign bidders can 
submit offers in consortia with local firms. 
                                                
 
14 Luxembourg is a special case regarding services trade: due to its small size and the huge relevance of its 
financial sector, its share of services flows in GDP is very high. Its inflows from other EU countries 
accounted for 46% of GDP in 2004, and 53.3% in 2007.  
EN 17   EN Direct cross-border procurement 
Until now, procurement indicators to measure cross-border activity have indicated limited 
direct cross-border procurement activity (b etween 1.2-1.5% of the number of awards, 
information collected using data from th e Tenders Electronic Daily database (TED, 
http://ted.europa.eu/ )). However, in some Member Stat es direct cross-border procurement 
accounts for more than 10%. 
 2009 2008
AT 5,61% 4,84%
BE 4,29% 4,26%
BG 1,36% 1,95%
CY 8,68% 7,31%
CZ 1,07% 2,39%
DE 1,44% 1,54%
DK 4,37% 3,18%
EE 7,10% 7,20%
ES 0,55% 0,86%
FI 1,27% 1,75%
FR 0,59% 0,72%
GR 1,87% 1,70%
HU 1,06% 1,91%
IE 13,22% 17,66%
IT 0,82% 1,35%
LT 2,26% 2,35%
LU 12,24% 15,07%
LV 1,34% 3,31%
MT 18,18% 14,17%
NL 2,73% 2,78%
PL 0,77% 0,95%
PT 1,73% 4,41%
RO 1,94% 2,27%
SE 2,27% 2,22%
SI 1,18% 1,73%
SK 4,21% 4,11%
UK 1,18% 1,55%
  1,21% 1,49%
 
Source: European Commission 
EU funds in direct cross-border procurement 
The proportion of contracts involving EU funds was higher in direct cross-border 
procurement than in all contracts: 
– In 2009, 11% of direct cross-border procurem ent involved projects financed from EU 
funds, compared to 5% of all awards.  
– For the EU-12 countries, the proportion of cro ss-border contracts involving EU funds was 
even higher (20% in 2009). 
EN 18   EN 7. THE IMPACT OF COHESION POLICY ON THE EU ECONOMY  
The impact of EU budget interventions on the economies of different Member States 
countries is not a scientifi cally well-documented subject. The documentation is limited. 
The European Parliament15 has made a study, using the HERMIN model to assess (simulate) 
the impact on net contributor states of the inve stments undertaken in the net recipient states 
through Cohesion Policy  in the period 2000 – 2006. The table below shows the share of the 
total exports of the net contributor Member States going to th e net recipient Member States of 
Cohesion Policy in the period 2000-2006.  
Figure 1 - Share of the total exports of the net donor states going 
to the net recipient states
0%2%4%6%8%10%12%14%16%18%20%
GERMANYFRANCE
ITALY
UNITED KINGDOM
AUSTRIA
BELGIUM
SWEDEN
DENMARK
FINLAND
NETHERLANDS
LUXEMBOURG
Source: Eurostat, COMEXT database  
The net recipient Member States can in general be classified as small open economies, often 
with a narrow industrial basis, where many capita l products or other goods  that are vital for 
the implementation of structural interventi ons are not produced do mestically. The main 
contributor Member States, on  the other hand, tend to be large, diverse and advanced 
economies, producing many kinds of capital, goods and services that are required by recipient 
states as they go trough a proce ss of fast development and grow th. A consequence for a small 
open economy, when it implements Cohesion Polic y programmes, is that the induced process 
of development triggers higher le vels of imports of a wide range of goods and services from 
their main and more advanced trading partners.  
The Commission also made a study on the im pact of cohesion policy on the EU economy. 
The QUEST III endogenous R&D mode l of DG ECFIN has been used  to assess the effect of 
raising taxes to pay for cohesion policy as well as of the eff ect of the expenditure that it 
finances. The modelling results indicate that, overall, the funding provided by cohesion policy 
for the 2000-2006 period had a positive effect on  GDP growth in the EU  even if account is 
                                                 
15 European Parliament, Directorate General for Intern al Policies, Policy Department B: Structural and 
Cohesion Policies, Regional Development, The Economic Return of Cohesion Expenditure for Member 
States,  2009. 
EN 19   EN taken of the depressing effect  in countries which were net contributors  to the funding of 
cohesion policy. 
GDP in the EU25 as a whole is estimated to  have been 0.7% higher in 2009 because of 
cohesion policy over the 2000/2006 period. Therefor e, the positive effect on countries that 
were net recipients of financial aid from the Structural Funds outweighed the adverse effects 
on the countries mainly responsible for rais ing the finance for the Funds (Table 1).  
Moreover, the net beneficial eff ect on GDP tends to increase ove r time as the lagged effects 
on raising productive potential in recipient countries come through. By 2015, GDP in the EU25 is estimated to be 2.4% higher as a c onsequence of the support provided for the 2000-
2006 period and in 2020 4% higher. The implicat ion is, therefore, that, according to the 
QUEST model, the cohesion policy conducte d over the 2000-2006 programming period is 
likely to add 0.2% a year to  the EU25 average GDP growth between 2000 and 2020 (i.e. 
effectively increasing the average growth rate of around 2% a year by 10%). 
Overall, cohesion policy over the program ming period 2000-2006 is estimated to have 
contributed economic growth and strengthened the capacity for grow th in the EU as a whole. 
Concerning the 2007-2013 programming period, the most recent model-based analysis
16 has 
examined the potential impact of cohesion polic y spending. The analysis  points out those ex-
ante model-based assessments cannot provide evidence on the positive output effects of fiscal transfers, but can shed light on the potential channels through which policies could have an 
impact. The long term growth effects depend on th e precise nature of the projects that are 
supported. Other factors must also be taken in to account, notably the increasing difficulty of 
Member States to provide co-f unding as a result of th e economic crisis, a nd long delays in 
spending due to implementation lags. The analysis  found that significant effects from policies 
should only be expected some years after implementation. 
Sources: 
1) Varga, Janos and in't Veld, Jan (2009): A model- based analysis of the impact of cohesion policy 
expenditure 2000-2006: Si mulations with the QUEST III endogenous R&D model. 
http://ec.europa.eu/economy_finance/publi cations/publication_summary16014_en.htm   
2) European Commission (2010): Ex-post evaluation of the ERDF 2000-2006, Synthesis Report 
http://ec.europa.eu/regional_policy/sources/docge ner/evaluation/pdf/synthesis_eval2000_2006.pdf  
3) Varga, Janos and in't Veld, Jan (2010): The Potential Impact of EU Cohesion Policy Spending in 
the 2007-2013 Programming Period: A Model-Based Analysis 
http://ec.europa.eu/economy_finance/publi cations/economic_paper/2010/ecp422_en.htm  
4) European Commission: Ex-post evaluation of the ESF 2000-2006 http://ec.europa.eu/social/main.jsp?catId=701&la ngId=en&internal_pagesId=616&moreDocuments=y
es&tableName=INTERNAL_PAGES  
                                                 
16 Varga, J. & in't Veld, J., The Potential Impact of EU Cohesion Policy Spending in the 2007-13 
Programming Period: a Model-Based Analysis, European Commission, Directorate General for 
Economic and Financial Affairs, European Econ omy, Economic Papers 442, September 2010. 
EN 20   EN Table 1: Cumulative net effect of cohe sion policy on GDP according to QUEST, 
2000-2006 
GDP in end year as a % of GDP in absence of cohesion policy 
 2000-09 2000-15 2000-20 
DE 0,6 2,1 3,6 
IE 2,0 5,2 8,1 
EL 13,0 28,6 42,9 
ES 9,5 20,0 29,8 
IT 1,1 2,8 3,9 
PT 15,7 33,7 49,7 
CZ 1,4 3,9 6,0 
EE 3,5 8,3 12,0 
CY 0,1 0,7 1,2 
LV 11,7 27,9 41,1 
LT 7,7 18,7 28,8 
HU 3,1 8,0 12,5 
MT 0,7 2,7 4,4 
PL 5,0 14,7 23,1 
SI 0,8 2,3 3,4 
SK 2,3 6,0 9,3 
EU4 (Cohesion EU15 MS) 9,8 21,1 31,5 
EU15 net donor countries -2,2 -4,0 -5,3 
EU15 0,5 1,9 3,3 
EU10 3,7 10,2 15,9 
EU25 0,7 2,4 4,0 
Note: Aggregations are weighted av erages of country estimates, using the GDP of countries 
expressed in EUR as weights. GDP in 2009 has been used to weight the estimates for the 
subsequent years.  
EN 21   EN 8. T HE ROLE OF FINANCIAL INSTRUMENTS  
8.1. Typology of EU financial instruments 
8.1.1. Introduction In the context of the new Financial Fram ework 2007-2013, the European Parliament, the 
Council and the Commission agreed that the in troduction of co-financi ng mechanisms would 
be necessary to reinforce the leverage effect of  the EU budget. In particular, it was agreed that 
the introduction of co-financing mechanisms is n ecessary to reinforce the leverage effect of 
the limited EU funds. These mechanisms we re the financial instruments under the 
Competitiveness and Innovation Framework Pr ogramme (in particular SME Guarantee 
Facility and equity instrument called GIF), th e Risk Sharing Finance facility (RSFF) and the 
Loan Guarantee Instrument for TEN-Transport (LGTT). 
Since the inception of these three instrument s, a number of additional innovative financing 
mechanisms have been introduced by the Commission. 
Innovative financial instruments can be designe d in the form of loan schemes, guarantee 
schemes, risk-bearing instruments or equity  and quasi-equity instruments. They can 
complement grant funding but cannot replace it. In  other words, economically viable projects 
may need grant funding in order to  become financially viable a nd thus 'bankable'. Therefore, 
the Commission has also developed a range of grant/loan blending instruments for specific 
policy objectives which are included in the cate gory of financial instruments. Finally, trust 
funds are commonly used mechanisms in the developing countries, bringing together the 
resources of a number of donors into a structure wh ich in turn may provide risk capital, loans, 
grants and/or technical assist ance together with the IFIs. 
Apart from loan facilities, the Commission has usually no direct contractual relationship with 
the final beneficiaries of such products, but de livers them through intermediaries. Thus, these 
programmes are managed with the active i nvolvement of international financial 
intermediaries (IFIs) and various types of mark et participants, and follow to a large extent 
market practices. These programmes are usually also demand driven mechanisms and as such 
there are no legally bindi ng obligations for a balan ced portfolio by country. 
Some examples of currently av ailable instruments are presented below. They do not constitute 
a comprehensive list. 
8.1.2. Loan schemes and blending mechanisms 
Unlike grants, loans must be repaid by the beneficiar y to the Commission or to the 
intermediary. Loans are funded by the Commissi on on the capital markets and the proceeds 
are on-lent to the beneficiaries on a back-to-ba ck basis. Consequentl y, the loans are priced 
according to the market pricing including a sma ll margin to recover costs incurred by the 
Commission in the context of the transaction. Ex amples include Euratom loan facilities to 
support the financing of investment projects fo r electricity production in the nuclear sector. 
A rather new type of debt instrument are fund structures pulling together resources of the 
EU budget and other public/priva te institutions in order to provide a range of financial 
products to beneficiaries. The EU contribution is often struct ured as a first loss piece, 
leveraged by IFI contributions in  the sub-ordinated shares, which together attract other private 
EN 22   EN and public investors to invest in the fund in the senior shares t hus achieving a higher leverage 
for this action. These funds often have a revo lving character due to the revenue generating 
financial products the funds are offering to the beneficiaries. Examples include the European 
Fund for South-East Europe (finance to micr o-enterprises) and th e European Progress 
Microfinance Facility (guarantees, risk-sharing, equity and debt to  microfinance institutions in 
EU-27). Typically, they are managed by indepe ndent professional management teams who are 
experts in the targeted sectors, countries and financial products offered. 
A special type of combined grant/loan schemes are programmes in which loans granted by a 
financial intermediary are combined with tech nical assistance grants, investment grants or 
interest rate subsidies provided by the Commission. These have been used for example for capacity building purposes, i.e. banks have receiv ed technical assistance in order to set up 
internal guidelines, policies and processes includi ng training of the staff. In turn, these banks 
have committed themselves to expand the lendi ng volumes in specific sectors, for example 
energy efficiency, municipal or SMEs lending. 
Finally, there are also technical assistance schemes supporting the development of bankable 
projects but for which no direct obligation of  IFI co-financing exists. Examples include 
JASPERS (which supports managing authorities in  EU-12 to develop larger scale projects for 
funding from the Cohesion Fund or the ERDF ) and ELENA (technical assistance to support 
energy efficiency and renewable energy investments). 
8.1.3. Guarantee schemes 
Guarantees are provided to banks and guarantee institutions provi ding debt fina ncing to SMEs 
and other beneficiaries in order to minimi se risk exposure of those institutions. 
In the context of the EU's expenditure progr ammes, extensive experience has been gained 
with portfolio guarantees . Such guarantees are typically give n to intermediaries that provide 
lending to a large number of final beneficiarie s who have difficulties to access finance (e.g. 
SMEs, vulnerable people, infrastructure, etc.). The portfolio approach is suited for covering a 
large number of loans, thus providing for dive rsification in terms of risk, geographical 
coverage and industry sectors. In order to ensure that the EU's exposure is known upfront, 
portfolio guarantees are typically capped, i.e. the maximum amount payable to an 
intermediary is limited to a pre-determined amou nt. Usually, this cap covers the expected loss 
of the portfolio potentially including a small margin. Conse quently, the EU budget will 
normally be fully disbursed and used by the fina ncial institution to cover the losses of its 
portfolio.  
Portfolio guarantees do not benefit from extra leverage by IFIs as these do not provide any 
funding. In the EU, for example under SME Guarantee Facility , the leverage is achieved 
through the additional debt volum es the banks and guarantee in stitutions are requested to 
provide to SMEs. 
The EU Guarantee Fund for External Action covers loans granted by the EIB to projects in 
third countries. It is a key inst rument enabling the EIB to be involved in a wider range of 
countries and borrowers, both by allowing the EIB to intervene in highe r risk countries and 
operations and by making financial conditions  more attractive to borrowers. The EU 
guarantee is restricted to 65 % of the aggreg ate amount of credits disbursed and guarantees 
provided, less amounts reimbursed, plus all related sums.  
EN 23   EN 8.1.4. Risk sharing instruments 
The objective of the risk shari ng is not to minimise the overa ll risk exposure of a programme 
but to optimise exposure, i. e. to take prudent  risks in orde r to increase the leverage capacity of 
EU funds as much as possible. When a financial intermediary grants a lo an or a guarantee to a 
beneficiary, the Commission shares the risk of a potential loan/guarantee loss with the 
intermediary, such as the EIB.  
Based on experience and historic data on defau lts of companies and projects, a bank assigns 
each loan/guarantee into a risk category. Dependi ng on the level of the risk category, the bank 
has to set aside capital to cover the estimated risk s. The risk of a default can be split into an 
expected loss, an unexpected loss and a residual loss which can be shared between the parties.  
RSFF (the Risk Sharing Finance Facility) an d LGTT (Loan Guarantee Facility for TEN-
Transport) are examples of risk sharing inst ruments. For each loan and guarantee granted, the 
Commission pays to the EIB a portion of the risk assigned based on a financial model 
developed jointly by the Commission and the EI B, the remaining portion is covered by the 
EIB. These two instruments are not provided for free to the beneficiary but the advantage is 
that pricing covers only the costs of the inst itutions without any profit margin. An additional 
advantage for the beneficiary is the better pr icing of the loan due to the EIB's and the 
Commission's AAA-rating.  
These instruments have a revolvi ng character due to the price obt ained from the beneficiary to 
cover the risks which can be us ed for new projects and the hi gh probability of non-use of the 
unexpected loss and residual risk. 
8.1.5. Equity instruments 
The Commission mainly invests through a financia l intermediary in ve nture capital and risk 
capital funds, which then invest  in final beneficiaries, for ex ample innovative SMEs with high 
growth potential or in energy or transport infrastructure projects. These final beneficiaries are 
selected in an independent way, but in line wi th the investment policy of the fund, by the 
fund's management company duri ng an investment period of seve ral years, following the start 
of the fund. Examples of such instruments include  Marguerite (direct eq uity investment in a 
risk capital fund aimed at investments in TEN -E, TEN-T and renewable energy infrastructure 
in EU-27) and the Global Energy Effici ency and Renewable Energy Fund (GEEREF) for 
equity investments in SM Es in third countries. 
The EU's investment attracts private funding: th e EU has always a minority stake of the fund's 
capital, and invests alongside with other invest ors in the fund. The majo rity of the fund's 
capital needs to be held by market-oriented investors , i.e., private or pub lic investors seeking 
the same level of return as a private in vestor would have re quested under the same 
circumstances. 
8.1.6. Structural Funds financial instruments 
Financial instruments under Structural Funds (s hared management) offer a large variety of 
financial products: loans, guarant ees and equity investments. The JEREMIE (Joint European 
Resources for Micro to medium Enterprises)  and JESSICA (Joint European Support for 
Sustainable Investment in City Areas) initiatives enable managing authorities to invest/contribute part of their structural funds allocations into financ ial intermediaries and 
urban development funds, so that the EU contribution can be leveraged.  
EN 24   EN 9. R ESULTS OF EX -POST EVALUATIONS  
The Commission attaches high priority to eval uations of current polic ies and programmes and 
impact assessments of future initiatives, in order to ensure as far as possible the most efficient 
and effective use of EU instru ments. The Commission carried out more than 1400 evaluations 
and impact assessments in the years 2002-2009. Mo reover, the "Forward Evaluation Plan for 
2009 and beyond" from the Commission contains 704 evaluations that are either ongoing or 
planned by the services. Most of the evaluati ons cover the current Financial Framework for 
2007-2013, while a few of them go even beyond.  
As regards the previous Fi nancial Framework 2000-2006, the Co mmission contracted in 2008 
a comprehensive meta-study on lessons learnt fr om existing evaluations as an input to the 
review of EU spending17. With a view to the Budget Revi ew, it analysed 257 evaluations of 
the previous programming period. The lessons lear nt remain relevant for the preparation of 
the next generation of programmes.  
9.1. Assessment per policy area  
The study provides separate assessments for seve nteen policies clustered into a five broad 
policy areas (competitiveness, cohesion, natural resources, citizenship, and global partnership).  
The paragraphs below summarise these assessmen ts for the policies that  account for the most 
resources in budgetary terms. Ov erall, they cover 94%  of the EU budget. The seven criteria 
used were relevance
 (the extent to which the objectives are (still) in line with the needs, 
problems and challenges which justified the launching of the intervention), coherence  (the 
extent to which the intervention complements other interventions pu rsuing the same goals, 
while avoiding duplication and se eking synergies), added value  (the extent to which the 
desired results/impacts are better achieved thr ough a European intervention than what would 
have resulted from similar interventions at the level of Member States), effectiveness  (the 
extent to which the desired results/impacts are achieved), sustainability  (the extent to which 
the achieved results/impacts are likely to continue in the long-term ), efficiency  (the extent to 
which the desired effects are achieved at a reasonable cost) and the value of unintended 
impacts  (the extent to which unintended impacts ar e positive or negative with respect to the 
needs, problems and challenges of the society).  
The effectiveness of the markets support and direct aid in agriculture  policy is assessed as 
satisfactory but significant shor tcomings or failures are also mentioned in terms of market 
imbalances or increased production costs. Where efficiency is assessed, there are some very 
negative messages, especially with regard to  over-compensation in a number of instances. 
European interventions targeted at rural development  are assessed as having generated major 
benefits in terms of improving product qual ity and marketing channels, and opening new 
perspectives for local governance in rural ar eas. Large-scale impacts are, however, limited by 
the fact that the policy does not reach a critical  mass in the supported territories. For example, 
the impact on farm efficiency and young farmers was not substantial. 
                                                 
17 Euréval/Rambøll Management, Meta-study on lessons from existing evaluations as an input to the 
review of EU spending, 2008.  
EN 25   EN Regional development  programmes are assessed as re levant, although a number of 
evaluators mentioned concrete  development needs that woul d deserve stronger emphasis, 
especially in connection with sustainable deve lopment and, to a lesser  extent, the “Lisbon 
objectives”. Macro-economic studies predicted an  impact of 1% to 3% in GDP after seven 
years of support, which suggest s that the rapid convergence of  some Member States is 
attributable to causes other than the cohesion policy, such as the benefits of the internal 
market and/or effective national economic policies. 
The Cohesion Fund  is assessed as relevant and effective. There is a clear and considerably 
faster improvement of infrastructure in the beneficiary Member Stat es, owing to European 
assistance. Further impacts on business investme nts, economic activities, and employment are 
predicted to be positive. 
The employment  measures supported by the European Social Fund are assessed as relevant 
with limited exceptions, such as insufficient em phasis on social inclusio n and gender pay gap 
in Objective 2 regions. Effectiveness is also asse ssed positively in terms of contribution to the 
development of skills and qualif ications, but also in terms of system-wide effects such as 
reform of labour market policies. 
Research  and technological de velopment policy is considered to add European value by 
strengthening the research system as a w hole through a structural  effect, although its 
expenditure is less than five percent of the total public RTD e xpenditure in the EU area. The 
policy has addressed a number of deficiencies in the European research landscape and 
significantly contributed to  bridging the gap between research and innovation.  
Finally, cooperation  with third countries is subject to mixed assessments. All donors, 
including the Commission and the Member Stat es, have committed themselves to better co-
ordinating their activities with recipient countries and between themselves, but the assessment 
of coherence remained mixed during the period under study. Apart from specific successes and failures, a common pattern is repeatedly highlighted, i.e. th e effectiveness of projects and 
programmes heavily depends on the progress of policy reforms at sector level. 
9.2. Assessment per evaluation criterion 
Most European policies are said to be relevant  in that they respond to  stakeholders’ needs and 
address key challenges. When there are reserva tions, the evaluators re port on policy responses 
which are not proportionate to the problem , which build upon inappropriate impact 
assumptions, which do not match the expectations  of the targeted groups, or which lack a 
proper long-term strategy. 
Trans-national networks and partners hips are repeatedly assessed as adding European value  
in that they contribute to mutual learning, benchmarking, creative thinking and raising new 
ideas. Other ways of adding value are to addres s challenges that are cr oss-border by nature, to 
seek effects that arise beyond Member States’ boundaries or to tackle problems that are not 
politically appealing and theref ore not addressed by Member Stat es. The two last approaches 
may be seen as either opposing or complemen ting each other: (1) achieving economies of 
scale through European harmonisa tion and standardisa tion, and (2) promo ting diversity in a 
context of European levelling. 
With regard to coherence , the study differentiated between issues of coordination and 
complementarity. In the area of cohesion policy, the need to orga nise co-financing is said to 
have initiated new partnerships and coordinatio n arrangements at regional level and to have 
EN 26   EN removed the duplication of activ ity for applicants. However, the three Structural Funds 
(ERDF, ESF and EEAGF) have operated according to  different principles and with different 
financial requirements, so coordination effort s are not effective enough for enabling synergy 
between the funds. With regard to complement arity, in several instan ces, conflict between 
objectives are addressed by creating specific meas ures, e.g. support to ex porting enterprises in 
developing countries as a way to reconcile the objectives of the trade and development aid 
policies; agri-environmental measures as a way to reconcile the CAP and environmental 
objectives.  
Effectiveness  tends to be less positively assessed  where the evaluated intervention bring 
direct short-term benefits to a large number of people or organisati ons. In contrast, the 
effectiveness of system changes or structur al changes are often a ssessed more positively. 
Assessments of efficiency  are not that frequent but rather negative. Frequently-raised 
problems are (1) insufficient targeting and allocati on of a grant, subsidy, or payment to those 
who do not really need it, and (2) complex proc edures entailing waste of human resources and 
discouraging those in need of the support from applying for it. 
9.3. Main lessons learned 
– European interventions do not need a heavy cri tical mass if they are to reach their target 
indirectly through inducing changes in systems and structures . On the contrary, 
interventions are much more costly, and rarely  reach the necessary cr itical mass if they 
attempt to reach large Europe wide targets in a direct manne r. In practice, the problem 
raised by the lack of critical mass is to be solved through a less extr eme solution, i.e. 
designing an adequate policy-mix involving both direct and indirect approaches. 
– Instead of being used for its own merits (i.e . satisfying the end user’s needs), the direct 
approach should be primarily understood as an  incentive for inducing policy reforms or 
governance improvements. Expenditures should therefore be proportionate to the desired 
“incentivising” effects, and no longer to th e needs of the targeted groups. This lesson 
originates from a crosscutting view on eval uation conclusions across almost all policy 
areas. To a certain extent, it could also be applied in the areas where the current 
interventions reach large targ ets in a direct manner, i.e. cohesion for growth and 
agriculture. 
– Accurate targeting of beneficiaries  is a major factor of success. It helps reaching the 
most in-need people or organisations and th erefore optimizing the achievement of the 
intended results. Conversely, it minimizes deadwe ight. The lesson was learned in the areas 
of research, innovation, energy, agriculture, and rural development, more often in a 
negative way, i.e. from failure to target the beneficiaries in  an accurate enough way. It 
could therefore be transferred to any policy area where implementation bodies can be given 
an increased autonomy in the targeting of benefi ciaries. This could be the case in the future 
for cohesion, rural development, cooperation, enlargement, etc. 
Convergent messages are delivered about the complexity  of procedures. Dealing with a new 
level of government, transparent selection proce sses, and strict audit rules may be perceived 
as complex during a transitional time period. This  is sometimes expressed in terms of ‘entry 
cost’ that creates a number of barriers to new entrants.  
– Through decentralising management  and increasing the autonomy of implementing 
bodies , it is possible to achieve flexibility, to reduce complexity, and ultimately to ensure 
EN 27   EN local relevance and increased efficiency. The co mplexity of procedures is highlighted in 
evaluation reports across almost all policy area s. Explanations and remedies are however 
proposed in just a few reports related to SM E schemes and the European Social Fund. The 
lesson should therefore have a large potential for being used in many policy areas. An 
associated risk is however that the intend ed results and impacts be forgotten if the 
implementing bodies are granted consider able autonomy. The le sson is therefore 
transferable if, and only if, a result-ori ented management can be put in place. 
– Major attempts have recently  been made at developing performance incentives  in the 
spirit of result-oriented management. The in centives have taken the form of additional 
budgetary funds allocated to the best performi ng interventions. The first attempt has taken 
place in the area of cohesion for growth and employment, but the performance incentives 
have not been integrated in a consistent system of result-based management and the implementing bodies have not been granted sign ificantly larger autonomy. Complexity has 
not seriously declined and the assessment of the experience has been suboptimal. The 
second attempt has been launched in the area of  cooperation, and is assessed as likely to 
succeed in one of the reviewed reports, but not yet on an evidence basis. There is a 
prospect for learning from this second experi ence in other policy areas, as soon as more 
lessons are learnt. 
– Finally, there is a scope for better leveraging private and public funds . Leverage is said 
to “multiply” the budgetary expendi ture in the sense that target ed people or entities are 
allocated a small part of the funds they need, with a view to encouraging them to provide 
complementary resources, either from their ow n funds, from public-priva te partnerships, or 
from other public or private funding institutions . The multiplier may be even larger if use 
is made of financial engin eering where budgetary funds are converted into loans, seed 
capital, loan guarantee, etc. Co-financing is another way of multiplying European funds by 
attracting matching funds from public institutions at the level of regions, Member States, 
partner governments, or international institutio ns. In the view of impressive multipliers 
figures quoted in a few evalua tion reports, the EU should be called to promote leverage by 
any available means in all policy areas.  
EN 28   EN 10. I MPROVING SOUND FINANCIAL MANAGEMENT  
The Commission has already taken several actio ns to improve Sound Financial Management, 
the most important being the following. 
10.1. Simplifying the Implementation of  the Research Framework Programmes18 
Stakeholder consultations indicate that access to the programmes and preparation of proposals 
are considered too difficult, in particular for newcomers, that the administrative burden for 
project administration and accoun ting is perceived as too high and that time-to-grant and 
time-to-pay are viewed as being too long. Th e Commission has theref ore outlined measures 
and options for simplifying EU research funding, for assuring that EU research funding promotes the highest quality research and for finding a better balance between trust and 
control and between risk ta king and risk avoidance.  
For maximum impact, research and innovation programmes at European level should be 
highly attractive and accessible to  the best researchers worldwid e, to Europe's industry and 
entrepreneurs, to universities and other rese arch and innovation actors. The Commission has 
presented a number of simplifica tion efforts in the following areas: 
– Improvements and simplifications that the Commission will implement under the current 
legal and regulatory framework, which should contribute to a further reduction of average 
time-to-grant and time-to-pay (e.g. improved IT-t ools, user support, uniform application of 
rules, optimising the structure and timing of calls for proposals etc.); 
– Changes to the rules of the current cost-bas ed model (e.g. general acceptance of accounting 
practices of participants including average personnel costs, a unique set of rules for all 
participants covering all intervention measures  and a reduction of the number of different 
reimbursement rates and methods for calculating indirect  costs etc.); 
10.2. Strengthening the Commission's supervis ory role under shared management of 
structural actions
19 
In 2008, following the European Court of Au ditors ("Court") Annua l Report of 2006, the 
Commission adopted an action pl an with 37 actions (further measures and programmes were 
added during 2008 and 2009) to stre ngthen its supervision of Memb er States in relation to 
shared management of structural actions (" Action Plan"). The objective of the Action Plan 
was to reinforce actions by the Commission to  address the high level of errors in 
reimbursements for structural actions and wea knesses in the Member States management and 
control systems ("systems").  
The Commission has given an assessment of  the results and the first impact on the 
implementation of the Action Plan, as well as on the implementation of additional actions by 
the Commission under the Joint Audit Strategy fo r Structural Actions ("Audit Strategy").  
The 37 actions in the Action Plan were grouped under 10 headings.  
                                                 
18 COM(2010) 187. 
19 COM(2010) 52. 
EN 29   EN The Commission concluded the following: 
– The Commission has produced results for all th e actions and has laid  the foundations for 
continued improvements. It, therefore, c onsiders the Action Plan completed and the 
objectives achieved.  
– The Commission will seek to reap the full benefi ts of the legislative provisions for the new 
programming period 2007-2013, includi ng the simplification of co st options; it will keep 
up the momentum generated by the Action Plan and pursue rigorous supervisory actions in 
the context of its Audit Strategy and report on the situation in the A nnual Activity Reports.  
10.3. Reviewing the Financial Regulation 
The Commission has recently submitted proposals for the triennial review of the Financial 
Regulation20 aiming at more efficient delivery mech anisms and a thorough simplification of 
rules and procedures. A review of the financial rules is required at least every three years. 
This is the second such exercise: th e first review took place in 2006-2007.  
The new rules provide for the simplification of  some unnecessarily cumbersome procedures, 
improve accountability and financial control and increase the transparency of EU spending. 
These are crucial elements in the development of a modern, efficient financial management 
system and to shaping the management of EU funds well into the next decade. The revised 
rules need to be agreed by the time the new EU-funded programmes come into play when the current multi-annual financial framework closes in 2013.  
The Commission also carried out a public consultation from 19/10/2009 to 18/12/2009 in 
order to benefit from contributo rs' experience as project manage rs and beneficiaries of public 
funding. In the consultation, the Commission was sp ecifically seeking for stakeholders views 
on how to make the rules for grants and contracts more effective for everyone.  
Drawing on the Commission’s own experience, th e consultation paper hi ghlighted key areas 
that concern fund beneficiaries. The first look ed at improving the process of public calls for 
proposals in the award of grants . Experience here has shown th at procedures are often too 
long and cumbersome. The paper also raised a seri es of questions such as: should the rules on 
co-financing requirements for the recipients of EU grants be more  flexible? Would the 
introduction of performance-based grants (i.e. based on results rather than on reimbursement 
of costs) make life easier for everyone? Or what about loosening up the current non-profit 
rule, where EU grants at the moment cannot ge nerate any top-up revenue for beneficiaries? 
The second focus in the consultation was on how to simplify the Commission's own handling 
of financial files. The current rules are designed to minimise the risk of error and fraud, yet 
practical experience shows that they can often create additional red tape. This is why the Commission will be examining ways to adapt the rules to ensure effective project management, as well as maintaining a high leve l of protection for taxpayers' interests.  
The consultation encouraged interested partie s to send 235 contributio ns, reflecting a broad 
range of opinions and perspectives. The cont ributions received largely agreed with the 
following points:  
                                                
 
20 Regulation (EC) No1605/2002 of 25 June 2002. 
EN 30   EN – internal Guidelines and best pr actice/tools should be improved;  
– use of lump sums and flat rates;  
– shift towards a performance-based system;  
– the application procedure for grants should be improved;  
– the real-cost regime should be maintained but it should be clarified and streamlined;  
– thresholds for low value grants should be raised;  
– rules on the recovery of interests genera ted by pre-financing generate excessive 
administrative burden and misunderstandi ngs with operators and partners.  
The Commission adopted its proposal  for the revision of the Fi nancial Regulation on 28 May 
201021. At the same time, it has endorsed a Staff Working Document on the Implementing 
Rules of the Financial Regulation so that Eu ropean Parliament and Council can examine both 
texts, which are complementary, simultaneously. 
10.4. European External Ac tion Service (EEAS) 
The Commission has also proposed an ad-hoc revi sion of the Financial Regulation in order to 
facilitate the establishment of the EEAS22. This is a separate exercise from the triennial 
review of the Financial Regulation at the e nd of the first semest er of 2010. In budgetary 
terms, the EEAS will be treated as an instituti on in the sense of Article 1 of the Financial 
Regulation so that it will have budgetary autono my, i.e. its own section in the EU budget. It 
will implement its own administrative expend iture (like all other institutions) and will 
therefore receive discharge from  the European Parliament for it. The European Parliament 
will therefore exercise its full budgetary  and control powers towards the EEAS. 
                                                 
21 COM(2010) 160. 
22 COM(2010) 85. 
EN 31   EN 11. A NALYSIS OF POTENTIAL ALTERNATIVE OWN RESOURCES TO FINANCE THE EU 
BUDGET  
11.1. Introduction 
This technical annex presents a summary of a number of potential al ternative own resources 
pointing at key issues related to these alternat ives, and putting forward indicative quantitative 
estimates. More refined analyses and conc rete proposals will be developed in 2011. 
Six options have drawn particul ar attention in the budget revi ew consultation. These include 
the three options put forward by the Commi ssion in 2004, namely a resource based on VAT, 
energy and corporate income. In addition, thre e options that gained prominence in recent 
years have been added, namely resources relate d to the auctioning of greenhouse gas-emission 
allowances, to aviation and to  financial sector taxation.  
This list of options should be s een as purely indicative, to enable  an illustration of some of the 
issues which need to be considered. These and other potential options will need further study 
in the coming months in view of concrete proposals. 
11.2. Financial sector taxation 
Outline of the option 
The Commission recently adopt ed a Communication on taxati on of the financial sector23, 
which addresses both a financial transactions  tax (FTT) and a financial activities tax.  
The FTT is designed to tax the va lue of single transactions. For a wide coverage , it should be 
applied to a broad range of financial inst ruments (i.e. equities, bonds, currencies and 
derivatives), even if some current proposals envisage limiting the scope to a subset (e.g. 
currency transaction levy).  
Another potential in strument to improve taxation of the financial sector a nd reduce potential 
negative externalities is the Financial Activities Tax (FAT) as  proposed by the IMF. It can tax 
total profit and wages (addition-method FAT) or can specifically target economic rents and/or 
risk. In contrast to an FTT, whereby each financial market participant is taxed according to 
her transactions, the FA T taxes corporations. 
Qualitative assessment 
A FTT would be levied on activities that are noto riously difficult to tax at national level and 
usually benefit from favourable tax treatmen t. To be viable and mitigate competitive 
distortions, such a tax needs to be levied at th e international level and it requires a harmonised 
approach. In the light of the analysis undert aken to date, FTT appears less suitable for 
unilateral introduction at EU le vel since the risks of relocat ion are high and would undermine 
the ability to generate revenues. In the current  international context, there are substantial 
obstacles to a global agreement on a broad-ba sed FTT and while a narrow-based financial 
transaction tax could be consider ed at the EU level only, there are uncertainties about how to 
ensure a fair and workable solu tion without global consensus. 
                                                 
23 COM(2010) 549. 
EN 32   EN Existing studies suggest that applying a very lo w rate on a large tax ba sis would allow raising 
significant amounts of tax revenues. The FTT w ould respect well the ability-to-pay principle 
as it would primarily affect high-income taxpayers active on the financial market and 
shareholders of financial institu tions. The ultimate impact very much depends on the scope of 
the financial instruments that would be taxed and would require careful design.  
Introducing a FTT would not be easy, however. Th e operating costs related to this system 
could be initially high if the FTT covered all th e main type of transa ctions, because of the 
different characteristics of th e financial market segments involved. Control and incentive 
systems would need to be instal led in order to avoid massive ta x avoidance and migrations of 
markets. This could include financial incentives to the agent(s) collecting the tax on behalf of the Union. The legality of any FTT could also be challenged with regard to the EU treaties 
and WTO GATS provisions. Revenue  flows could vary significa ntly in the short run, 
depending on the activity of the fi nancial markets. There could also be a perceived national 
imbalance as, due to network externalities, fina ncial asset transactions are highly concentrated 
in certain markets.  
The geographical distribution of revenues from  a FAT would by and large reflect the actual 
distribution of the financial sect or in the EU. However, the reve nue is not as concentrated as 
in the case of a broad-based FTT. The reason is  that the base is not trading activity, which 
takes place mainly in a few financial centres, but rather remuneration and profit, which is 
more evenly spread. In this sense the FAT w ould be better suited to raising revenue for budget 
consolidation purposes. 
As regards economic burden, the effects also depend on the concrete design of the tax. In 
practice there is no available empirical evidence  on the real incidence of a FAT. If the tax 
were to be shifted to the customer, and given that there is no deduction for business 
consumers, the tax burden could also part ly fall on users of financial services. 
Quantitative assessment 
The range of revenue estimates in the academic literature is extremely broad. In the staff 
working paper on innovative financing publis hed in April 2010, the Commission services 
estimated that a FTT levied on spot transactions  on exchanges with a ra te of 0.1% could bring 
revenues of around EUR 20 billion per year for Europe (EU + Norway and Switzerland). A 
narrower Currency Transaction Levy of 0.005% on global Euro transactions could yield an 
amount of US$ 13 billion annually (equivalent euro).  
For the 22 developed economies considered in the IMF report to the G-20, a 5% rate of the 
addition-method FAT would create revenue co rresponding to the average of 0.28% of GDP. 
Using the country-level estimates for the share in GDP to calculate absolute figures, this 
would translate into total revenue for the 22 countries of roughly EUR 75 billion for the 
addition-method FAT. For the EU-27, the addi tion-method FAT could raise up to EUR 25 
billion. 
11.3. Auctioning of greenhouse gas emission allowances 
Outline of the option 
The EU Emission Trading Scheme (ETS) ha s been in operation since 2005. From 2013 to 
2020 (and beyond), there will be an annually declining EU-wide emissions cap. During this period, an increasing share of emission allowances will be auctioned. The proceeds from 
EN 33   EN allowances auctioning could be transferred to the EU budget. Part of the revenue collected 
would have to be removed from EU revenues a nd transferred to Member States to maintain 
the redistribution agreed  in the legislation.  
The revenue could be partially 'earmarked' for climate and energy priorities as envisaged in 
the relevant legislation. 
Qualitative analysis 
The EU ETS is part of the acquis. The sy stem runs on a harmoni sed EU basis and the 
auctioning revenue would be clos ely linked to a core EU policy. 
Revenue from auctioning is not a tax revenue, though it does represent a source of income for 
public authorities. As a charge closely related to pollution by ec onomic operators, it is in line 
with the polluter-pays pr inciple (article 191 of the Lisbon Tr eaty). This resource may not need 
to transit via Member States treasuries. Th e total administration co st of a centralised 
auctioning system would be lower and the r ecently agreed regulation governing auctions 
provides for a common platform.  
It could be argued that the reve nue flow related to emissions auctioning will decrease over 
time as emissions diminish. This argument a ppears unconvincing as the scope of the EU ETS 
is likely to expand over time a nd the price of carbon should incr ease as the emissions cap is 
reduced in line with a trajectory to a low- carbon economy in 2050. The revenue is dependent 
on the evolution of the carbon price, which has been variable in phase 1 (2005 to 2007) but is 
less so in the current phase 2. Varying revenue would be offset by the fact that the residual 
GNI-based resource would still be in place and could in any case compensate for any such possible volatility in this as in other resources. 
Auctioning revenue will arise disproportionally in more ener gy-intensive Member States. 
However, assuming that part of the revenue fr om auctioning would be geared at climate and 
energy priorities (political earm arking of 50% of the revenue), it  could be expected that heavy 
emitters per unit of output would also benefit from a higher share of expenditures. On the 
other hand, some Member States already ear mark some auctioning revenues to support 
climate and energy policies at the national level.  
Quantitative analysis 
The revenue for the EU budget resulting from auctioning could amount to some EUR 20 
billion
24 in 2020 after the transfer of  12% of the revenues to some Member States in line with 
the European Council agreement of December 2008. Revenues for earlier years would probably be lower due to the reduced share of auctioning and likely lower price of emission 
allowances as the EU economy  recovers from the crisis. 
                                                
 
24 Estimate assuming a price per emission allowance of EUR 20.3 and an auctioning of 65% of total 
allowances. This estimate does not include the revenue from auctioning in the aviation sector and other 
potential sectors included in the scope of the EU ETS as of 2013. 
EN 34   EN 11.4. Aviation charge 
Outline of the option 
An aviation duty could apply to freight a nd passenger flights entering, operating and/or 
leaving the so-called European Flight Info rmation Region. This would not be a duty on 
passengers or a duty related to  kerosene consumption, but a ch arge per flight. The amount of 
the duty could depend on the aircraft technical characteristic and other variables. The duty 
would be such that the more efficient planes would pay less, ceteris paribus.  
Qualitative analysis 
Aviation is an example of how Community law helps to achieve safe, orderly and efficient 
business operations throughout Euro pe. Liberalisation of air tran sport in the EU has allowed 
considerable efficiency gains, the emergence of new, low-cost companies, and considerable price reductions for passe ngers over the years.  
An aviation duty would serve various EU policy objectives. It would provide incentives to 
reduce air pollution, including gr eenhouse gas emissions not c overed by the EU Emission 
Trading Scheme, such as nitrogen oxides (NOx ), noise and airport congestion. It would 
contribute to the functioning of the internal  market and reduce current distortions of 
competition vis-à-vis other modes of transporta tion (e.g. the current absence of VAT on air 
tickets or fuel tax on kerosene for internati onal flights gives an undue  advantage to aviation 
compared to other modes of transportation). An  aviation duty may also be justified by the 
large free allocation of emission allowances (8 5%) foreseen in the Emission Trading Scheme.  
Regarding the implementation of the aviation duty, start-up and operating costs could be 
small, since the data bases required and the technical facilities necessary for a precise and 
timely computing of the aviation duty due are already in place and in  use. The charging 
system could be based on existing solutions al ready proved to be successfully operational and 
accepted over the years. However, this would re quire active participati on of Eurocontrol in 
the duty collection and the agreement of all parties concerned. This may lead to lengthy 
political and legal proceedings. Lastly, aviati on duties would not need to transit via the 
Member States budgets.  
Quantitative analysis 
Based on a standard duty of EUR 1.0 per kilome tre for a reference plane, the total estimated 
income would have been EUR 12.8 billion fo r the year 2006. The corresponding aviation duty 
per average flight (freight and passenger flights) would have been EUR 1,331. This would 
correspond, for passenger f lights, to a few Euros per passen ger. The amount collected for the 
aviation duty could be expected to be in creasing significantly in  the post-2013 period 
considering the growing tr end of aviation activity.  
11.5. EU VAT 
Outline of the option 
A combined VAT rate could consist of the natio nal and the EU rate. The Member States could 
determine the national rates as today. An EU rate could be defined separately in the 
framework of the own resource Decision and/ or its implementation rules. The EU VAT 
payments could be clearly denoted on each i ndividual invoice, next to the national VAT 
EN 35   EN payment25. Different rates could be a pplied to different categories of goods and services in 
line with the existing differences in the Member States. This resource would thus be completely different from the existing VAT-based own resource which is in practice a contribution from the Member States based on  statistical calculations. The Member States 
would collect the EU VAT and transf er the proceeds to the EU budget. 
Qualitative analysis 
VAT is an important and stable source of reve nue. Moreover, tax receipts grow in line with 
increased spending on goods and services wi thout any change in the VAT rate(s).  
As a new own resource, it would be very visibl e to the citizen, which is why it has sometimes 
been advocated as a potential own resource. Th e low VAT rate (1-2%) necessary to finance 
the EU budget could put in perspective the si ze of the EU budget. However, the very high 
visibility of the EU VAT could also be seen as a problem if the population perceived EU VAT 
as an additional tax burden rather than replaci ng a national contribution paid for from other 
taxes.  
The technical preparation for the implementation of an EU VAT could be relatively limited 
and it would probably not take more than a few years to put the system in place. However, 
harmonising further the struct ure of rates (notably zero -rated goods) and remaining 
differences of VAT bases could prove challenging. In absence of this, the system could also 
function, but not all EU taxpayers would be f aced with the same EU VAT for a number of 
goods. Furthermore, the omission of existing zero -rated goods might be seen as unjustifiable 
relief from the proposed new EU VAT for certain Member States an issue that would need to 
be examined as part of a balanced overall proposal.  
Quantitative analysis 
Applying a 1% EU VAT to both reduced and standa rd rates, combined with the elimination of 
the current ('traditional') VAT-based own resource, and exempting zero-rated goods from the EU rate would yield revenues corresponding to cl ose to half of total EU financing. More 
precisely, in its 2004 report on EU  financing, the Commission esti mated that revenues of a 
1% EU VAT would amount to EUR 41.0 billion (estimate for 2001).  
11.6. EU energy levy 
Outline of the option 
Existing taxes on energy consumption (in particul ar on motor fuels) could fully or partially 
(up to the level of the EU mi nimum tax rates) serve as own resources for the EU budget or 
could be replaced by an EU levy on energy/C O2 emissions. Member States could apply 
national duties ('surcharges') on top of the EU duties. Member States would collect the energy 
levy and transfer the proceeds to the EU budget. 
Qualitative analysis 
The main advantage of this option would be practical feasibility and easy implementation 
(existing tax with a large degree of harmonisati on) combined with the fact that such a tax 
                                                
 
25 Although not all transactions, particularly  retail B2C, would generate an invoice. 
EN 36   EN would be clearly linked to va rious Community policies and would support them (internal 
market, energy, transport and environmental policies).  
However, these efficiency gains would only be possible if the total rates resulting from the 
EU rate combined with Member States surcha rges were more harmonized than the current 
rates or if a reform of the existing framewor k for energy taxation could be facilitated by 
linking it to a reform of own resources.  
Quantitative analysis 
In its 2004 report on EU financing, the Commi ssion showed that with a levy of 330 
euros/1000 litres of motor fuel (the minimum rate), an energy tax could yield EUR 109.8 
billion (estimate for 2002). Introducing a ra te corresponding to half the minimum rate 
currently defined in the energy taxation directiv e, the EU energy levy on petrol and gasoil 
only would bring revenues close to half of  the total EU financing requirements.  
11.7. EU Corporate Income Tax 
Outline of the option 
An EU Corporate Income Tax (EUCIT) would first require a common corporate tax base. A 
relatively small, uniform EU corporate tax rate could then be applied to the common 
corporate base of corporations. Member States c ould continue to apply a national rate to this 
new base, or the EUCIT could be a percentage of each national company tax.  
Qualitative analysis 
If a common basis replaced current national rules and bases, this could lead to substantial 
efficiency gains (fewer tax distortions in inve stment decisions) and help to reduce compliance 
costs for companies operating cross-border in the internal market. In addition, it could 
contribute to a "clearer" distribution of tax ba ses for multinationals across Member States.  
Challenges to implement a EUCIT are consider able. The work on a possible EU tax base, 
which was first suggested in 1962, is notoriously  difficult, given the competences of Member 
States in taxation, as it relates to essential differences in Member  States tax systems. Even the 
completion of an optional Common Consolidat ed Corporate Tax Base  (CCCTB), which has 
not been conceived as a basis for a new own resource, has proved controversial.  
Quantitative analysis 
Corporate income tax represents on average between  2% and 3% of GDP in the EU so that in 
the scenario of a new compulsory base for al l companies with all or part of the revenues 
accruing to the EU, there would be enough reve nues to finance the EU budget even with a 
relatively low EU rate. However, the amount raised  would fluctuate with the taxable profits of 
the EU private sector and would be difficult to predict. In the absence of any clear proposals 
on how such a proposal would ultimately be imp lemented, precise revenue estimates appear 
premature.