COMMISSION OF THE EUROPEAN COMMUNITIES 
C0M(92) 2001 final 
Brussels, 10 March 1992 
THE COMMUNITY'S FINANCES 
BETWEEN NOW AND 1997 
ggJEtSs,. 
Communication from the Commission 
to the Council and Parliament 
CONTENTS 
Page 
INTRODUCTION 1 
PART ONE 
DETERMINING FACTORS FOR A NEW FINANCIAL FRAMEWORK 3 
I. EMPIRICAL DATA: RESULTS OF THE 1988 REFORM 3 
II. PURPOSE AND METHOD OF COMMUNITY BUDGET INTERVENTION 11 
III. BUDGET DATA AND ECONOMIC ASSUMPTIONS 16 
PART TWO 
THE FINANCIAL PERSPECTIVE 1993-97 18 
I. GENERAL PRESENTATION OF THE NEW FINANCIAL FRAMEWORK 18 
II. AGRICULTURAL EXPENDITURE 21 
III. STRUCTURAL MEASURES FOR ECONOMIC AND SOCIAL COHESION 23 
IV. HORIZONTAL INTERNAL POLICIES 26 
V. THE COMMUNITY'S EXTERNAL ACTION 31 
VI. THE ADMINISTRATIVE EXPENDITURE OF THE INSTITUTIONS 36 
VII. PROFILE OF COMMUNITY EXPENDITURE AND OF 
THE OWN RESOURCES CEILING 38 
PART THREE 
OWN RESOURCES 40 
I. POSSIBLE CHANGES IN THE SYSTEM OF OWN RESOURCES 40 
II. THE UK ABATEMENT 42 
Il 
Page 
PART FOUR 
BUDGETARY PROCEDURE AND MANAGEMENT 43 
I. RULES OF A NEW INTER INSTITUTIONAL AGREEMENT 43 
I I. IMPROVEMENT OF BUDGETARY MANAGEMENT 46 
CONCLUSION: LEGISLATIVE MEASURES TO BE ADOPTED 49 
ANNEXES 
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THE COMMUNITY'S FINANCES 
BETWEEN NOW AND 1997 
INTRODUCTION 
1. 1993 will mark the beginning of a new stage in the Community's 
development. 
The Community's first task wi11 be to do a 11 it can to achieve the new 
objectives it has set itself. The internal market must be made to operate 
in such a way as to derive all the potential benefits in terms of 
efficiency and competitiveness. Cohesion efforts will have to be stepped 
up in support of the convergence of economic policies so that the 
conditions for launching stage three of Economic and Monetary Union may be 
met as fully and as quickly as possible. The Community must also start to 
exercise the powers which have been granted to it or extended as part of 
the move towards European Union. 
At the same time, the Community must take up a number of challenges 
stemming, for the most part, from changes in the world order. A 
far-reaching reform of the common agricultural policy has been proposed 
which would change the underlying principles of the present system while 
safeguarding farmers' incomes and increasing control over expenditure. 
Far-reaching industrial changes will have to be contended with and action 
taken to anticipate their impact on employment. New relations will have to 
be built up with non-member countries, particularly those which are 
physically closest to the Community. 
2. The Community's success in achieving these objectives will depend to a 
large degree on the availability of sufficient resources and a sound 
budgetary policy. There are four conditions: sufficient own resources, 
allocation of Community funds to areas of activity in line with the 
priorities set, strict budgetary discipline and a fair distribution of the 
financial burden. 
The Community already has a foundation on which to build this new 
structure: the 1988 reform of the Community's finances. Making use of its 
experience to date, the Community must now adopt and reinforce this 
foundation so that it will support the new medium-term objectives, 
particularly economic and social cohesion. 
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3. In "From the Single Act to Maastricht and beyond",1 the Commission 
outlines its plans for developing Community policies in the light of the 
conclusions of the Maastricht European Council on Economic and Monetary 
Union and European Union. This communication presents the Commission's 
proposals for the financial framework of the Community budget from 1993 to 
1997 to accommodate these plans in the new policy context. At the centre 
of this framework will be: 
- measures to contain expenditure through the financial perspective; 
- the own resources system; 
- budget management rules. 
The proposals have been drawn up on the basis of a detailed analysis of 
what has been achieved by, and what can be learnt from, the 1988 reforms2 
and, in particular, the two reports attached to this communication, which 
the Commission undertook in 1988 to send to the Council and Parliament: 
- a report on the implementation of the Inter InstitutionaI Agreement and 
- a report on the own resources system. 
4. Once the political guidelines have been agreed for this new financial 
framework, the Commission will present a new draft version of the 
InterinstitutionaI Agreement to which the mult(annual financial perspective 
will have to be annexed, together with the various proposals for 
accompanying measures. 
1 COM(92)2000. 
2 See the Report on the Financing of the Community Budget -
COM(87)101 final of 28 February 1987. 
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PART ONE 
DETERMINING FACTORS FOR A NEW FINANCIAL FRAMEWORK 
I. EMPIRICAL DATA: RESULTS OF THE 1988 REFORM 
1. Budgetary discipline 
The instruments introduced to enforce budgetary discipline can be divided 
into two categories: 
- the Inter institutional Agreement of 29 June 1988, of which the financial 
perspective forms an integral part; 
- the more specific measures designed to give tighter control over 
agricultural expenditure (Council Decision 88/377/EEC of 24 June 1988 
concerning budgetary discipline). 
1.1 ADDIication of the Interinstitutional Agreement and the financial 
perspective 
A detailed report on application of the agreement is being presented as 
required by point 19 of the agreement. The Commission has come to three 
main conclusions. 
(a) The financial framework set originally has been respected (see 
Annex 1, Table 1) 
The successive revisions agreed by the two arms of the budgetary authority 
have led to an increase in the initial annual expenditure ceilings since 
1990. However, over the entire period 1988-92, the aggregate total of 
appropriations entered in the budget will still have been lower than the 
overall amount of appropriations originally set. Similarly, the ceiling on 
payment appropriations required and, even more so, the actual amounts of 
payment appropriations entered in the budget have remained below the growth 
path charted in 1988 and expressed as a percentage of GNP, since the 
increase in GNP has been higher than expected because of stronger economic 
growth and a statistical revaluation of GNP. 
The actual development of the financial perspective framework has produced 
more marked changes in the structure of expenditure than were initially 
expected. The decline in the proportion of agricultural expenditure has 
been quicker than originally envisaged, balanced by a faster rise for 
structural operations and the other policies covered by heading 4 (mainly 
non-compulsory expenditure in connection with the Community's external 
policies). 
(b) Overall, application of the Interinstitutional Agreement has been 
pos i t i ve. 
The objectives pursued by the Agreement - allocation of sufficient and 
stable resources, an orderly increase in expenditure, improvements in 
budgetary procedure - have been largely achieved, especially when compared 
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with the situation before 1988. In particular, the budget has been adopted 
on time every year. 
Apart from some recurring problems of interpretation (in particular the 
method for adjusting the allocation for the structural Funds in line with 
inflation), the main difficulties encountered have related to the revisions 
of the financial framework caused by circumstances which had not been 
foreseen or which had not been properly taken into account at the outset. 
These revision or adjustment procedures turned out to be relatively lengthy 
and often merged with the annual budgetary procedure itself, thereby 
detracting from the instrument's role as a medium-term framework. The two 
arms of the budgetary authority took different lines on how new 
requirements were to be financed: Parliament wanted to use the margin 
available within the own resources ceiling, while the Council favoured 
redeploying expenditure within or between headings. 
There is little doubt, however, that these problems would have been far 
more contentious without the 1988 financial framework, which kept the 
debate within agreed limits. 
(c) There are still good reasons for a new Inter InstitutionaI Agreement 
and a new financial perspective. 
The 1988 Agreement, which is now about to expire, was the translation into 
financial terms of the political objectives linked with the Single Act and 
completion of the internal market. In view of the results achieved, it may 
be considered that, by and large, these objectives have been attained 
within the financial framework laid down by the three institutions. 
Indeed, the hitches which occurred were more a reflection of the extremely 
rapid and far-reaching changes in the international environment than of 
problems in connection with the budgetary discipline arrangements 
introduced in 1988. 
The agreement between the institutions on the Community's financial 
framework for 1993-97 will have to encompass the decisions of the 
Maastricht European Council on the second stage of EMU and the creation of 
a European Union. 
This financial framework identifies the major policies or measures such as 
the common agricultural policy, cohesion, research and external operations. 
It must also provide an overview to ensure that they dovetail with all 
other expenditure, some of it vital to the operation of the internal market 
and some relating to the cost of running the institutions. 
Article 203 of the Treaty may still be valid, but it is evident that the 
rules governing application of the maximum rate of increase and any 
overruns will not be sufficient on their own to lay down - and ensure 
compliance with - a multiannual financial framework covering both 
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compulsory and non-compulsory expenditure and, in the long run, striking a 
balance between the funds allocated to the various Community policies to 
reflect a shared political assessment. The Interinstitutional Agreement, 
which binds the three institutions to both a financial framework and the 
procedures for administering this framework, has proved to be an extremely 
useful instrument in this respect. 
An agreement of this type gives the Member States and the Council the 
budgetary security they need to ensure that the financing of the Community 
does not again become a frequent source of institutional conflict as it was 
before 1988. The conclusion of an interinstitutional agreement together 
with a financial perspective broken down into categories of expenditure and 
accompanied by appropriate mechanisms for reserves and margins for revision 
will allow the Member States to accommodate the maximum foreseeable amount 
of Community expenditure into their own national budgetary and financial 
planning. 
In addition, the negotiation of the agreement and the financial perspective 
will allow the Council to play an active part in the allocation of 
appropriations for non-compulsory expenditure between the various Community 
policies. 
The establishment of a medium-term financial framework to which each of the 
three institutions is committed gives Parliament a decisive influence on 
the observance by the Commission and the Council of the rules of budgetary 
discipline agreed for compulsory expenditure. The gradual shift in the 
Community budget towards non-compulsory expenditure decided in 1988 has 
certainly been boosted by the rapid development of the Community's external 
operations. However, observance of the agricultural guideline has been 
especially strict as it was a condition for Parliament's participation in 
the Interinstitutional Agreement. 
Finally, the adoption of the budget before the start of the financial year 
helps ensure full utilization of appropriations and, as a result, effective 
implementation of the corresponding policies. Observance of the principle 
of annuality and proper application of the principles of cost-effectiveness 
in the budgetary procedure largely depend on the budget being adopted on 
time, as it has every year since the Interinstitutional Agreement was 
signed in 1988. But at the same time an agreement of this type counters 
the drawbacks involved in dividing the total allocation for a given policy 
into annual instalments, these instalments now being accommodated in an 
orderly five-year growth path. 
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1.2 Containment of agricultural expenditure 
(a) The 1988 mechanism 
Four instruments were introduced to impose budgetary discipline: 
- an overall limit on expenditure, with the maximum annual increase not to 
exceed 74% of the Community GNP growth rate (agricultural guideline); 
introduction of a monthly early-warning system for each chapter, 
obliging the Commission to take appropriate corrective measures or 
propose them to the Council whenever the utilization rate exceeds or 
threatens to exceed the profile established for each sector. 
- the restoration of surplus stocks to normal levels by making provision 
for the systematic depreciation of new stocks and disposing of old 
stocks (the cost not counting in the calculation of the agricultural 
gui de Iine); 
- creation of a monetary reserve to counter the financial consequences of 
fluctuations in the dollar/ecu exchange rate; 
At the same time, the mechanisms for stabilizing agricultural production 
were reinforced and extended to most sectors. Measures to limit production 
directly by means of incentives to set aside agricultural land temporarily 
were also adopted. 
(b) Results 
The agricultural guideline has been complied with every year throughout the 
period, despite the additional costs generated by German unification. 
However, there has been considerable instability in the growth of 
expenditure,- with marked imbalances on some markets. In the first three 
years covered by the financial perspective expenditure remained well below 
the guideline figure. However, it has been tending to rise again since the 
end of 1990 (in particular for beef/veal, cereals and milk products), and 
budgetary discipline measures have been introduced to ensure that the 
guideline is respected in 1991. 
Two conclusions can be drawn: 
- The instability of agricultural expenditure is largely due to 
sensitivity to outside parameters, especially when production is in 
surplus. Almost half the expenditure is directly linked to the level of 
world prices and the dollar exchange rate. 
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Other factors such as the consequence of Spanish and Portuguese 
accession and the enlargement of the Community territory to cover the 
former GDR have also contributed to the increase in budgetary costs from 
1990 onwards. 
- The stabilizers have proved inadequate. 
It is true that they have helped give more control over expenditure. 
The reductions in prices and the additional co-responsibility levies 
charged have produced substantial savings and, to some extent, moderated 
the budgetary impact of changes in the level of production (in 
particular in the oilseeds sector). 
However, their economic impact has been far more limited, in particular 
in the case of major crop products where the reduction in the area 
cultivated has been neutralized by higher increases in yields and where 
crops have been substituted. Implementation has also proved difficult 
and ineffective in the tobacco, sheepmeat and beef/veal sectors. 
Overall, it is clear that, if the external and internal economic 
circumstances are unfavourable at the same time, the stabilizers alone 
are unlikely to be sufficient to keep expenditure within the limits of 
the agricultural guideline. 
(c) Reform of the common agricultural policy 
The proposed reform is designed to break with the current principle of 
making support dependent on the quantities produced, which provides a 
permanent incentive to higher and more intensified production without any 
direct relation to the market's absorption capacity. Instead of being 
based almost exclusively on guaranteed prices, support should revolve 
around direct aid measures depending on the area of the farm and the number 
of animals kept. 
This new approach to support will have two imp Iicat ions for the budget: 
- First, the compensation paid to producers in exchange for the lower 
prices set will increase budgetary costs. However, these additional 
costs must be weighed against the greater benefits which consumers will 
derive from the reforms. 
- Secondly, expenditure trends will be easier to control and predict. The 
gradual lowering of prices to world market levels so as to make them 
more competitive will considerably diminish the budget's vulnerability 
to changes in external parameters. Furthermore, production will be 
controlled more effectively as a result of the set-aside measures which 
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will be imposed in exchange for the compensatory aid. Finally, the new 
forms of support will be based on criteria which make it easier to 
predict changes in expenditure. 
2. The own resources system 
The size of the Community budget, which had grown very fast in the years 
before 1988, expanded only slowly relative to GNP after 1988 from 1.08% of 
GNP to Just over 1.15% in 1992. This slowdown in the rate of increase was 
due mainly to the slower rate of growth of agricultural spending at the 
turn of the decade. 
The structure of own resources has evolved since 1988. The long-term 
decline in the importance of traditional own resources in the budget has 
continued. The VAT-based resource is still by far the largest own 
resource, accounting for around 55% of revenue in 1992. The GNP resource 
was hardly called in up to 1990, but now in 1992 it accounts for over 20% 
of the budget (see Annex I, graph 1). 
The redistributive elements of the 1988 reform have improved the fairness 
of the budget. On the financing side, these came basically from the 
introduction of the GNP resource and the capping of the harmonized VAT 
base. 
Nevertheless, there are still regressive elements existing in the present 
own resources system, deriving basically from the tendency of poorer Member 
States to have high VAT bases as a proportion of GNP. 
- The uneven distribution of receipts from traditional own resources by 
Member States is not significant. The receipts from these resources 
appear to show a disadvantage for the Netherlands, Belgium, Ireland, 
Portugal and the UK. However, this is largely due to the "Rotterdam 
Effect", whereby receipts are linked to the port of entry, rather than 
to the country where the economic burden of the duty is borne. 
- The distribution of VAT receipts is regressive in spite of the effect of 
capping. Spain, Greece, Ireland and Portugal all have uncapped 
harmonized VAT bases (in 1992) above 55% of GNP. Although capping 
reduces these countries' VAT bases to 55% of GNP, this is still 
significantly above the average of capped VAT bases at 49.3% of GNP 
which leaves them at a disadvantage. 
- The GNP resource is levied in proportion to the GNP base in ecus. It is 
thus closely related to the contributive capacity of Member States. 
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3. Budget management 
In its 1987 report on the financing of the Community budget, the Commission 
identified two types of problem in connection with budget management: 
- problems of execution, resulting in insufficient compliance with the 
principles of annuality and specification and a growing volume of 
outstanding commitments; 
insufficient efforts to find the best cost-effectiveness relationship 
for Community operations. 
3.1 Budget execution 
There have been four noteworthy improvements in budget management at the 
execution stage in line with the objectives adopted in 1987 and as a result 
of the new provisions in the Financial Regulation (see Annex 1, Table 2). 
(a) Compliance with the principle of annuality 
- Between 1986 and 1991 the amounts added to the budget allocations by way 
of carryovers or appropriations made available again have fallen sharply 
both in absolute terms and as a percentage of total appropriations for 
commitments. In headings 2, 3 and 4 of the financial perspective, the 
amount dropped from ECU 2 400 million in 1986 (21% of appropriations 
available) to around ECU 320 million in 1991 (1.4% of appropriations 
available). 
- The proportion of unused appropriations carried over in these headings 
fell from 70% in 1987 to 22% in 1991. Similarly, the proportion of 
cancelled commitments in respect of which appropriations are made 
available again dropped from 75% to 19% over the same period. 
(b) Compliance with the principle of specification 
In headings 2, 3 and 4 of the financial perspective the proportion of 
appropriations transferred between chapters, with the exception of those 
from the reserve chapter B0-40 expressed as a percentage of the year's 
appropriations for commitments fell continually between 1987 (3.4%) and 
1990 (1.4%). In 1991, with the exception of the transfer within the ERDF 
involving similar types of operations, the proportion was no more than 0.7% 
of appropriations. 
(c) Rate of utilization for available appropriations 
On average, the utilization rates for appropriations for commitments in 
headings 2, 3 and 4 have been appreciably higher since 1988 (around 96%) 
than in the years preceding the reform (88% between 1984 and 1987). 
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The utilization rate for appropriations for payments in these categories is 
still lower than the rate for appropriations for commitments, but it has 
improved in recent years (from 89% in 1988 to 92% in 1991). At 91%, the 
average rate between 1988 and 1991 was appreciably higher than over the 
previous period (84% between 1984 and 1987). 
(d) Rate of clearance of commitments 
Both the forecast and actual rates of clearance have picked up 
considerably. 
- At the forecast stage, the rate for headings 2, 3 and 4 in the year of 
commitment was raised from around 38% in 1987 to around 51% in 1991. 
The increase was particularly rapid in heading 2, in line with the new 
rules for the Funds. However, the tendency is towards a slackening for 
external policies in heading 4. 
- The actual clearance rate in the year of commitments has also improved 
in these headings from 36% in 1987 to 49% in 1991. The clearance rate 
in headings 2 and 3 is fairly close to the forecast rate. In heading 4, 
however, it is lagging behind. 
3.2 The guest for greater cost-effectiveness 
When the Financial Regulation was revised in March 1990 a provision was 
inserted in Article 2 to the effect that the budget appropriations must be 
used in accordance with the principles of sound financial management, and 
in particular those of economy and cost-effectiveness. These principles 
and requirements were also referred to in other provisions in the 
Regulation relating to the establishment and implementation of the budget. 
After exploratory work and an experimental period the Commission took a 
number of measures to make the cost-effectiveness approach more systematic 
when drafting proposals for operations, monitoring their implementation and 
preparing the budget. In particular, the financial statement accompanying 
all proposals or communications which the Commission sends to the Council 
must now contain a section on the cost-effectiveness factors taken into 
account and the rules proposed to evaluate the results achieved in relation 
to the objectives pursued. 
Each year, when the Commission is preparing its statement of estimates, the 
authorizing officers supply updated information of this type in support of 
their requests for appropriations. This information was submitted to the 
budgetary authority for the first time for the 1992 budgetary procedure in 
the working papers accompanying the preliminary draft budget. 
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3.3 Two trends reouiring correction 
Apart from the problems highlighted in 1987 and now the object of 
substantial improvements, two trends will need to be corrected in the years 
ahead. 
First, budgetary practice in applying the financial perspective since 1988 
has led each year to a budget which is always very close to the ceilings in 
the various headings. The absence of available margins during the year 
thus makes it virtually impossible to adopt supplementary budgets without 
the financial framework having first to be revised, even where the amounts 
involved are relatively small. The Commission and the budgetary authority 
must therefore work out a code of conduct for budgetary procedure to avoid 
this situation as far as possible. 
Secondly, the budget nomenclature comprises a large number of headings 
(1 032 in 1992) with the size of allocations varying enormously. Of the 
460 headings covering operating expenditure outside the EAGGF Guarantee 
Section, nine headings account for over 60% of the appropriations while 
half the headings account for only 0.7%, none of them carrying more than 
ECU 3 million. This dispersion represents a potential source of waste 
since scattered operations involving small amounts will not generally have 
a significant impact at European level. It is also a hindrance to sound 
management of the Community budget. 
An attempt should therefore be made to recast the budgetary nomenclature 
and to delete or merge operations where the amount of appropriations is 
insigni f icant. 
II. PURPOSE AND METHOD OF COMMUNITY BUDGET INTERVENTION 
1. Role and scope of Community budget assistance 
1.1 The new financial framework will have a twin role to play: 
- to support stage II of Economic and Monetary Union, during which a 
high degree of convergence will have to be achieved in price 
exchange rate and stability and sound public finances; 
to translate into budgetary terms, where necessary, the increase in 
the Community's powers in the context of European Union, in 
particular in fields such as external policy, trans-European 
networks, research and flanking measures for industrial change. 
1.2 Community expenditure on internal policies will have to be 
concentrated on three main types of operation: 
- economic and social cohesion measures designed to further promote 
the development of backward regions and assist the less prosperous 
Member States in their convergence efforts; 
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- horizontal measures - implemented at Community level in accordance 
with the principle of subsidiarity - to maximize the effectiveness 
of the internal market and boost the competitiveness of industrial 
f i rms; 
- external action to enable the Community to provide an effective and 
credible response, with strict application of the principle of 
subsidiarity, to the international responsibilities it must assume. 
These three types of operation will be based essentially on different 
financial instruments and different criteria will govern their 
implementat ion. 
1.3 The basic role of the Community's budgetary operations in most cases 
will still be to guide and prompt Member States in their allocation of 
national resources and in the pursuit of their economic policies. The 
a im wi M be: 
- to encourage less prosperous Member States and regions to devote 
sufficient resources to measures designed to close the development gap 
without compromising the rules of budgetary discipline which they have 
to observe; 
- to promote effective coordination of national policies in all areas 
where the efficiency of the Community as a whole can be increased by 
joint action; 
- to prompt Member States to take over demonstration projects or 
specific multiannual programmes. 
However, the role of the Community budget is not, as a rule, to intervene 
directly in the supply of collective goods and services. 
2. The Community budget and the cohesion objective 
2.1 Reconciling progress towards cohesion with convergence efforts 
(a) In the years ahead the Community should step up the measures it has 
taken to help less-developed regions catch up. 
Initial assessments of the structural measures implemented since 1988 show 
that they have encouraged economic growth in the regions concerned 
(Objective 1 regions). 
However, in spite of a general trend towards convergence in recent years, 
there are still considerable regional disparities in the Community in terms 
of per capita income and employment. In some of the less developed regions 
the level of growth has been below the Community average. The resources 
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devoted to basic economic infrastructure in the richest 10% of regions are 
nearly three times as high as in the poorest 10% of regions. Differences 
are at least as wide in training and qualifications. 
A substantial and sustained investment effort is needed to reduce these 
disparities, even if this is done progressively over a relatively long 
period. By way of example, to increase its per capita income from 50% 
to 70% of the Community average, a region must achieve a growth rate of 
nearly two percentage points above that of the Community as a whole every 
year for 20 years. 
(b) The high degree of convergence between economic policies to be 
achieved by the end of stage II of Economic and Monetary Union will be a 
factor contributing to cohesion. Experience shows that a stable 
macroeconomic framework is essential for strong and balanced growth. On 
the microeconomic front, the establishment of a single currency will 
considerably enhance the benefits of the single market. 
Nevertheless some of the measures for adjusting to the new context will 
have only a partial or slow effect and might give rise to immediate costs 
which will be hard to bear. Language and cultural differences are a 
natural obstacle to the mobility of the workforce. In any case large waves 
of migration would run counter to the Community's basic objective of 
achieving the harmonious development of economic activities over the whole 
of its territory. When firms assess the relative costs and benefits of 
investing in a certain place, they inevitably take into account the quality 
of human resources, public utilities and even the quality of life offered 
by host regions. 
In order to reap all the potential benefits of Economic and Monetary Union, 
less prosperous Member States will have to continue to develop their 
infrastructures. At the same time they will have to observe strict 
budgetary discipline in order to fulfil the macroeconomic conditions for 
entry into stage III. This could lead to a reduction in the financial 
resources devoted to public investment. Hence - in accordance with the 
principle of additionality - this could give rise to difficulties in 
absorbing Community assistance. There is therefore a risk that the process 
of convergence of economic policies may run counter to the goal of 
cohesion. The Community must see to it that such negative chain reactions 
do not occur and ensure compatibility between the two objectives of 
convergence and cohesion. 
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Moreover, these countries will be more exposed to economic upheavals while 
at the same time having to avoid if possible the option of devaluation, 
which would delay the move to stage I I I of Economic and Monetary Union 
without removing the need for appropriate adjustment measures. 
2.2 Assistance from the Community budget 
More mutual support is therefore necessary not only to help less developed 
regions catch up but also to enable all the Member States to enter 
stage I I I on sufficiently fair terms. 
Under the new Treaty the Community's budget expenditure will still be 
directed mainly towards the allocation of productive resources and 
improvements on the supply side rather than the establishment of a system 
of redistribution, which falls within the province of interpersonal 
solidar i ty. 
The Community's structural Funds will remain the main instrument for 
intervention to promote cohesion, although the aid granted will need to be 
concentrated more strongly, the rates of Community aid modulated and the 
criteria for allocating it made more flexible. The role of the Funds will 
be to provide additional resources to those allocated by national or 
regional governments for the pursuit of five main objectives: the 
development of less prosperous regions; the conversion of regions affected 
by industrial decline; the occupational integration of the long-term 
unemployed and young people and the reintegration of those excluded from 
the labour market together with vocational training and retraining for 
workers affected by industrial change and developments in production 
systems; rural development; and, as a specific objective, structural 
operations in the fisheries sector. 
The establishment of a new Cohesion Fund will enable the Community, as part 
of its horizontal action on the environment and trans-European networks, to 
help finance projects in the less prosperous Member States, thereby 
effectively supporting their convergence programmes. The financial 
contribution will help them adapt to Community environmental standards or 
to include in their investment programmes missing links in transport 
infrastructure networks duly recognized as being of Community interest. 
3. Expenditure linked to horizontal Community policies: application of the 
principle of subsidiarity 
According to the principle of subsidiarity, Community intervention in areas 
in which it does not have exclusive competence is only necessary if and 
when the objectives of the proposed operation cannot be satisfactorily 
achieved by the Member States and, given the scale or effects of the 
proposed operation, are consequently best achieved at Community level. 
This principle should be applied whenever Community competence is exercised 
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in whatever form, including instances where the proposed operation involves 
Community financing. The Community must always demonstrate that its 
financing provides "added value". 
3.1 As regards external relations, the new responsibilities relating to 
the common security policy should have only limited budgetary implications. 
However, contributions from the Community budget to measures in the various 
fields of development cooperation and financial assistance for non-member 
countries must reach a certain critical mass for the sake of efficiency and 
credibility. The size of this critical mass will, of course, vary 
depending on the Community's responsibility towards the different 
categories of beneficiary. 
In most cases, Community financing can and must be seen as a substitute for 
national expenditure which the Member States would otherwise incur with far 
fewer guarantees as to visible impact and effectiveness. Incorporation of 
the EDF in the budget would be a move in this direction. 
3.2 In recent years Community action on internal policies has been 
directed mainly towards implementation of the Single Act and the completion 
of the internal market. In the years ahead more emphasis will be placed on 
measures designed to increase the effectiveness of the internai market 
(promotion of trans-European networks), improve the competitiveness of 
firms and encourage industrial change (research and technological 
development, training). 
In a number of fields, Community action may take the form of legislation 
(for example, laying down common standards on the environment or 
establishing blueprints for trans-European networks). If budgetary 
measures are also required, they will be based on the following principles: 
- The role of Community expenditure is - in part at least - to replace 
national expenditure. This implies close coordination between Community 
and national programmes on both technical and financial aspects right 
from the outset. 
- The criterion for granting Community financing must be the efficiency of 
the Community as a whole. If considerations relating to cohesion are 
involved in the conduct of Community policies, they must be clearly 
identified, including any financial implications. 
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In these circumstances budget assistance provides a guiding framework in 
most cases. This implies the use of incentives and promotional 
measures (feasibility studies, demonstration projects, interest 
subsidies, loan guarantees) rather than true Joint financing. 
III. BUDGET DATA AND ECONOMIC ASSUMPTIONS 
1. The starting point: the 1992 financial perspective 
The starting point for the preparation of the new financial framework is 
the financial perspective in force following the revision in February 1992 
to allow for real needs not covered by the budget as adopted. A 
supplementary/amending budget will therefore be necessary to increase 
commitment appropriations to ECU 66 592 million and payment appropriations 
to ECU 63 241 million, 1.21% and 1.15% of GNP respectively. This leaves an 
unused margin in 1992 of 0.05% in relation to the own resources ceiling 
of 1.20% of GNP. 
2. Data to be taken into account after 1992 
Earlier decisions determine the amount of budget allocations for the years 
beyond 1992 in two areas. 
2.1 Structural Funds 
The target of doubling the structural Funds in 1993 compared with 1987 
implies providing a basic allocation of ECU 18 753 for that year at 1992 
prices. This includes the allocation for the eastern part of Germany 
following the amendment of the financial perspective approved in 
December 1990. 
To the basic allocations made in the new financial framework must be added 
the transfers to be made In respect of appropriations not used in 1990 
(ECU 193 million already approved by the budgetary authority) and in 1991 
(ECU 350 million according to the Commission's initial estimates) under 
points 10 and 11 of the current Agreement, plus the appropriations required 
for the pursuit of the technical assistance and support programmes. For 
the 1993 budgetary procedure an additional margin should be allowed for 
financing the programmes for the outermost regions (P0SEID0M, POSE IMA, 
P0SEICAN) and for the inclusion of structural operations relating to 
fisheries in the structural Funds. 
Two other amounts wiI I have to be determined and taken into account at a 
later date: 
- a transfer of any appropriations not used in 1992; 
-17-
- additional allocations which may be approved to compensate for the fact 
that actual inflation over the previous period has been higher than 
estimated, after allowing for any adjustments already made, so that the 
doubling of the structural Funds will be achieved in real terms in line 
with the original schedule. 
These amounts will have to be counted against the margin available within 
the own resources ceiling. 
2.2 Research and technological development framework programme 
At this stage the amount deemed necessary for the third framework programme 
over the period 1990-94 is ECU 5.7 billion. The Council has approved 
ECU 2.5 billion for the first years of the programme. This leaves 
ECU 3.2 billion still to be allocated for 1993 and 1994, to which should be 
added an additional amount for these two years after re-evaluation of the 
programme. 
3. Basic economic assumptions for 1993-97 
The new financial framework is based on the assumption of an annual average 
growth rate for Community GNP of 2.5% in real terms from 1993 to 1997. 
This assumption is based on the medium-term economic forecasts made by the 
Commission (in particular the economic forecasts for 1992-93 and the 
medium-term economic convergence scenarios for 1995 contained in the Annual 
Economic Report 1991-92). 
According to the projections, after the current slowdown, economic growth 
will pick up and move towards its medium-term path. The gains made in the 
1980s, in terms of the restoration of fundamental growth factors, have not 
been compromised. This recovery should be sustained by the effects of the 
establishment of the internal market - even if these are spread over a 
longer period than was assumed in the initial simulations - and the impetus 
provided by the catch-up growth process in the eastern Lander of Germany 
beginning in 1993. 
As there are continuing uncertainties, deriving in particular from economic 
developments elsewhere in the world, the forecast must remain relatively 
cautious and rely mainly on factors within the Community rather than on a 
particularly favourable international environment. 
- 18 -
PART TWO 
THE FINANCIAL PERSPECTIVE 1993-973 
I. GENERAL PRESENTATION OF THE NEW FINANCIAL FRAMEWORK 
1. Growth of total expenditure 
1.1 When determining the framework for the financial perspective for the 
next five-year period, the Commission analysed the future development of 
the various Community policies in the light of the new objectives for the 
Community laid down at the Maastricht European Council and set out in 
COM(92)2000. 
The Commission also took account of constraints on public expenditure in 
the Member States, in particular during the second stage of Economic and 
Monetary Union. The same discipline must be displayed at Community level, 
in particular through strict application of the principle of subsidiarity. 
This new framework for the financial perspective is based on the present 
size of the Community. It would have to be changed if new Member States 
were to Join between now and 1997. However, the proposed financial 
framework should not be affected by the financial relations which will form 
between the Community and the EFTA countries following establishment of the 
European Economic Area. These operations should, nevertheless, be seen to 
tie up with those in the Community budget. 
The proposals put forward also assume that the scope of the general budget 
will remain unchanged. If the European Development Fund were to be 
incorporated, a decision would have to be taken on new expenditure ceilings 
and use of additional budget funds. However, due account has been taken of 
the necessary links between the Community budget and the development of a 
borrowing/1 ending policy along the lines set out in C0M(92) 2000. The new 
financial perspective would also allow some of the expenditure under the 
ECSC operating budget (research, certain redeployment measures, aid for 
conversion) to be gradually incorporated into the general budget. 
1.2 As in the current financial perspective, the amounts indicated for 
each heading or, where appropriate, for each subheading are expressed at 
constant prices (1992 prices). They represent an annual ceiling on 
expenditure in terms of commitment appropriations. 
All the amounts indicated for the new 1993-97 financial perspective are 
expressed at constant 1992 prices. 
- 19 -
A corresponding overall ceiling has been set for payment appropriations on 
the basis of the ratio between payments and commitments calculated for each 
category of expenditure and in line with the need to ensure orderly growth 
in these two types of appropriation. 
The ratio between total commitment appropriations and total payment 
appropriations in the new framework of the financial perspective thus comes 
to an average of 1.05 over the period 1993-97. In the financial 
perspective which actually applied between 1988 and 1992, this ratio 
gradually increased from 1.03 to a little over 1.05. This stabilization of 
the ratio between commitment appropriations and the payment appropriations 
required each year is mainly due to the mechanical catch-up effect as the 
increase in commitment appropriations tends to stabilize after accelerating 
initially. The new financial framework must also allow the improvements in 
budgetary execution since 1988 to continue: the time elapsing between 
commitments and payments has been reduced, thereby avoiding an excessive 
increase in outstanding commitments, and the utilization rate for payment 
appropriations has increased. 
The proposed new framework does not break down total commitment and payment 
appropriations into compulsory expenditure and non-compulsory expenditure. 
At this level, the breakdown between compulsory and non-compulsory 
expenditure can result only from the choices made by the budgetary 
authority when it adopts the budget in accordance with the ceilings for the 
various headings. 
A margin of 0.03% of GNP has been left available every year between the own 
resources ceiling and the ceiling on payment appropriations required. 
Apart from providing some leeway should growth fail to reach the level 
assumed, this margin will provide scope for any revision of the financial 
perspective ceilings which may be necessary. 
1.3 The proposed new financial framework sets an overall ceiling of 
ECU 87 500 million on commitment appropriations in 1997, i.e. 1.41% of GNP 
and reflecting an annual average increase of 5.6% compared with 1992. The 
corresponding ceiling on payment appropriations required would be 
ECU 83 200 million in 1997, i.e. almost ECU 20 billion more than the 1992 
ceiling. Allowing for the 0.03% margin for revision, the ceiling on own 
resources made available to the Community in 1997 would rise to 1.37% 
of GNP. 
The proposed new financial perspective is set out in the table at the end 
of Part Two. 
2. Reclassification of expenditure headings 
There are three reasons for the proposed changes in the current structure 
of the financial perspective and the contents of the various headings. 
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First, the purpose of the financial perspective is to guarantee orderly 
growth in Community expenditure in accordance with the priorities adopted. 
The breakdown of total expenditure between the headings must therefore 
reflect the Community's main policy objectives during the period under 
consideration, with the change in the ceiling for each heading being 
conditioned by the inherent dynamism of Community expenditure in the field 
concerned. 
Second, too detailed a breakdown must be avoided in order to maintain 
sufficient flexibility of budgetary management for the sake of efficiency. 
Otherwise, the financial perspective would no longer be an overall 
medium-term framework but something more of a multiannual budget. The 
headings must be sufficiently broad, but at the same time homogeneous as 
regards the nature and methods of management of the financial instruments 
they cover. 
Finally, the uncertainties which may affect the medium-term development of 
certain categories of expenditure, particularly on external policies, and 
the unforeseeable situations which the Community may have to contend with 
require that an appropriate margin be allowed, but without compromising the 
principle of budgetary discipline. 
The new financial perspective should consist of six headings: 
1. Common agricultural policy 
2. Structural operations for economic and social cohesion 
3. Internal policies of a horizontal nature 
4. External action 
5. The institutions' administrative expenditure 
6. Reserves for exceptional expenditure 
The proposed classification is based largely on the 1988-92 financial 
perspective. Apart from a number of alterations with respect to the 
content of certain headings, the main changes are the splitting of the old 
heading 4 (Other policies) into two separate headings: internal policies 
(new heading 3) and external action (new heading 4), the disappearance of 
the old heading 3 (Policies with multiannual allocations), resulting in the 
inclusion of research under internal policies, and the expansion of 
heading 6 (Monetary reserve) to include a new reserve for exceptional 
expenditure connected with external action in addition to the agricultural 
monetary reserve. 
In view of the break-up of the current heading for "Other policies" and the 
contents of the new heading for "Internal policies", there no longer 
appears to be any need for a subceiling for non-compulsory expenditure, 
since the new heading 3 would then contain nothing but non-compulsory 
expenditure, with the exception of certain expenditure (less than 
ECU 160 million in 1992) in the agricultural sector, fisheries and industry 
(Eureka secretariat) which could indeed be considered for reclassification 
as non-compulsory expenditure. 
-21-
The financial perspective is mainly an instrument of budgetary discipline 
and is not Intended to provide a function-based classification of the 
various items of Community expenditure. The different components of a 
specific operation might come under a number of headings. For example, 
Community operations in the industrial sector come under research and 
technological development as well as the Social Fund. Similarly, 
operations relating to the trans-European networks, the environment and 
fisheries will call on financial instruments covered by various headings. 
II. AGRICULTURAL EXPENDITURE 
In view of the proposed reform, all expenditure relating to the common 
agricultural policy should be placed under a single heading. The ceiling 
for this heading would still be determined - on an updated basis - by 
applying the agricultural guideline as defined in 1988. 
1. The principle of the agricultural guideline must be retained 
The proposed reform will make it easier to control and predict the increase 
in expenditure, but its implementation will be gradual. Traditional 
support mechanisms will continue to exist for some time so expenditure will 
still be vulnerable to external factors, even though their effects will be 
reduced. Moreover, not all the market organizations are covered by the 
reform. 
The continued reduction in agricultural expenditure in relative terms will 
remain a political objective, as enshrined in the legal provisions limiting 
its increase to 74% of GNP growth. In return, retention of the guideline 
will provide a guarantee for those who benefit from agricultural 
expenditure that the reform will not result in a reduction in the overall 
support given to agriculture. 
2. The scope of the agricultural guideline 
(a) The agricultural guideline should apply to all expenditure under the 
reformed agricultural policy: 
- expenditure on market policies, including the proportion of 
expenditure on set-aside which at present comes under heading 2 of the 
financial perspective; this category of expenditure is one of the key 
components of the reform proposals for arable crops; 
- expenditure on flanking measures (early retirement, environment, 
afforestation) including spending in connection with similar measures 
at present covered by Objective 5a of the structural Funds 
(ECU 70 mill ion in 1992). 
-22-
The following categories of expenditure will also be placed under the 
agricultural guideline: 
- expenditure on the Guarantee Fund for fisheries (at present under 
heading 4, amounting to ECU 29 million in 1992); 
- expenditure on income support (at present under heading 2), adopted in 
1988 as a measure to support budgetary discipline in agriculture. A 
maximum amount (ECU 300 million) has been fixed for the period up to 
1992. However, the appropriation entered in the 1992 budget is only 
ECU 100 million and in 1991 only ECU 4 million was used. These 
measures - at least in their present form - will be phased out 
gradually after 1993. 
(b) The guideline would not apply to the following categories of 
expenditure: 
- other agricultural measures (eradication of diseases, information and 
inspections, internal market in agriculture) which at present come 
under heading 4 of the financial perspective and are directed mainly 
at the operation of the internal market in agriculture; these 
measures would still be classified alongside other internal policies 
of a horizontal nature; 
- the agricultural monetary reserve. 
The monetary reserve couid be reduced to ECU 500 million from 1995, 
when the reform of the CAP takes effect, as expenditure should then be 
much less susceptible to fluctuations in the dollar exchange rate. 
The operating conditions for this reserve would remain unchanged, but 
the limit set for using it could be reduced to ECU 200 million. 
The reserve would constitute a separate subheading in heading 6 
(Reserves for exceptional expenditure). 
- the EAGGF Guidance Section operations which at present come under 
Objective 5a (mainly modernization measures, compensatory allowances 
and aid for the installation of young farmers). 
3. Raising the agricultural guideline 
The estimate of the cost to the Community budget of the reform of the CAP 
between 1993 and 1997 shows that, because of the various factors which have 
to be taken into account, the level of the guideline will have to be 
adjusted. It will have to be raised by ECU 1.5 billion when the reform is 
introduced, that is to say, in 1994. This is equal to the estimated cost 
of German unification. 
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III. STRUCTURAL MEASURES FOR ECONOMIC AND SOCIAL COHESION 
1. Increased Community effort 
In accordance with the conclusions of the Maastricht European Council, two 
instruments will be used to back the proposals for stepping up the measures 
to promote cohesion, namely the structural Funds and the new Cohesion Fund. 
These two instruments will come under the same heading in the financial 
perspective, but they will have separate allocations, since their 
operational criteria will be different. 
The overall total for structural operations, if distributed as proposed 
between the types of instrument, could be used for a differentiated 
approach on the basis of the following considerations: 
- to ensure a 2/3 increase in the allocations for Objective 1 regions and 
hence a stronger concentration of structural Fund operations in those 
regions; 
- the total allocation in 1997 for the four least prosperous Member States 
(Greece, Spain, Ireland and Portugal), comprising money from the 
Cohesion Fund and Objective 1 assistance from the structural Funds, 
would be twice the amount they received in 1992 under Objective 1 (basic 
a I location); 
- the outermost regions (coming under the Poseidom, Poseima and Poseican 
programmes), which suffer from many handicaps because of their 
remoteness, should also receive double the amount under structural 
operat ions; 
- measures relating to the other structural Fund objectives and the 
allocation of corresponding funding to them would be reviewed, with 
particular emphasis being placed on flanking measures for industrial 
restructuring and changing systems of production and on the 
compatibility of current Objective 5a measures with the flanking 
measures for the reformed agricultural policy-, 
- the role of Community initiative programmes should be substantially 
strengthened and some 15% of the structural Funds should be set aside 
for them. The Community initiative programmes should be organized in 
such a way as to focus on a number of priority themes; 
- structural measures in the fishing industry would be funded out of the 
overall allocation for the structural Funds. 
2. The allocation for cohesion policies 
The total allocation for the cohesion policies would be increased to 
ECU 29 300 million by 1997. 
-24-
2.1 The structural Funds 
The increase in the allocation for the structural Funds would be 58%. 
(a) In distributing the extra funds, priority should be given to 
Objective 1 regions (Objective 1 being the promotion of development and 
structural adjustment in regions whose development is lagging behind). 
These would continue to be defined in accordance with the current criteria 
and are due to be extended to include the new German Lander in 1994. The 
structural Fund resources of ECU 11 000 million allocated to this objective 
in 1992 (figures for the former GDR included) would be increased by two 
thirds over five years to around ECU 18 400 million in 1997. 
This stronger concentration of structural Fund operations on Objective 1 
(around 70% of the total allocation in 1997) should be accompanied by 
increased flexibility in terms of both the rate of assistance and the 
eligibiIity criter ia. 
(b) The allocation for the current Objectives 2, 3, 4 and 5b (including 
Objective 5a operations in 5b regions) and for the new fisheries-
structures Objective would be increased by 50% from ECU 5 070 million in 
1992 to ECU 7 600 million in 1997. The programming period for all these 
objectives would be the same. 
This allocation would go towards boosting measures linked to the four 
objectives set out below. 
- The current Objective 2 (conversion of regions affected by industrial 
decline) would remain. 
- The current Objectives 3 and 4 (combating long-term unemployment and 
facilitating the occupational integration of young people) would be 
redefined. Measures of this kind would be financed from the Social Fund 
and be divided into three categories centred on employment problems: 
. combating long-term unemployment and promoting the occupational 
integration of young people throughout the Community; 
. across-the-board measures to help those excluded from the labour 
market coming under occupational integration measures; 
. a major new training and occupational redeployment initiative 
throughout the Community in anticipation of and keeping pace with 
industrial and technological changes requiring new skills. 
- Objective 5b would be boosted. The criteria for what constitutes an 
eligible region may be applied more flexibly and the range of measures 
broadened. 
-25-
- Structural measures in the fishing industry, currently covered by 
heading 4 of the financial perspective, would be integrated into the 
structural Funds as a new Objective 6. This mainly involves: 
. improving and adapting fisheries and aquaculture structures; 
. improving processing and marketing conditions for fisheries and 
aquaculture products-, 
. formulating socio-economic flanking measures for the conversion of 
areas dependent on fishing. 
(c) With regard to the current Objective 5a (adjustment of agricultural 
structures), some operations will be incorporated into the flanking 
measures for the reformed agricultural policy (ECU 70 million). Others 
will be continued with adjustments where necessary to ensure that they mesh 
in more closely with the reformed CAP (modulation, programming, 
partnership). 
Once the impact of the agricultural policy reform can be assessed, there 
will have to be a review to decide whether some of these measures should 
come under the agricultural guideline. At the same time the question will 
have to be considered whether a specific instrument should be set up for 
rural development to take the place of the EAGGF Guidance Section in due 
course. 
Outside the Objective 1 and Objective 5b regions some reduction in 
marketing and processing operations is likely. 
Compensatory allowances and installation aid for young farmers would be 
maintained at 1992 levels in real terms. 
The total amount devoted to Objective 5a operations, outside Objective 1 
and Objective 5b regions, would be close on ECU 500 million in 1997. 
(d) The allocations for transitional and innovatory measures and support 
programmes would be maintained at their present level of around ECU 300 
million. 
2.2 The Cohesion Fund 
In accordance with the decisions adopted at the Maastricht European 
Council, the Cohesion Fund is intended to provide financial assistance to 
those Member States whose per capita GNP is less than 90% of the Community 
average. 
The aim of the assistance would be to enable these Member States to 
shoulder the financial burden arising from Community decisions concerning 
the environment (e.g. plans to impose Community standards) and transport 
infrastructure (projects of Community interest covered by blueprints for 
trans-European networks). 
-26-
Member States' access to the Fund will be conditional on the introduction 
of a programme to meet the convergence conditions, particularly on budget 
deficits, and subject to Community monitoring in the context of 
multilateral surveillance. Projects will be eligible if they meet the 
specified criteria in the two areas in question. 
The proportion of funds provided by the Community should be high 
(85% - 90%) and payments of advances against annual tranches could be 
relatively high. 
Given the pressing need for support measures to help the beneficiaries' 
economies on the way to convergence, there is a case for setting up the 
Fund straight away in 1993, with an initial annual allocation of 
ECU 1 500 million to be raised gradually to ECU 2 500 million by 1997. 
No breakdown of this allocation between transport infrastructure and 
environmental measures would be fixed in advance. The Commission will take 
care to ensure a reasonable balance in the light of the projects planned. 
IV. HORIZONTAL INTERNAL POLICIES 
It is proposed that all internal policies applying horizontally throughout 
the Community be taken under a single heading. This means: 
- research and technological development policy, where the allocation to 
be set under the ceiling for the heading will serve as a benchmark for 
setting the ceilings for the framework programmes; 
- other internal policies, except those coming under the cohesion 
measures. 
1. Research and Technological Development (RTD) 
1 -1 A new approach to RTD policy 
The Commission proposes that a new approach to RTD policy should be 
introduced gradually, directed more towards the needs of business and 
boosting the competitiveness of the Community's economy. 
In addition to continuing the measures taken under the third framework 
programme, which already involve concentrating efforts on a limited number 
of themes corresponding to clearly identified objectives, a new approach 
must be adopted. This would consist of taking an analysis of industry's 
needs and then, on the basis of industry's initiatives, drawing up 
multidisciplinary programmes centred on technologies targeted at major 
industrial priorities. The projects would be selected on the basis of four 
main cr iter ia: 
-27-
- subsidiarity - size of project and need for cooperation within the 
Community so that firms can compete with rivals throughout the world-, 
- general interest - programmes of general interest to the Member States 
and industry; 
- ability of Community industry to evaluate and control programme 
development ; 
- dissemination of technology to the largest possible number of firms. 
1.2 Financial implications 
In 1993 and 1994, the bulk of the allocation available for RTD would be 
devoted to pursuing and amplifying the third framework programme. But much 
of the additional resources for those two years, the use of which is 
subject to the framework programme mid-term review, could be used for 
technologies targeted at major industrial priorities, and would in any case 
tend to expand between 1994 and 1997. Total Community RTD expenditure 
should be able to rise from ECU 2.45 billion in 1992 to ECU 4.2 billion in 
1997, or nearly 5% of the Community budget. RTD expenditure would rise at 
an annual rate of around 11.5% over that period. In line with the Treaty, 
which provides that all research expenditure be included, the external 
aspects of research policy would be incorporated in the framework 
programme. 
A new ceiling for Community expenditure will be set, as required by the new 
Treaty, when the new framework programmes are adopted. It would therefore 
seem neither necessary nor useful to establish a specific subheading for 
this category of expenditure in the new financial perspective. However, 
when the new financial framework is defined, a decision will have to be 
taken on what is to be earmarked for implementation of research programmes. 
It is accordingly proposed that a footnote to the "internal policies" 
heading specify the planned budgetary allocation for research with a 
statement to the effect that the three institutions undertake to regard the 
amounts given there as guidelines for the research framework programme. 
2. Other internal policies 
Community action in the next few years should focus on three themes: 
2.1 Trans-European networks 
Under the new Treaty provisions the Community is to contribute to the 
establishment and development of transport, telecommunications and energy 
-28-
networks. The aim of Community action is to promote interconnection and 
interoperability between national networks and access to these networks, 
bearing in mind the need to provide links to central regions from insular, 
isolated and remote regions. 
Apart from Cohesion Fund intervention in favour of transport infrastructure 
or structural Fund intervention which, on a variety of regional-policy 
grounds, can be available for certain aspects of infrastructure projects, 
Community financial support will have to be of a purely subsidiary and 
incentive nature, and must concentrate, in the normal run of things, on two 
forms of assistance: 
- contributions to feasibility studies on the basis of general plans and 
projects acknowledged to be of Community interest; 
interest subsidies and/or loan guarantees, as the case may require. The 
rate of Community assistance would have to be proportionate - depending 
on the degree of Community interest - to what is necessary to achieve 
the level of profitability required for the project to be undertaken. 
In the overall financial allocation for internal policies, the Commission 
assumes as a rough guide that by 1997 trans-European networks would receive 
ECU 900 mil I ion. 
In transport the emphasis would be on developing networks with a high 
service value (motorways, high-speed trains, air traffic control). To 
optimize infrastructure use and environmental protection there must be full 
consideration for combined use of different transport modes. 
In telecommunications priority would go to establishing a network between 
administrative authorities to help make the internal market work. This 
would involve improving cross-border links for data communication and 
digital services networks and promoting the development of a Community 
wide-band network. 
In energy, installing and improving links between electricity and gas grids 
throughout the Community would make for more rational use of production 
capacities and offer greater security of supply. 
2.2 Environment 
Community environment policy needs to be built up around three aspects: 
-29-
- the aspect involving the structural Funds and the Cohesion Fund 
providing Joint financing in the least prosperous Member States; 
- the external aspect, for environment problems extending beyond Community 
terr itory ; 
- the internal aspect, for horizontal measures right across the Community, 
especially those aimed at promoting sustainable development. 
The third aspect is the only one covered by the internal policies heading. 
Community action here should concentrate on preventing and remedying 
hazards at source. It would be based, at first, on regulatory or fiscal 
measures. Given the polluter-pays principle, the Community budget should 
be used to assist with the attainment of three objectives: 
- prepare studies and gather information to substantiate Commission 
proposals for legislation, in particular with the installation of the 
European Environment Agency-, 
- secure coherence between legislation in this and other areas; 
- promote implementation of the rules (technical assistance, awareness 
campaigns, pilot projects, demonstration projects). 
These operations will be financed in particular by Life, an instrument 
combining various measures (e.g. Medspa, Norspa, Acnat and Habitat) so as 
to enhance the effectiveness of Community action. 
2.3 Community integration - internal flanking policies 
Apart from measures directed towards cohesion and those designed to boost 
competitiveness, Community action under the internal policies heading must 
comply, especially in budgetary terms, with a strictly applied subsidiarity 
principle and aim for greater effectiveness. 
This being so, two broad lines are to be envisaged: 
(a) A first category of activities will seek to ensure and verify the 
operation of the internal market in all its aspects - eradication of 
diseases and health controls in the agrifood trade, fisheries patrols, 
application of Community rules on energy and transport (safety measures 
included), consumer protection, standardization, etc. 
-30-
Expenditure here will be broadly permanent and should remain stable as a 
proportion of the general budget. New activities can be envisaged 
(e.g. Trademarks Office and Pharmaceutical Products Agency). 
(b) The second category aims at a broader objective than the simple 
operation of the internal market and must also support the policies 
designed to attain cohesion and boost competitiveness. It will be 
necessary to take a more selective approach and concentrate more heavily on 
the Community's primary objectives. 
- Duplication must be avoided. Regional development assistance, for 
instance, even taking account of Article 130b, would as a rule come 
under the cohesion instruments. For budget purposes RTD measures would 
come under the framework programmes. Assistance to non-member 
countries, even if sectoral, should as a rule be covered by the 
allocation for external activities, provided there is an aid element. 
- The overall allocation for such operations must reflect a number of 
major priorities. But the assignment of sums must not be too rigidly 
prejudged, as specific measures may be renewed or reoriented in the 
light of results. That said, Community action should concern the 
following areas in particular: 
* continued action in the cultural field, collecting and exploiting 
statistical data-, 
development of information and cooperation networks for firms, in 
particular small businesses; 
concentration of action in the social field on support for ESF 
operations for training and job creation (more thorough analysis of 
employment problems both in specific industries and as regards 
exclusion from the labour market, and immigration problems), social 
protection schemes and the health and safety of workers at the 
workplace. Special emphasis will be placed on the social dialogue and 
the implementation of new health programmes as required by the Treaty; * 
-31-
* intensification of the public information and communication activities 
and of the operations launched in the audiovisual field (development 
of Media programme and the promotion of programmes, notably in 
connection with the strategy for introducing HDTV); 
* reflecting the new approach to human resources, renewal of education 
and training programmes provided they can be shown to have had a 
catalytic effect on what the Member States themselves are doing. New 
programmes will be developed in such a way as to promote training of a 
kind that can improve the dissemination and utilization of new 
technologies. 
2.4 The overall allocation for internal policies 
On the basis of these guidelines, the aggregate resources to be earmarked 
for research and technological development and trans-European networks 
should rise to Just over ECU 5 billion by 1997. 
Between 1988 and 1992 expenditure on other internal policies rose 
substantially (nearly doubled, in fact) as the internal market project 
unfolded. With the 1992 target being reached, the annual rate of expansion 
should settle down at around 5% in the next few years as greater coherence 
is sought, action is more heavily concentrated and the subsidiarity 
principle is applied more strictly. 
That would give a maximum level for the internal policies heading of 
ECU 6.9 biI I ion in 1997. 
V. THE COMMUNITY'S EXTERNAL ACTION 
The Community must be given the financial resources it needs in order to 
meet its increased responsibilities in the new international context. But 
it must also set itself realistic targets. This implies modulating modes 
of intervention and the intensity of aid in line with the specific 
requirements of the countries concerned and foreign policy priorities. 
Because of the scale of the Community's external action, the Commission 
proposes that there should be a new heading (heading 4) for this category 
of expenditure. This would cover: 
- existing cooperation and financial assistance policies financed from the 
Community budget. These policies, strengthened and perhaps extended to 
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take account of new circumstances, should continue to develop with 
adapted instruments at a pace adjusted for each geographic area. 
- as a rule the external elements of Community policies which also have an 
internal dimension (in particular environment and fisheries). 
However, this new heading cannot accommodate all external action at this 
stage. Allowance must be made for the unpredictability of certain 
categories of external expenditure. The Community's external action will 
also be covered by: 
- the new reserve for exceptional expenditure in connection with external 
action (heading 6) for emergency humanitarian and food aid, the 
implementation of specific operations or the activation of the budget 
guarantee on borrowing/Iending operations. The practical details are 
discussed in Part Four of this document. 
- the European Development Fund which, until its next renewal at least, 
will remain outside the budget. In the event of the Fund being entered 
in the budget before 1997, there would have to be a corresponding 
increase in the own resources ceiling at the appropriate time. 
The margin for revision (some ECU 1.8 billion in 1977) could also be used, 
as in the past, to deal with new situations in particular. 
1. Continuation and development of existing external action 
1.1 Relations with the countries of Centrai and Eastern Europe 
The proximity of these countries to the Community, the scale of the 
economic challenges they face and the need to ensure stability in Europe in 
the wake of recent political upheavals are all reasons why specific 
Community action is called for. Europe agreements will be signed or 
implemented with the countries of Central and Eastern Europe. Current 
Community aid would continue to be provided in this framework, the content 
being adapted to changes in requirements. Technical and economic 
(PHARE-type) assistance would remain the preferred vehicle for Community 
action and the main thrust of budgetary intervention. It could be 
supplemented by backing for the structural adjustment or macroeconomic 
policies implemented by these countries. However, the mounting of such 
programmes is a matter in the first instance for international financial 
institutions and the Community would provide additional assistance, above 
all through guaranteed loans, within a framework still to be defined. 
This form of action should be extended when the time is right to the new 
States emerging from the break-up of Yugoslavia if they so request. 
-33-
1.2 Relations with the Commonwealth of Independent States 
It is important, in the context of an international sharing of 
responsibilities, that the financial contribution of the principal parties 
should be defined. 
A substantial strengthening of technical assistance provided by the 
Community and the possible development of financial assistance would 
contribute to the success of stabilization and adjustment programmes to be 
mounted under the auspices of the relevant international institutions. 
1-3 Cooperation with the countries of the Mediterranean and the 
Middle East 
As in the case of Central and Eastern Europe, cooperation with the 
Mediterranean countries is of particular significance to the Community 
because of their geographical proximity, the closeness of their relations 
with Europe and the economic and demographic imbalance between the two 
sides. The Council has adopted a new Mediterranean policy for the period 
1992 to 1996 which steps up the Community's financial commitment. 
The geo-political situation of the region and the introduction of Community 
coordination of immigration policies could lead to a reinforcement of this 
policy, which should nevertheless continue to operate through financial 
protocols in the main. 
The Community must also be in a position to contribute to the financial 
assistance programmes that may emerge from the Middle East peace 
conference. 
1-4 Cooperation with the countries of Latin America and Asia 
The fact that the spotlight is on certain regions of the world should in no 
circumstances lead to a dilution of the Community's presence on the 
international scene or its commitment to provide assistance to all 
developing countries. The European Development Fund apart, aid to these 
countries will increase under the multiannual aid programme for 
Latin America and Asia approved by the Council in 1990. 
1-5 Food aid 
Expenditure on traditional programmes in this area should remain more or 
less stable in real terms. Increased requirements cannot be ruled out 
because of famine in Africa and the increase in shipping costs. 
1.6 Humanitarian aid 
Since Community action on humanitarian aid needs to be rapid and well 
coordinated, the Commission has taken the initiative of creating a European 
Office for Emergency Humanitarian Aid within its departments. 
-34-
It is also vital that the Commission should have rapid access, over and 
above current budgetary allocations, to additional financial resources for 
humanitarian or food aid in the event of emergencies arising after 
presentation of the preliminary draft budget. Recourse to a revision of 
the financial perspective should be avoided since this process would take 
too long and budget izat ion procedures need to be speeded up. This need 
would be met by the reserve for exceptional expenditure in connection with 
external action proposed by the Commission and discussed in more detail in 
Part Four of this document. The amount set aside for this purpose could be 
around ECU 300 million. 
External elements of certain Community policies 
2.1 In many instances environmental action needs to extend beyond the 
Community's frontiers if the desired objective is to be achieved. Where 
developing countries are involved, this implies financial support. 
Involvement in the financial aspects of international treaties and 
agreements would give the Community more say in the implementation of 
financial instruments included in such agreements. 
2.2 Expenditure related to international agreements on fisheries, now 
classified with other internal policies (ECU 270 million in the 1992 
budget), should appear under the heading for external action in the future. 
The main expenditure involved here is compensation paid direct to third 
countries in exchange for acquisition by the Community of fishing rights in 
their waters in order to sustain and expand long-range fishing, ease the 
pressure of fishing in Community waters and secure supplies for the 
European market. Expenditure for this purpose is bound to grow, though not 
as sharply as in the past, firstly because agreements are becoming more 
expensive as they are renegotiated and secondly because fishing rights are 
being acquired in new countries (Latin America and the countries of Eastern 
Europe in particular). These additional costs could be reduced by 
demanding a financial contribution from the owners of fishing vessels under 
the second generation agreements. 
3. Guarantee for lending operations 
Lending to third countries in which the Community is directly or indirectly 
involved has grown rapidly and is likely to develop further over the next 
few years. The Commission therefore plans to bring them under a framework 
regulation similar to that governing Community loans for balance of 
payments support. 
The budget guarantee comes into play for three different operations: 
-35-
- loans granted direct by the Community from funds borrowed on the capital 
markets (as is the case with loans to several countries of Central and 
Eastern Europe and to Algeria); 
- the guarantee for EIB loans; 
- the guarantee for loans granted by other financial institutions (the 
sole case so far being the credits made available to the former 
Soviet Union). 
At end-1992, the budget guarantee in respect of actual or planned 
transactions should cover loans to third countries totalling some 
ECU 7.8 billion. The average amount falling due each year in terms of 
capital and interest covered by the guarantee would be approximately 
ECU 1.4 billion over the period 1993-97, with a minimum of ECU 1.1 billion 
in 1997 and a maximum of ECU 1.7 billion in 1995. 
Since the guarantee has the backing of the entire budget, with cash 
resources being drawn on to finance any activation, a procedure must be 
devised to make it possible to regularize the budgetary situation by 
replenishing the headings concerned without having to embark on a revision 
of the financial framework or cutting expenditure drastically. 
To this end the Commission proposes the inclusion in the new financial 
perspective of a reserve to guarantee loans. This reserve would be linked 
to that proposed for exceptional expenditure on humanitarian aid. The 
total allocation to this reserve would increase gradually from 
ECU 500 million in 1993 to ECU 900 million in 1997. Each year, as part of 
the technical adjustment of the financial perspective, the Commission would 
determine what proportion of the reserve should be allocated to loan 
guarantees, by applying a given percentage (20% for example) to amounts 
fa 11ing due. 
This being so, a reserve of the order of ECU 600 million by 1997 would be 
in line with a doubling of current lending to third countries. 
4. Budget allocation for external action and margin for revision 
As far as budgetary expenditure proper is concerned, the Commission 
considers that the foreseeable development and expansion of existing 
external action and inclusion in heading 4 of the external elements of 
certain Community policies, would imply raising the ceiling on financial 
resources available for external action to ECU 6.3 billion. Assuming 
comparable content, this would be tantamount to an annual rate of increase 
of almost 12% a year from 1992 to 1997. 
If the reserve for exceptional expenditure is taken into account, the 
financial capacity of the budget for external action would thus be doubled 
-36-
VI. THE ADMINISTRATIVE EXPENDITURE OF THE INSTITUTIONS 
When the future framework of the financial perspective is defined, the 
institutions' administrative expenditure must not be forced to make do with 
the leftovers. As the Community's tasks widen in scope and the volume of 
funds to be managed increases, more resources must be made available and an 
adequate overall budget must be agreed in advance. 
1. Contents of the heading 
A specific heading must therefore be set aside for administrative 
expenditure only. Other expenditure included under the present heading 5 
of the financial perspective will disappear*. 
- expenditure on stock disposal measures comes to an end in 1992; 
- reimbursements to certain Member States (Greece, Spain and Portugal) may 
still occur after 1992 as a result of corrections made in respect of 
earlier years, but it is proposed (see Part Four below) to treat such 
operations, from 1993 onwards, as a deduction from revenue or as a 
technical adjustment. 
Within this heading, the institutions' expenditure on buildings should be 
kept separate from other administrative expenditure and made subject to a 
distinct ceiling. A separate allocation would thus be set aside for 
buildings, and requirements could be planned. The Commission's staff and 
administrative expenditure, on the one hand, and expenditure on pensions 
for all the institutions, which is also included in the Commission's 
budget, on the other hand, would also have to be distinguished from the 
personnel and administrative expenditure of Parliament, the Council and the 
other institutions. 
As recommended by the budgetary authority, operations support expenditure 
(mini-budgets) currently falling within Subsection B.8 should be 
transferred to Part A of the Commission budget and included in the new 
heading with effect from 1993. 
The 1992 base used as the starting point for the new financial perspective 
takes account of this reclassification.4 The base has also been 
increased, in the case of administrâtive expenditure, by the amount of the 
revision agreed in February 1992 (ECU 40 million). 
If it were agreed to transfer to Part A not only the mini-budgets in the 
present Subsection B.8 but also other staff and administrative 
expenditure arising from outside activities and currently included with 
the operating appropriations, the ceiling for heading 5 in the new 
financial perspective would have to be raised accordingly. This would 
be offset by a corresponding reduction in the operating headings 
concerned. 
-37-
2. Evaluation of requirements (see Annex 2, Table 1) 
2.1 The staff and administrative expenditure of the Commission 
(a) Non-pens ion expend i ture 
In the medium term the level of such expenditure is determined mainly by 
staff numbers. 
Once the staff expenditure currently covered by the mini-budgets is 
transferred from Part B to Part A in 1993 (1 375 persons), the net 
additional requirements over the period 1993-97 as a whole are estimated at 
1 350 posts. This increase, which is in line with the conclusions of the 
Screening Report, reflects the new requirements arising from the expanding 
workload in certain areas (such as external action and EMU) and takes 
account of the redeployment of staff which would be made possible by a 
restructuring of Commission departments. 
On the assumption that salaries increase in real terms by 1.7% per year, 
that unit administrative costs increase by 2.5% per year and that the 
subsidies entered in Part A rise at the same rate, the Commission's total 
staff and administrative expenditure should be slightly over ECU 2 billion 
in 1997, an average annual increase of some 3.6%. 
(b) Expenditure on pensions 
Such expenditure is charged to the "Commission" budget although it concerns 
all the institutions. Given the age structure of the staff, the allocation 
for this purpose should be about ECU 450 million in 1997, which represents 
a sharp rise as compared with 1992 (+12% per year). 
2.2 The staff and administrative expenditure of Parliament, the Council 
and the other institutions 
Here it is assumed that staff and administrative expenditure (excluding 
buildings) will increase at the same rate (3.6% per year) as the 
corresponding expenditure by the Commission^ (excluding pensions). 
2.3 Expenditure on buildings (rents, construction and purchase of 
buiI dings) 
(a) Commission 
The estimate of requirements is based on the need to remedy the present 
shortage of premises and on the trend in staff numbers. It takes account 
Subject to confirmation by these institutions of the forecasts for their 
own administrative expenditure. 
- 38 -
of rising building costs and the more specific needs of the delegations in 
non-Community countries. Premises located within the Community will, in 
the main, be leased or purchased on an instalment plan. 
A total allocation of some ECU 250 million is needed for 1997, which means 
an annual increase of Just under 15% (including 6.5% to reflect the rise in 
real costs in Brussels). 
(b) Other institutions 
At this stage the programmes submitted by the other institutions indicate 
that the office accommodation costs of Parliament and the Economic and 
Social Committee will increase sharply (extension and renovation of 
premises being purchased on instalments), as will those of the Court of 
Auditors (stage-by-stage purchase of new buildings). On the other hand, 
the Council's expenditure on premises should be much lower once the 
purchase of the new building has been completed. The total annual 
requirements of these institutions should run at approximately 
ECU 200 million from 1995 onwards. 
2.4 The total allocation to be set aside for the administrative 
expenditure of all institutions should be ECU 4 billion in 1997, or 
about 4.5% of the budget. 
VII. PROFILE OF COMMUNITY EXPENDITURE AND OF THE OWN RESOURCES CEILING 
On the basis of all these estimated requirements, the Commission proposes 
the following financial perspective. 
In the financial perspective the growth path of expenditure should be more 
or less a straight line from 1993 to 1997. 
- 39 
FINANCIAL PERSPECTIVE 
COMMITMENT APPROPRIATIONS (ECU million 1992 prices) 
18-Feb-92 
1.COMMON AGRICULTURAL POLICY 
2.STRUCTURAL OP ERAT IONS 
Structural Funds 
Cohesion Funds 
(IMPs/Pedip) 
3.INTERNAL POLICIES (1) 
4.EXTERNAL ACTION 
5.ADMIN. EXP. INSTITUTIONS 
Staff and administration 
- Commission 
-Other institutions (2) 
- Pensions (all inst.) 
BuiIdings 
(Repayments) 
6. RESERVES 
Monetary reserve 
Exceptional expenditure 
TOTAL COMMITMENT APPROPS. 
PAYMENT APPROPS. REQUIRED 
PAYMENT APPROPS. (% GNP) 
MARGIN FOR REVISION (% GNP) 
OWN RESOURCES (% GNP) 1992 
35348 
18559 
17965 
594 
3991 
3645 
4049 
1696 
895 
249 
287 
922 
1000 
1000 
66592 
63241 
1.15% 
0.05% 
1.20% 1993 
35340 
21270 
19770 
1500 
4500 
4070 
3310 
1760 
930 
290 
330 
1500 
1000 
500 
69990 
67005 
1.19% 
0.03% 
1 .22% 1994 
37480 
22740 
20990 
1750 
5035 
4540 
3465 
1825 
960 
325 
355 
1600 
1000 
600 
74860 
71650 
1.24% 
0.03% 
1.27% 1995 
38150 
24930 
22930 
2000 
5610 
5060 
3720 
1890 
1000 
380 
450 
1200 
500 
700 
78670 
75110 
1.27% 
0.03% 
1 .30% 1996 
38840 
27120 
24870 
2250 
6230 
5650 
3850 
1960 
1040 
400 
450 
1300 
500 
800 
82990 
79060 
1.30% 
0.03% 
1 .33% 1997 
39600 
29300 
26800 
2500 
6900 
6300 
4000 
2035 
1070 
445 
450 
1400 
500 
900 
87500 
83200 
1 .34% 
0.03% 
1.37% 
(1) Indicative amounts set for 
RTD policy: 2448 2730 3040 3380 3770 
(2) Subject to confirmation by the institutions concerned. 4200 
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PART THREE 
OWN RESOURCES 
I. POSSIBLE CHANGES IN THE SYSTEM OF OWN RESOURCES 
As explained in Part One, the present distribution of own resources is not 
fair since it is out of line with GNP weights. This is basically due to 
the regressive nature of the VAT resource, which gives an advantage to 
Member States with low VAT bases and penalizes those, generally less 
prosperous countries, with high VAT bases. 
In view of the advent of EMU and of the realization of European Union, the 
Commission's proposals are designed to make the own resource system fairer, 
in line with the Protocol on Economic and Social Cohesion agreed at the 
Maastricht European Council. There, the Commission and the Member States 
declared their intention to take greater account of the contributive 
capacity of individual Member States in the system of own resources, and to 
examine means of correcting for the less prosperous Member States 
degressive elements existing in the present own resources system. 
1. Increasing the use of the GNP resource 
The contributive capacity of Member States can be better taken into account 
by increasing the use of the GNP resource. This change would be brought 
about by reducing the uniform call rate on the VAT resource by 
0.4 percentage points (reducing the VAT ceiling from the present 1.4% 
to 1%). This represents a continuation of the approach followed in 1988 
when the GNP resource was first introduced with a view to matching the 
resources paid by each member State more closely with its ability to 
contr ibute. 
The consequent reduction in the uniform VAT call rate reduces the 
importance of the VAT resource, which, because of the variability of the 
base as a proportion of GNP from one Member State to another, constitutes 
the main regressive element in the own resources system. There would thus 
be a switch away from the VAT resource to the present GNP resource. As 
shown in Annex 2, Chart 2 and Table 2, this would help the poorer Member 
States with capped VAT bases, reducing the advantage of those countries 
with VAT bases below the Community average as a percentage of GNP. The 
contributive capacity of the individual Member States would therefore be 
more taken into account. 
2. Making the VAT resource less regressive 
The regressive elements existing in the present own resource system for the 
less prosperous Member States can be mitigated by modifying the VAT base 
for these countries. 
The Commission proposes to bring this about by lowering the level of 
capping of the VAT base from 55% to 50% of GNP. The reduction in the 
-41-
I eve I s of capping of the VAT base would lessen the regressive influence of 
the VAT resource for the less prosperous Member States by making it more 
like the present GNP resource. This measure would help those, generally 
less prosperous, countries with high VAT bases as a percentage of GNP (see 
Annex 2, Chart 3, Table 3). 
3. The effects of the proposed changes 
Chart 4 and Table 4 of Annex 2 show the combined influence of the two 
changes proposed above based on the total resource payments of the 1992 
budget. The gains for the less prosperous countries from these changes 
would be balanced by increases in the contribution of the Member States 
with low VAT bases. However, these countries would nevertheless continue 
to retain a significant advantage in the own resource system. 
The proposed changes would have a profound effect on the importance of the 
VAT resource in the budget. Taking the 1992 budget as an illustration, the 
VAT resource yields over ECU 34 billion, or around 55% of total own 
resources. The effect of the two changes would be to reduce the yield of 
the VAT resource to around ECU 22 billion, or only 35% of the budget. The 
GNP resource would rise accordingly from around ECU 13 billion, or 21% of 
the budget, to ECU 25 billion, or over 40% of the budget. The fourth (GNP) 
resource would therefore become the most important source of funding for 
the Community budget. 
4. The search for a new fifth own resource 
In view of its institutional and financial development, it would be good 
for the Community to introduce a new fifth own resource based on a 
harmonized tax and with no adverse effects on burden-sharing. This would 
go some way towards correcting the present unsatisfactory situation where 
traditional own resources are declining in importance. What is more, not 
only the GNP resource but the VAT resource as well are perceived by 
governments and even more so by national parliaments as national 
contributions rather than the Community's true own resources. 
Any tax harmonization would have to be justified on economic grounds. In 
addition, from a political angle, the introduction of a fifth resource 
would have to be associated with an increase in the European Parliament's 
responsibilities for the revenue side of the budget. 
The Commission has considered various national taxes whose proceeds might 
possibly be shared with the Community. It has found that in the Member 
States' present tax systems there is no tax with a sufficiently harmonized 
base. 
Political developments in the medium term might make a new own resource 
necessary. The Commission will endeavour to promote the conditions for the 
creation of such a resource. 
- 42 -
II. THE UK ABATEMENT 
The Commission will present its .report re-examining the correction of 
budgetary imbalances granted to the United Kingdom at a later date. 
- 43 -
PART FOUR 
BUDGETARY PROCEDURE AND MANAGEMENT 
The annual budgetary procedure will have to be incorporated in the rules 
agreed in the new interinstitutional agreement, without affecting the 
budgetary powers granted to the various institutions in the Treaty. 
The efforts made since 1988 to improve budget management will have to be 
continued and stepped up. 
I. RULES OF A NEW INTER INST ITUTIONAL AGREEMENT 
The Commission's ideas for the renewal of the Interinstitutional Agreement 
are set out in the report on application of this Agreement. The proposals 
concerning the rules which would apply to budgetary expenditure may be 
summed up as follows: 
1. Expenditure ceilings 
1.1 The institutions party to the agreement undertake to respect the 
different annual ceilings laid down in the financial perspective during 
each budgetary procedure. 
These ceilings are fixed for headings and subheadings. They relate to 
commitment appropriations and are set in constant ecus. An equivalent 
overall ceiling is set for the payment appropriations required. This 
ceiling must not exceed the annual amount of own resources assigned to the 
Community, which will be specified in the revised own resources decision. 
Under Article 201a of the Treaty, the Commission has to provide the 
assurance that the proposals it makes or the implementing measures it 
adopts are capable of being financed within the limit of the Community's 
own resources. 
The financial perspective is originally drawn up in such a way as to leave 
a margin each year of 0.03% of Community GNP, based on the foreseeable 
trend in GNP, between the ceiling on payment appropriations and the ceiling 
on own resources assigned to the Community. This margin is intended to 
allow possible revisions of the financial framework without the own 
resources ceiling having to be changed beforehand. If there is a danger of 
this margin being exhausted in the event of economic growth being 
substantially lower than expected, the Commission, together with the other 
institutions concerned, will examine what changes are* needed to the 
financial framework and submit proposals to that effect. 
Every year, in advance of the budgetary procedure, the Commission adjusts 
the expenditure ceilings in line with price increases and, in the case of 
the agricultural guideline, in line with the increase in GNP on the basis 
of the latest inflation rates available. No adjustments are made ex post 
in line with inflation. This principle of sound financial management is 
rendered even more important by the fact that the second stage of Economic 
- 44 -
and Monetary Union will soon begin. It is also a question of prudent 
management: if adjustments were made, there would be a considerable risk 
that the margin for revision would not actually be available. 
1.2 As soon as the agreement is concluded, the two arms of the budgetary 
authority will accept, for each of the years covered by the financial 
perspective, the maximum rates of increase for non-compulsory expenditure 
deriving from the budgets drawn up within the limits of the ceilings set. 
During the budgetary procedure and when the annual budget is adopted, the 
three institutions will ensure that a margin is left below the ceilings for 
the various headings so that any additional appropriations needed may be 
entered in the course of the year without any need for the financial 
framework to be revised beforehand. 
However, the two arms of the budgetary authority undertake to provide the 
allocations of commitment appropriations stipulated by the basic 
regulations, within the framework of the financial perspective, for the 
structural Funds, the Cohesion Fund and the framework research programme. 
2. Reserves for exceptional expenditure 
A specific heading will cover two separate categories of reserves for 
exceptional expenditure. 
2.1 Agricultural monetary reserve 
No changes have been made to the principles underlying the rules governing 
operation of this reserve. 
2.2 Reserve for exceptional expenditure in connection with external action 
(a) This reserve is intended to cover exceptional expenditure in two 
situât ions: 
(i) emergency humanitarian aid and one-off financial assistance to 
non-member countries in the event of crisis; 
(ii) activation of the budget guarantee when an external debtor defaults 
on borrowing/lending operations. 
(b) In the first case, this reserve would be drawn on in the course of the 
year as fol lows: 
- A joint decision is taken by the two arms of the budgetary authority 
acting on a proposal from the Commission. 
- The reserve may be used for a given operation only between the date on 
which the preliminary draft budget is presented and the end of the 
financial year involved. If, from the outset, it appears that the 
operation will inevitably continue in future years, revision of the 
financial perspective will have to be considered. 
- 45 -
The reserve will be used only if the margin available under the 
ceiling for the heading concerned is inadequate. At all events, a 
certain amount (e.g. the first 10%, with a minimum of ECU 10 million) 
will not be covered by the reserve. 
Depending on the circumstances of the case and the stage reached in 
the budgetary procedure, and whatever its link with the financial 
perspective, the corresponding expenditure will be entered in the 
budget by means of a letter of amendment or a supplementary/amending 
budget. The two arms of the budgetary authority will agree to adopt 
any supplementary/amending budget by expedited procedure (a single 
reading, preceded by an informal trialogue meeting, and shortened 
timetable of no more than one month). 
If the reserve were to be drawn on while the budget was being 
implemented, the possibility of transferring appropriations from 
budget chapters covered by other headings of the financial perspective 
would also have to be considered. One strong argument in favour of 
this procedure is that it would provide advance financial cover for 
expenditure if necessary. 
(c) In the case of loan guarantees, the Commission, as part of the 
technical adjustment exercise, will, each year, determine what proportion 
of the reserve should be allocated to covering this type of risk by 
applying a predetermined percentage (e.g. 20%) to the amount falling due.6 
3. Revision of the financial perspective 
The financial perspective (ceilings and/or breakdown by heading) may be 
revised to cover additional expenditure resulting from the need for new 
operations not foreseen at the outset or to give a different slant to 
ex ist ing policies. 
The revision is proposed by the Commission. This proposal should as a rul 
be presented ahead of the budgetary procedure for the financial year in 
question. The revision is adopted by joint decision of the three 
institutions, with the Council acting by a qualified majority. The 
decision must be taken within two months of the proposal being submitted. 
A trialogue meeting should be arranged, at the latest in the month 
following the proposal. If no decision is agreed within the time limit, 
the Commission's proposal is deemed to be rejected. 
For each of the years covered by the financial perspective, the margin 
available for revision or successive revisions is the difference between 
the ceiling on payment appropriations required and the own resources 
ceiling. Some of the additional spending requirements prompting the 
revision (e.g. 5% with a minimum of ECU 10 million) may not be taken into 
consideration for raising the ceiling of the heading in question and 
appropriations must be redeployed. 
If a different method is adopted - creation of a Guarantee Fund, outside 
the budget, for borrowing and lending operations with non-member 
countries - the reserve included in the financial perspective could be a 
fixed amount. It would be drawn on to replenish this Fund in the course 
of the year in proportion to the amount of new guaranteed loans granted. 
- 46 -
4. Adjustment in line with the conditions of implementation 
Each year, in advance of the budgetary procedure, the budgetary authority, 
acting on a proposal from the Commission, decides whether any of the 
appropriations not used in the previous year should be transferred to 
future years in addition to the amounts available under the expenditure 
ceiling. This possibility is limited to a number of multiannual programmes 
(structural Funds, Cohesion Fund, framework research programme). 
These adjustments may also apply to the amounts of payment appropriations 
required so that those appropriations can be raised in line with 
commi tments. 
5. Duration of the Agreement 
The Agreement is concluded for an indefinite period and cannot be changed 
without the consent of all parties. 
The financial perspective framework covers five years. The Commission will 
propose a new five-year framework no later than twelve months before expiry 
of the existing framework. It may also propose that the existing framework 
be replaced by a new five-year framework before it expires, although no 
earlier than during its third year of application. 
I I. IMPROVEMENT OF BUDGETARY MANAGEMENT 
1. Management of expenditure: stricter budgetary discipline 
1.1 Continuation of measures taken since 1988 as regards execution 
As part of its responsibilities for drawing up and implementing the budget, 
the Commission must continue improving the management of Community 
expenditure, in particular as regards compliance with the principles of 
annuality and specification. 
In several categories of expenditure, an attempt must be made to increase 
the rate of utilization of the appropriations available: in most cases, 
rationalization and simplification of the decision-making procedures for 
commitment and payment, in collaboration with the parties involved at 
national level, could make a contribution. 
The internal provisions adopted to give more attention to 
cost-effectiveness in the planning and implementation of Community 
operations will have to be made more systematic. This should enable the 
budgetary authority to make a better assessment of the results achieved by 
each operation when deciding what amounts are to be allocated in the annual 
budget. 
- 47 -
However, the Commission does not see any need to add anything to the 
existing financial rules. 
1.2 Stricter application of the principle of subsidiarity 
For a large proportion of expenditure, the amount of the Community's 
contribution and the procedure applied will have to be determined on the 
basis of subsidiarity criteria. When new operations are being proposed and 
adopted, it is essential that the principle of subsidiarity should be 
explicitly considered from three angles: 
- precise reasons must be given for the need for a contribution from the 
Community budget and for the type of financial instrument selected; 
it must be clearly established how Community finance combines with 
national finance, which means identifying the final recipients of the 
expenditure, the criteria for allocation and the decision-making bodies, 
the national machinery for channelling the aid to its destination and 
the national programmes supported by the contribution from the Community 
budget ; 
- steps must be taken to ensure the availability, during implementation, 
of all the information needed to assess the effectiveness of the 
financial arrangements introduced; 
in many cases, assistance from the Community budget is mainly intended 
as a stimulus and an incentive in support of regulations or coordination 
measures. Such operations must therefore be only temporary or, at 
least, subject to periodical review of their justification in terms of 
subsidiar ity. 
These principles could be written into the Financial Regulation, which 
would stipulate that they should be applied in the financial statement. 
1.3 Rationalization of budgetary nomenclature 
To avoid excessive fragmentation of the budgetary nomenclature, the three 
institutions could agree in the new Interinstitutional Agreement that the 
budget should not as a rule contain headings covering operating expenditure 
for amounts substantially below ECU 3 million in appropriations for 
commi tments. 
The Commission would undertake not to propose new budget headings with 
amounts substantially below ECU 3 million except in special cases for which 
full reasons are given. As for existing budget headings below this 
threshold, the Commission would propose whatever deletions, mergers and 
reorganizations it deemed necessary. 
- 48 -
2. Management of revenue: treatment of balances of VAT and GNP-based 
resources 
In the current system, VAT and GNP balances from previous financial years 
constitute revenue (or a reduction in revenue) for the year in which they 
are established (Article 6 of the Financial Regulation and Article 10 of 
Regulation No 1552/89); the balance for that financial year constitutes 
revenue for the following year. 
The amounts of own resources accruing from the third and fourth resources 
and entered in the budget for a given year are provisional. The VAT and 
GNP bases used to calculate the resources must be revised at the end of the 
years that follow in order to take account of the actual changes in the 
base and the corrections made as a result of Commission controls. 
The difference between the amount paid by reference to the provisional 
bases and the amount which should have been paid by reference to the actual 
bases is at present calculated by applying to the revised bases the VAT 
rate and the GNP call-in rate set in the budget for the original financial 
year. 
The Commission feels that it would be more appropriate to adjust the own 
resources call-in rates in line with the revised bases and budget outturn. 
The differences compared with the initial calculation would be entered in 
the budget by means of a supplementary/amending budget adopted in one 
reading and not subject to the time limits for presentation currently 
provided for in the Financial Regulation. They would be paid by the Member 
States or refunded to them by the Community. 
3. Management of refunds to Greece, Spain and Portugal 
From 1993 onwards, Member States will no longer receive refunds in respect 
of their payments. 
Only corrections to the VAT and GNP balances for 1981-92 could then give 
rise to refunds (which would be negative if the balances were negative). 
Depending on various factors (time taken for the Court of Justice to 
deliver Judgment, reservations expressed by the Commission, etc.), this 
could go on quite some time. 
These corrections, which are difficult to quantify at this stage, could be 
treated as negative revenue in accordance with the formula now used for the 
costs incurred by Member States in collecting own resources. A token entry 
would be made in the budget. In this way there would no longer be any need 
to charge such amounts to allocations in the financial perspective for 
categories of expenditure which are completely different in type and 
object ive. 
Barring this, or at least until provisions to this effect are adopted, 
allowance for future corrections to these refunds could be made on the 
expenditure side in due course as part of the technical adjustment which 
the Commission makes to the financial perspective in line with movements in 
GNP and prices. 
- 49 -
CONCLUSION: LEGISLATIVE MEASURES TO BE ADOPTED 
In addition to the conclusion of a new Interinstitutional Agreement 
including the new financial perspective for 1993-97, implementation of the 
proposed new financial system will require the amendment of a number of 
items of Community legislation. The main ones will be as follows: 
1. Own resources and management of revenue 
(a) Council Decision 88/376/EEC, Euratom of 24 June 1988 and implementing 
Regulations (EEC, Euratom) No 1552/89 and No 1553/89 of 29 May 1989 
- categories of own resources assigned to the Community 
- ceiling on own resources and appropriations for commitments 
- correction of budgetary imbalances 
- treatment of balances of VAT and GNP-based resources 
- refunds to certain Member States 
(b) Financial Regulation 
- treatment of balances of VAT and GNP-based resources 
2. Growth and management of expenditure 
(a) Council Decision 88/377/EEC of 24 June 1988 concerning budgetary 
discipIine: 
- agricultural guideline: level and scope 
- monetary reserve 
(b) Council Regulation (EEC) No 2052/88 of 24 June 1988 on the tasks of 
the Structural Funds 
- financial allocations 
- establishment of objectives 
(c) Proposal for a Council Regulation setting up a Cohesion Fund 
(d) Legal bases for the incorporation of certain ECSC operations in the 
general budget 
(e) Financial Regulation 
- principle of subsidiarity and application in the financial statement 
ANNEXES 
ANNEX 1 
Tables 1 
Tables 2 
Chart 1 FIGURES ON THE FINANCIAL FRAMEWORK AND THE BUDGET FOR THE 
PERIOD UP TO 1992 
The financial perspective and the budget 
Budget outturn 
Own resources 
ANNEX 2 THE NEW FINANCIAL FRAMEWORK PROPOSED FOR 1993-97 
Table 1 Evaluation of needs to be covered by heading 5 
(Administrative expenditure of the institutions) 
Table and chart 2 
Table and chart 3 
Table and chart 4 VAT call-in rate of 1% 
Capping of VAT base at 50% of GNP 
VAT limited to 1% and base capped at 50% 
So 
ANNEX 1 
Tables 1 : The financial perspective and the budget 
/./ Total budget expenditure (commitments) In relation to the Initial 
ceilings set In the financial perspective (after technical 
adjustment). 
ECU all I ion (current prices) 
1988 1989 1990 1991 1992 
1. Total connltient appropriations 
in the budget 
2. Ceiling set in the 
financial perspective In 1988 
3. Difference (1-2) 45.344 
45.344 
0 46.426 
48.464 
- 2.038 49.208 
52.948 
- 3.740 59.370 
57.939 
+ 1.431 66.118 
63.090 
+ 3.028 
1.2. Total budget expenditure (payments) and ceilings In the financial 
perspective as % of GNP (1) 
1. Own resources ceiling 
2. Ceiling - paynent approps required 
Initial financial perspective 
3. Celling - paynent approps required 
Fin persp after rev and adjustment 
4. Total payment appropriations in 
the budget 1988 
1.15 
1.12 
1.12 
1.12 1989 
1.17 
1.14 
1.07 
0.99 1990 
1.18 
1.15 
1.09 
0.97 1991 
1.19 
1.16 
1.13 
1.09 1992 
1.20 
1.17 
1.15 
1.15 
(1) GNP 1989-92 : data used in the technical adjustment for 1992 
1.3. Structure of expenditure by heading - Initial financial perspective 
and financial perspective In force (%) 
1. EAGGF Guarantee 
2. Structural operations 
3. Policies with nultiannual allocations 
4. Other policies 
of which non-corap. 
5. Repayments and administration 
of which stock disposal 
6. Monetary reserve 
TOTAL 1988 
60.7 
17.2 
2.7 
4.6 
3.6 
12.6 
2.7 
2.2 
100 1992 
initial 
56.1 
25.5 
4.5 
5.3 
3.7 
6.7 
2.7 
1.9 
100 in force 
52.6 
27.2 
4.4 
8.5 
7.1 
5.8 
1.2 
1.5 
100 
S4 
ANNEX 1 
Tables 2 : Budget outturn 
2.1 Appropriât Ions carried forward or made aval table again as percentage 
of total appropriations for commitments (Headings 2, 3 and 4 of the 
financial perspective). 
1986 1987 1988 1989 1990 1991 
(ECU ail I ion) 2367.1 2366.6 729.3 425.2 321.6 322.1 
Percentage 20.8 19.4 6.2 3.0 1.9 1.4 
2.2 Percentage of appropriations for commitments for year n not used and 
carried forward (Headings 2, 3 and 4 of the financial perspective). 
1987 1988 1989 1990 
70.4 25.6 28.3 22.0 
2.3, Percentage of cancelled commitments for which corresponding 
appropriations were made aval table again (Headings 2, 3 and 4 of the 
financial perspective). 
1987 1988 1989 1990 
75.3 49.5 24.6 18.7 
2.4, Percentage utilization of approprfat Ions for commitments 
(Headings 2, 3 and 4 of the financial perspective). 
1984-1987 
1984 
90.6 1985 1986 1987 
81.9 84.7 93.7 Average 
87.7 1988-1991 
1988 
98.6 1989 1990 1991 
97.5 93.3 95.4 Average 
96.2 
2.5 Percentage utilization of appropriations for payments (Headings 2, 3 
and 4 of the financial perspectIve). 
1984-1987 
1984 
84.2 1985 1986 1987 
83.8 83.3 85.1 Average 
84.1 1988-1991 
1988 
89.1 1989 1990 1991 
90.8 92.0 91.8 Average 
90.9 
2.6. Percentage of approprI at Ions for commitments transferred between 
chapters during the year (Headings 2, 3 and 4 of the financial 
perspective). 
1987 
3.4 1988 
2.0 1989 
1.7 1990 
1.4 1991 
0.7 
$1 
ANNEX 1 
2.7 Planned rate of clearance of commitments 
appropriations (expected schedule). against differentiated 
Commitments made 
Commitments made 
Commitments made 
Commitments made 
Commitments made Clearance (X planned In year 
N (N+1) (N+2) >(N*3) 
in 1987 
In 1988 
In 1989 
in 1990 
in 1991 39.8 
37.0 
45.5 
51.7 
51.0 24.1 
29.3 
27.3 
24.0 
33.7 18.7 
17.0 
14.6 
14.8 
11.3 17. 
16. 
12.6 
9.5 
4.0 
2.8. Actual rate of 
approprI at Ions. clearance of commitments against differentiated 
Commitments made in 1987 
Commitments made In 1988 
Commitments made in 1989 
Commitments made in 1990 
Commitments made In 1991 Clearance (X planned In year 
N (N+1) (N+2) >(N*3) 
18.9 
23.1 
16.1 
24.7 
51.2 36.5 30.5 14.1 
39.4 29.0 8.5 
42.9 25.5 15.5 
48.1 27.2 Outstndg 
48.8 —Outstanding 
53 
GRAPH 1 
Evolution of Own Resources as % of 
Community GNP 1980-1992 
% 
i——r——i 1 r 
80 81 82 83 84 86 86 87 88 89 90 91 92 
Year 
GNP revenue 
VAT revenue Trad, own resources 
TOTAL OWN RESOURCES z m x 
^ 
ANNEX 2 
TABLE 1 
FINANCIAL PERSPECTIVE 1993-97 - ADMINISTRATION 
I. STAFF AND ADMINISTRATION 
Commission (excl pensions) 
Other institutions (1) (2) 
Pensions (3) 
I I. BUILDINGS (4) 
Commission 
Council and Parliament (2) 
Other institutions (2) 
TOTAL I. +1 I. 
III. REPAYMENTS-STOCK DISPOSAL 
TOTAL I. +1 1. +1II . 1992 
2840 
1696 
895 
249 
287 
128 
149 
10 
3127 
922 
4049 1993 
2980 
1760 
930 
290 
330 
180 
136 
14 
3310 
0 
3310 1994 
3110 
1825 
960 
325 
355 
200 
134 
17 
3465 
0 
3465 1995 
3270 
1890 
1000 
380 
450 
240 
179 
26 
3720 
0 
3720 1996 
3400 
1960 
1040 
400 
440 
242 
173 
27 
3840 
0 
3840 1997 
3550 
2035 
1070 
445 
450 
254 
168 
27 
4000 
0 
4000 
(1) Growth rate applied: rate for the Commission (excluding pensions) 
(2) Subject to confirmation by the other institutions of the 
forecasts for their own administrative expenditure. 
(3) The part relating to all the institutions is included. 
(4) Rents, purchase by instalments, purchase. 
i~5 
ANNEX 2 
CHART 2 
VAT ceiling at 1% 
• Total resource payments 
ecu bn 
B DK D GR E F IRL I LUX NL P UK 
VAT 1.4% (PDB 92) VAT 1% 
Table 2: TOTAL RESOURCE PAYMENTS IN 1992 (ecu mn) 
Member States 
B 
DK 
0 
GR 
E 
F 
IRL 
I 
LUX 
NL 
P 
UK VAT 1.4% 
2525 
1160 
17601 
883 
5414 
11975 
495 
9708 
116 
3636 
855 
7073 VAT 1% 
2551 
1196 
17457 
869 
5315 
11861 
488 
10052 
114 
3624 
842 
7073 Difference 
26 
36 
-144 
-14 
-99 
-114 
-7 
344 
-2 
-12 
-13 
0 
St 
CHART 3 ANNEX 2 
ecu bn 
20 
15 H 
10 H 
5A VAT base capped at 50% of GNP 
- Total resource payments -
B DK D GR E F IRL I LUX NL P UK 
VAT cap 55% (PDB 92) VAT cap 50% 
Table 3 : TOTAL RESOURCE PAYMENTS IN 1992 (ecu mn) 
Member States 
8 
DK 
D 
GR 
E 
F 
IRL 
I 
LUX 
NL 
P 
UK VAT cap 55% 
2525 
1160 
17601 
883 
5414 
11975 
495 
9708 
116 
3636 
855 
7073 VAT cap 50% 
2568 
1187 
17540 
858 
5239 
11919 
483 
9960 
112 
3669 
832 
7073 Difference 
43 
27 
-61 
-25 
-175 
-56 
-12 
252 
-4 
33 
-23 
0 
5> 
CHART 4 ANNEX 2 
VAT ceiling at 1% and cap at 50% 
- Total resource payments -
ecu bn 
B OK D GR E F IRL I LUX NL P UK 
VAT 1.4%, 55% cap VAT 1%, 50% cap 
TABLE 4 : 
Member States 
6 
DK 
D 
GR 
E 
F 
IRL 
I 
LUX 
NL 
P 
UK TOTAL RESOURCE PAYMENTS IN 1992 (ecu mn)* 
VAT 1.4%, 55% cap 
2525 
1160 
17601 
883 
5414 
11975 
495 
9708 
116 
3636 
855 
7073 VAT 1%, 50% cap 
2581 
1215 
17414 
852 
5196 
11823 
480 
10225 
111 
3646 
826 
7073 Difference 
56 
55 
-187 
-31 
-218 
-152 
-15 
517 
-5 
10 
-29 
0 
tf? 

ISSN 0254-1475 
COM(92) 2001 final 
DOCUMENTS 
EN 01 
Catalogue number : CB-CO-92-097-EN-C 
ISBN 92-77-41836-2 
Office for Official Publications of the European Communities 
Lr2985 Luxembourg