PRELIMINARY DRAFT GENERAL BUDGET OF THE EUROPEAN COMMISSION FOR THE FINANCIAL YEAR 2005

POLITICAL PRESENTATION

1. Introduction

Whilst the 2004 procedure was marked by the taking into account of the accession of 10 new Member States on 1 May and the first full implementation of the activity-based budget (ABB), other major events will influence the budgetary procedure for 2005, such as the European elections taking place in mid-June, bringing a number of new delegates to the European Parliament, the full participation of the representatives of the 10 in the votes of both the Council and Parliament and the appointment of a new Commission on 1 November. Furthermore, the debate on the future financial framework post 2006, which the Commission launched in February 2004 [1], and the possible agreement on the new Constitution that the European Union leaders committed themselves to reach by the end of June at the European Council on 25 and 26 March 2004 in Brussels, will both influence the smooth progress of the budget negotiations.

[1] COM(2004) 101 final.

1.1. A budget for the enlarged Union

The budget for 2004 was adopted by the budgetary authority in December for 15 Member States (EU-15), together with the political agreement for an amending budget solely devoted to enlargement and based on the principles approved at the conciliation meeting on 24 November 2003. With this amending budget, entering into force on 1 May 2004 and integrating the enlargement-related expenditure, the enlarged Union (EU-25) will be fully operational as from the accession date.

The budget for 2005 has now been prepared by the Commission for 25 Member States and is based on the priorities approved within the annual policy strategy (APS).

1.2. Activity-based budgeting

The year 2005 will be the second year of the official implementation of activity-based budgeting, required by the entry into force of the new Financial Regulation on 1 January 2003 [2]. Whilst the previous last three years have seen the gradual introduction of the approach as well as the consolidation of its link with the other components of the activity-based management, including the cycle of strategic planning and programming, the budget procedure 2005 is, however, the first one where the Commission's proposal and the decisions by the budgetary authority are based only on the ABB structure. The Commission is further improving the activity statements accompanying the PDB to aid the work of both branches of the budgetary authority. All official PDB 2005 documents are therefore using the ABB nomenclature.

[2] Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ L 248, 16.9.2002, p. 1).

1.3. The Commission's political priorities for 2005

For the fourth year, the Commission adopted on 25 February 2004 a communication on the annual policy strategy (APS) for 2005.

The objective of the APS decision is to set the policy priorities for the following year, to identify the initiatives which will contribute to the realisation of the targeted priorities, to adopt the budgetary framework and guidelines for the year concerned, so that the priorities initiatives receive the necessary resources, and to provide guidelines for the indicative multiannual financial programming. The APS sets the framework for preparing both the preliminary draft budget and the operational programming of directorates-general and services.

However, 2005 will present a particular situation. It will be the first year of the new Commission and a key year for carrying through all of the measures connected with the future financial perspective, including the legislative proposals relating to the next generation of Structural Funds, which need to be adopted by the end of 2005. It will be a crucial year to ensure proper functioning of the newly enlarged Union and the appropriate resources will have to be provided to meet this challenge.

In order to safeguard the continuity and consistency of the policies for which the Commission is responsible, and to ensure that it meets its institutional obligations, the APS decision has accordingly been drawn up by the Commission taking into account the necessity of ensuring a smooth handover to the next Commission as well as the consistency with the priorities outlined for the post-2006 financial perspective.

Taking this into account, during its debate on policy priorities for 2005, the College decided firstly that a fundamental operational priority will be to ensure the success of enlargement and shape the future of Europe. According to the APS decision, this 'means guaranteeing the proper functioning of the enlarged Europe and the full application of the policies and rules within all the Members States,. Besides this operational priority, the Commission has identified the policy priorities for 2005, in view of an enlarged Union of 25 Member States, which have to be seen in a tyingup approach with the objectives identified in the previous years.

The Commission's central objective will be to provide a new momentum of economic growth, based on enhanced competitiveness and cohesion; the objective of stability and security will be maintained, through efforts to improve security and European citizenship; the Union will also take a new external responsibility, with emphasis on the neighbourhood dimension, by strengthening its new continental legitimacy.

1.3.1. Competitiveness and cohesion

Over the last decade, the rate of growth in the Union has fallen to a level of just 2 %. At the same time, the Union is about to welcome 10 new Member States whose relative weight accounts for 20 % of the EU population but only 6 % of its GDP. In view of the lacklustre economic performance recorded recently by the Union and the persistent shortfall in productivity and employment rates, and given the desire to integrate successfully the new Member States, an upturn in growth will be the central policy objective of the Commission, striving constantly to improve the competitiveness of the European model while maintaining prosperity, employment, cohesion and environmental protection, as integral elements of the sustainable development agenda. The stability of the macroeconomic framework, the concrete implementation of the Growth initiative and the pursuit of structural reforms inherent in the Lisbon Strategy will be of vital importance. The proper functioning of the enlarged internal market and the full implementation of the acquis are crucial in this context.

Particular emphasis should be placed on:

-- industrial policy, whether in terms of the manufacturing or services industry. Services now account for two thirds of GDP and the majority of jobs created in the Union; they constitute the sector where the scope for higher productivity and further job creation is greatest and help to maintain a solid industrial base,

-- reducing the persistent gap between Europe and its main partners in terms of the effort put into research and the development of human and technological capital (including information and communication technologies, information society, lifelong learning and Erasmus Mundus),

-- reinforcement of consumers' confidence in the field of transborder transactions and electronic trade,

-- reducing disparities within the enlarged Union: an underlying effective cohesion policy will be essential for closing the gap and helping to boost the potential for growth.

Competitiveness and cohesion: key initiatives for 2005

The following key initiatives have been selected:

-- to promote better economic governance and strengthen the capacity for monitoring the macroeconomic and fiscal situation,

-- to develop and implement mature projects identified in the Growth I Initiative, especially through extension of the trans-European networks and efforts put into research and the development of human and technological capital,

-- to elaborate a new social policy agenda for the post-2006 period,

-- to place particular emphasis on controlling State aid in the enlarged Union,

-- to present a legislative proposal to enforce the principal of mutual recognition in the area of goods,

-- to put forward a proposal on redress in the field of public procurement,

-- to prioritise, in the services sector, the rapid adoption of the proposed Directive on services by the co-legislators and to step up the bilateral negotiations aimed at fostering access by European service companies to third-country markets,

-- to put forward, in the financial services field, three legislative proposals: on clearing and settlement, on solvency of insurance companies, and on shareholder rights in stock market listed companies,

-- to put forward new legislative proposals on corporate taxation within the enlarged internal market, aimed at removing the tax obstacles to cross-border activities, and simplifying the VAT-related provisions,

-- to put forward, in the defence field, legislative proposals on intra-Community transfers and public procurement tenders,

-- to launch the development and implementation of new air traffic management systems, which will support the modernisation of the sector within the framework of the Single sky initiative.

-- to propose reinforced financing of the transEuropean networks for energy and transport and the creation of a European guarantee instrument to allow the mobilisation of public and private investments in favour of concrete projects,

-- to put forward proposals on interaction between industrial policy and other Community policies, and how these policies can contribute to enhanced competitiveness; indepth analysis of the ICT, defence and raw materials sectors, followed by concrete proposals for measures to improve their competitiveness,

-- to put forward proposals to improve and simplify legislation in key industrial sectors, thereby strengthening their competitiveness (e.g. cars, construction products, cosmetics), and proposals to further implement and review the policy in favour of the information society (legal framework for electronic communications; eEurope initiative),

-- to carry on, in the field of European contract law, the preparatory work for the common frame of reference,

-- to adopt proposals for the seventh framework programme for research and technological development,

-- To promote the European space programme,

-- to propose, in the field of environment, an overall approach towards thematic strategies (air quality, sustainable use and management of resources, marine environment, and urban environment) as well as integrated solutions (including legislative proposals).

1.3.2. Security and European citizenship

The European Union must manage a land border of 6 000 km and a sea border of 85 000 km. The total of third-country nationals living in the EU exceeds 14 million, while around 1,5 million are arriving each year. Moreover, enlargement will accentuate the diversity of cultures and peoples, and will present a new challenge in the form of European citizenship as a new EU dimension.

Enlargement of the Union's territory and the increased population will require a greater effort and better coordination from the point of view of managing the new common borders, dealing with the increased mobility of individuals within this area and the need to ensure their security. In this field, the Commission has taken steps to create a European area of freedom, security and justice in accordance with the instructions given by the Tampere European Council in October 1999. This strategy will enter a second phase in 2005.

After 11 September 2001 and the devastating train bombings in Madrid, the European Union faced a mounting concern about the threat of terrorism, which has further sharpened this need for security. This was confirmed by the European leaders' summit on 25 and 26 March 2004 along with the decision of naming the first counter-terrorism coordinator and vowing to share intelligence better than in the past.

Moreover, for the purpose of protecting Europe's citizens from risks associated with natural disasters and environmental or epidemiological crises, the Union is being called upon more and more to assist or take over from the Member States when problems assume a pan-European dimension. To this end, the Commission manages a large number of programmes geared to protection, safety, public health, food safety, prevention and control, together with solidarity and crisis-management funds.

In 2005, it is proposed:

-- to consolidate a European area of freedom, security and justice, started under the Tampere programme, entailing the adoption of additional legislative instruments; the main issues to be addressed will include asylum and immigration, the fight against organised crime and terrorism,

-- to focus on consolidating the right of everyone to protection (from natural or environmental disasters -- through the enhancement and extension of the civil protection response capacity in the enlarged Union -- and crises relating to health or nuclear energy) and access to basic public services (health, food safety, education, transport, consumer safety and a clean and healthy environment),

-- to promote initiatives bringing Europe closer to its citizens.

Security and European citizenship: key initiatives for 2005

The following key initiatives have been selected:

-- preparation of the second phase of the common asylum system (including implementation of European Refugee Fund II),

-- strengthening of common visa policy and security of travel documents (including biometrics); implementation of VIS (visa information system) following adoption of the legal act by the Council and coordination of design and development of SIS II (Schengen information system),

-- enhancing of the role and capabilities of the European Police College (CEPOL) in the training of senior EU police officers, in particular by transforming CEPOL into a body of the European Union,

-- establishment of a genuine European area of justice in civil matters, including the further development of the European Judicial Network in civil and commercial matters,

-- establishment of a genuine European area of justice in criminal matters, including the adoption of common definitions of offences and sanctions for serious forms of crime, and development of the project 'Erasmus for Judges,,

-- launching the new action plan on drugs,

-- launch of new initiatives concerning the management of citizens' electronic identity, in order to tackle the likely intrusiveness of information society technologies on privacy, confidentiality and intimacy,

-- proposal of an amendment to the Council regulation on the control of trade in dual-use items, in order to maximise its effectiveness within the enlarged Union,

-- improvement of controls and supervision efficiency at the external border of the enlarged Union,

-- promotion of measures fostering security research (with a view to establishing a comprehensive programme for enhancing European security through research and technology),

-- improvement of maritime safety by monitoring the prohibition of emptying tanks out at sea,

-- proposal of legislation on a Community framework for the safety of services provided to consumers,

-- extension of the health information systems, alignment of preparedness for disease threat, application of standard operational practices for early warning systems,

-- ensuring of food safety and phytosanitary controls as well as harmonised verification of the health of imported animals and the safety of imported food and feed,

-- ensuring through a network of Community reference laboratories a harmonised approach in testing and control of chemical and biological contaminants,

-- implementing a new framework for labelling of feed and extend the existing rapid alert system for food and feed to non-EU countries,

-- modify the Directive 'Television without frontiers,,

-- negotiation of an international convention on cultural diversity under the Unesco framework.

1.3.3. External responsibility: neighbourhood and partnership

The Union's new dimension and the new external borders resulting from enlargement will make it necessary to put in place a stable, comprehensive political framework with the neighbouring countries of the south and the east. Once enlargement becomes a reality, the implementation of this second sphere of prosperity and stability will be the central external priority.

With this in mind, the Commission will implement a new EU neighbourhood policy and will strive to promote intra-regional cooperation. This new policy is aimed at neighbouring States which are not (with the exception of Balkan countries) candidates for EU accession. This approach will be underpinned by relevant proposals to be presented by the Commission before the summer break, covering, inter alia, the new Neighbourhood Instrument.

As far as the countries of the western Balkans are concerned, the stabilisation and association process will remain the policy cornerstone.

Furthermore, in 2005, the Commission's external action will be geared to achieving further objectives, namely:

-- contributing to the completion of the ongoing enlargement process, entailing preparation for the accession of Romania and Bulgaria. In addition, and in the light of decisions taken in 2004, the Commission will continue implementing the preaccession strategy with Turkey and might enter into an active phase of negotiation with Croatia,

-- the enlarged Union can and must assume greater global responsibility. The Commission will be required to play a greater role in promoting sustainable development in line with Europe's international commitments, including the Millennium Development Goals, which will need to be reviewed in 2005. The Union's integrated commercial policy and its vital role in promoting development will lead it to take on greater responsibility in multilateral governance,

-- lastly, the Union's expansion will go hand in hand with increased international responsibility and will require even more coherence in its external actions, using all the instruments available. This increased coherence will allow the EU to better address Europe's challenges and threats as set out, inter alia, in the European security strategy [3] and will include the establishment of appropriate crisis-management capacity combining civilian and military means, while ensuring that humanitarian aid remains independent from political considerations.

[3] Endorsed by the European Council in December 2003.

External responsibility: neighbourhood and partnership: key initiatives for 2005

The following key initiatives have been selected:

-- to place particular emphasis on the stabilisation and association process with the countries of the western Balkans; to strengthen the capacity for economic monitoring and advising the countries of the region,

-- on the basis of guidelines to be adopted in the spring of 2004, to enter into an active phase of neighbourhood policy, especially by means of action plans with a number of the countries concerned, on the basis of shared values in particular democracy, human rights, rule of law and respect of minorities; to create a more productive framework for trade and investment, including rules of origin, at regional level, to step up economic monitoring of the region; to strengthen the regulatory dialogue and promote the development of ACAAS (Accreditation and Conformity Assessment Agreements); to extend the Charter for Small Enterprises to these countries,

-- to extend the internal energy and transport market to Balkan and Mediterranean countries,

-- to take forward the creation of four common spaces with Russia (economic space ; space of freedom, security and justice ; space of cooperation in the field of external security ; space of research and education, including culture) through the development of a joint action plan, including and with specific reference to energy matters. This work will need to draw on ongoing positive cooperation in specific fields (e.g. approximation of legislation in the customs field),

-- to conclude trade negotiations with Mercosur,

-- to strengthen the Union's relations with Gulf countries, especially Iran, and toseek to conclude negotiations with the Gulf Cooperation Council,

-- to ensure the Union's contribution to the reconstruction process in Iraq,

-- to extend and implement international fishery agreements,

-- to review and scaling up of the EU contribution to the millennium development goals,

-- to support African efforts to ensure peace and stability on the African continent, and to make the Peace Facility for Africa operational,

-- to launch an EU Water Facility to implement the EU Water initiative proposed at the Johannesburg Summit (2002),

-- to ensure the Union's role as a key contributor in the UN World Summit on Information Society II to be held in Tunis in November 2005,

-- to present to the Council a revised regulation on the rapid reaction mechanism with a view to making it more effective in times of crisis; to increase Europe's capacity against weapons of mass destructions and towards destructions of post-conflict conventional stocks,

-- in the interest of better international governance, to promote the development of regulatory dialogue for financial markets, data protection and vocational qualifications.

2. Financial framework

2.1. The financial perspective framework for the 2005 budget

The financial perspective for the period 2000 to 2006, included in the Interinstitutional Agreement of 6 May 1999 on budgetary discipline and improvement of the budgetary procedure [4], remains the main point of reference for the budget procedure, together with the reference amounts provided for in the legal bases adopted under the co-decision procedure. Compliance with the financial perspective ceilings, for each of its headings representing broad categories of expenditure, is a crucial point. The margins left under the ceilings constitute the main room for manoeuvre for addressing unforeseen events in the course of the budgetary procedure or during implementation. This section presents and discusses the related figures.

[4] OJ C 172, 18.6.1999, p. 1.

The financial perspective ceilings are fixed at 1999 prices and thus need to be translated into current prices by the application of deflators, in accordance with point 15 of the Interinstitutional Agreement (IIA) [5]. This technical adjustment is carried out each year by the Commission, in advance of the budgetary procedure, on the basis of the most recent economic forecasts available. Concerning the 2005 procedure, the adjustment was carried out in December 2003 [6], and involved a reduction in the applied deflator. The result is a substantial reduction in the ceilings at current prices, in particular for headings 3, 4 and 5 where the reductions are of EUR 134 million, EUR 76 million and EUR 94 million respectively.

[5] Interinstitutional Agreement of 6 May 1999 on budgetary discipline and improvement of the budgetary procedure ( OJ C 172, 18.6.1999, p. 1). As regards the ceiling for heading 1 and the figure for the Structural Funds in heading 2, a standard deflator, fixed at 2 % a year, is applied. As far as the ceilings of the other headings are concerned, a GNI (gross national income) deflator is applied.

[6] COM(2003) 785 final.

The tables containing the figures by financial perspective heading, both for appropriations for commitments and appropriations for payments are shown in the annex concerning the numerical data.

Concerning heading 1 'Agriculture,, the ceiling for subheading 1a amounts to EUR 44 598 or an increase of 4,3 % over 2004 and for subheading 1b to EUR 6 841 million or an increase of 4,7 % over 2004.

For structural actions (heading 2) there was an underimplementation in 2000 that led to a re-budgeting of EUR 6 153 million. This sum was not committed in 2000, and was re-budgeted and redistributed over the years 2002 to 2006. Accordingly, the financial perspective was adjusted by a decision of the budgetary authority in May 2001, which increased the ceiling for 2005 by EUR 1 395 million compared to the Berlin profile.

The total ceiling for commitments for 2005 therefore now amounts to EUR 42 441 million. Of this total, the amount allocated to the Cohesion Fund is EUR 5 194 million (12 % of the total). An amount of EUR 7 749 million is commitments allocated to the countries joining the EU on 1 May 2004, of which EUR 2 394 million (31 %) is allocated to the Cohesion Fund. The percentage allocated to the Cohesion Fund is therefore somewhat higher for the new Member States than for the EU-15.

Taking into account the technical adjustment of the financial perspective for 2005, the ceiling of the internal policies (heading 3) in nominal terms increases by EUR 290 million, i.e. + 3,3 %. This increase is significantly less (EUR 134 million) if compared to the forecasts made at the time of the last budgetary procedure and which served as a base for the adaptation of the total appropriations of the co-decided programmes as a result of enlargement. The Commission therefore adjusted its financial programming in order to comply with the decisions taken on the extension of the current policies and programmes to the new Member States, and on the three new programmes decided in Copenhagen: a programme devoted to nuclear safety for the decommissioning of nuclear power stations in the new Member States; a mechanism for institution-building, aiming to increase their administrative capacity for the purposes of suitable management of the Community policies and programmes falling within their responsibility; and a Schengen facility intended to make them reach the level required by the Schengen Agreements on frontier controls.

For external actions (heading 4) the ceiling amounts to EUR 5 119 million or an increase of 1 % over 2004.

The ceiling for administrative expenditure (heading 5) reaches EUR 6 185 million (or EUR 6 360 million when including EUR 175 million for staff contribution to the pension scheme), which represents an increase of 3,4 % over 2004, part of it resulting from the increase of the ceiling in real term because of the enlargement.

Heading 6 (reserves) foresees an equal amount of EUR 223 million by the financial perspective both for the emergency aid reserve and the guarantee reserve.

The ceiling for preaccession strategy (heading 7) amounts to EUR 3 472 million, an increase of 7,1 %.

Finally, the ceiling for heading 8 'Compensation, decreases from EUR 1 410 million to EUR 1 305 million.

The total ceiling of payment appropriations for 2005 is EUR 114 235 million, which corresponds to 1,08 % of the GNI.

2.2. Overall growth rates in commitments and margins available

As shown in the table for commitment appropriations, their total amount is EUR 117 213,5 million, or + 5,2 % over budget 2004. The increase for compulsory expenditure is 8,2 % while non-compulsory expenditure increases by 3,3 %.

For Agriculture (heading 1),the Commission proposes to budget EUR 50 675 million, which increases by 8.3% over 2004, due in particular to the increase in agriculture expenditure up to EUR 43 834 million (+ 8,9 %), while rural development increases by 4,7%, equal to the increase of the ceiling of subheading 1b. Thus the margin available in heading 1 is EUR 764 million.

The 2005 ceiling and expenditure for Structural Funds is some 3,3% higher than in 2004. A substantial part of this increase arises from an increase in commitments available for the new Member States under the Structural Fund programmes, which rise by around 40 % compared to 2004. For existing Member States the increase for the Structural Funds is 1,1%.

Spending on the Cohesion Fund, by contrast, is lower for both existing and new Member States when compared to 2004. For the new Member States this follows on from the agreement reached at Copenhagen. For the existing Member States, there is a slight reduction in resources compared to the Berlin profile due to Ireland's loss of eligibility for the Cohesion Fund, following the mid-term review foreseen by Article 2 of Council Regulation (EC) No 1164/1994 establishing a cohesion fund (COM(2004)191 final of 24 March 2004).

As a result of Ireland's loss of eligibility for Cohesion funding there is a drop in the amount budgeted for the Cohesion Fund of EUR 55 million (in 1999 prices) (see COM(2004) 191). This translates into a reduction in 2005 prices of some EUR 62 million. Accordingly, the amount budgeted for 2005 for the Cohesion Fund leaves a margin under the financial perspective ceiling equivalent to this amount.

The 2005 PDB also proposes the budgeting for the 10 new Member States (EU-10) of the exact amount resulting from the accession negotiations of EUR 7 748 991 718 (in 2005 prices). However, the financial perspective is, by convention, expressed in round millions. The budgeting of the exact amount therefore leaves a slight additional margin under the financial perspective that is purely technical in nature.

The expenditure proposed for internal policies (heading 3) expressed in commitment appropriations increases by EUR 254 million in relation to the 2004 budget (passing from EUR 8 705 million in 2004 to EUR 8 959 million proposed for 2005), i.e. + 2,9 %, thus focusing on the key measures as identified by the Lisbon Strategy, including SMEs. The resulting margin is of EUR 53,4 million. Taking into account the reduction of the ceiling of heading 3 of EUR 134 million in relation to the forecasts based on the technical adjustment for 2004, the Commission had to carry out a significant effort of contraction of expenditure (EUR 113 million in relation to the financial programming) in order to present to the budgetary authority a margin which will allow for the budgetary authority's increases or additions, in particular pilot projects and preparatory actions.

For heading 4 (external actions), the commitment appropriations proposed (EUR 5 234 million) are up by 1,1 % or EUR 57,5 million over the budget for 2004. This amount exceeds the ceiling of the financial perspective by EUR 115 million. The Commission is therefore proposing to mobilise the flexibility instrument in order to continue the support to the stabilisation, democratisation and reconstruction process in Iraq, which was not programmed.

Heading 5 (administrative expenditure) for all institutions increases by 3,9 %. On the basis of the estimates received from the institutions, this increase respects the ceiling for administrative expenditure. This was made possible by the reprogramming exercise undertaken by all secretariats-general resulting in the updated report of March 2004. Further savings have been found during the preparation of the PDB.

For heading 6 (reserves), both the instruments amount exactly to the ceiling of the financial perspective.

For heading 7 (preaccession aid) and overall amount of EUR 1 856 million is programmed to assist Bulgaria, Romania and Turkey toward membership. It represents an increase of 7,1 % over the 2004 budget.

2.3. Payment appropriations and outstanding commitments (RAL)

The PDB 2005 proposal contains EUR 109 539 million in payment appropriations, representing an increase of 9,8 % over 2004, as shown in the corresponding table in the annex. This amount represents 1,03 % of GNI, thus leaving a margin of EUR 4,7 billion under the authorised ceiling of the current financial perspective (1,08 %). It is the result of a careful and rigorous analysis of two elements: the volume of 2005 commitment appropriations which will be paid in 2005, and the volume of backlog, or outstanding commitments (RAL), which will be settled during that year.

The growth patterns for payment appropriations is this year more consistent in non-compulsory expenditure (+ 11 %) compared to compulsory expenditure, which rises by 8,2 %.

The rise in appropriations is particularly significant this year because of the effect of enlargement, especially for headings 1 (+ EUR 2 131 million) and 2 (+ EUR 1 914 million). Thus, enlargement explains a total increase of EUR 3,8 billion, which represents almost half of the payment appropriations' total increase.

As far as agriculture is concerned, the most significant rise occurs for rural development (+ 15,3 %), followed by a substantial increase of agriculture expenditure of 8,9 %. This can however be explained not only by the enlargement, but also by the exchange rate between the euro and the US dollar. On the one hand, preliminary draft budget (PDB) 2005 is established on the basis of the euro-dollar exchange rate observed over the first three months of 2004 (EUR 1 = USD 1,25) following Article 8(1) of Council Regulation (EC) No 2040/2000 on budgetary discipline. Compared to the parity used for the 2004 budget (EUR 1 = USD 1,12), this means an appreciation of the euro by EUR 0,13 which will lead to additional needs of EUR240 million, in particular, for cereals, sugar and cotton. On the other hand, over an increase of EUR 4,42 billion (+ 9,7 %) compared to 2004, almost half (EUR 2,1 billion) can be explained by the enlargement consequences as shown by the following table. Additionally, the net cost of the CAP reform will add up to EUR 1,3 billion in 2005, the rest of the increase for EU-15 being to a large extent explained by the return to normal market conditions

(in million EUR)

>TABLE POSITION>

Payment appropriations for heading 2 in 2005 amount to EUR 35 396 million. These amounts concern the Structural Fund and the Cohesion Fund both for EU-10 and EU-15. The breakdown between EU-15 and EU-10 can easily explain the significant rise in the category. For EU-15 the total amount in payment appropriations of EUR 31 662 compared to EUR 28 962 in 2004 (+ 9,2 %), whilst the amount for EU-10 is EUR 3 774 compared to EUR 1 859,9 in 2004, which represents an increase of 102,9 %.

The Following table clearly shows the enlargement effect in heading 2 on payment appropriations

(in EUR)

>TABLE POSITION>

Concerning heading 3 (internal policies) payment appropriations rise by 2,9 % compared to 2004 or EUR 218 million, but it has to be pointed out that this is the result of a stabilisation in payment appropriations after last year's significant increase (+ 20,9 %) due to the preparations for enlargement (Schengen facility, decommissioning of nuclear installations and waste management and the transition facility), which however only slightly increases by EUR 63 million.

Under preaccession, the needs for payment appropriations are estimated at EUR 3 179.9 million, or an increase of 11,3% over 2004. This is mainly related to the absorption of previous commitments made under the Sapard, Turkey and ISPA programmes. An amount of EUR 1 532 million is foreseen for the phasing-out of the preaccession aid for the new Member states (Sapard = 290, ISPA = 500 and Phare = 742), to which has to be added an amount of EUR 21 million for Cyprus and Malta.

On the contrary, the compensation for new member States decreases by EUR 105 million.

Thus adding up the increase in payment appropriations related to the Union's commitments towards EU-10 (+ EUR 3,9 billion), the applicant countries (+ EUR 0,5 billion), the effect of the dollar exchange rate (+ EUR 0,24 billion) and the net cost of the CAP reform (+ EUR 1,3 billion), more than EUR 5.9 billion of the increase is explained. If account is taken of the necessary increase in payment appropriations for EU-15 in heading 2 (+ EUR 2.7 billion), as well as the increase in heading 1 for EU-15 (+ EUR 0,4 billion) due to return to normal situation after the drought of 2003, the other net increases in the different headings are limited to EUR 0,7 billion.

The Commission would like to point out that the figures proposed within the PDB represent real needs, taking into account the fact that outstanding commitments will not only involve decommitments, but also that special management measures undertaken could result in increased liquidation. The Commission is aware of the concern expressed in particular by the Council about the level of payment appropriation in its resolution adopted by the ECOFIN Council on 16 March 2004. The Council underlines the importance of maintaining overall budget discipline and stresses once again the importance of keeping a tight grip on payment appropriations. In this context the Council considers that the overprovision of payment appropriations in the budgetary procedure of recent years, which resulted in a significant surplus each year, should not occur again and invites the Commission to take the appropriate measures when preparing the preliminary draft budget for 2005.

However, in 2005, the trend might be reversed. Indeed, in the case where the making-up for the delay in implementing the Structural Funds programmes 2000 to 2006 is achieved even more quickly than recently observed and leads to increased needs for payment appropriations, the Commission would, after thorough examination of redeployment possibilities, including transfers, submit either a letter of amendment to preliminary draft budget 2005, taking into account implementation in 2004, or an amending budget in the course of financial year 2005.

This is accompanied by the continuing monitoring by the Commission of the RAL. As has been highlighted on several occasions by the Commission, despite the significant increase in RAL over the past years, most outstanding commitments are not in fact abnormal, but rather the predictable consequence of multiannual commitments: such 'normal, RAL will remain in existence as long as the underlying commitments remain unpaid, or are decommitted. RAL at the end of 2003 amounted to some EUR 104,5 billion. As for the Structural Funds, the evolution of the RAL will reflect the closure of the great majority of pre-2000 interventions, which will take place by the end of 2004.

Within this population of outstanding commitments, a number have been defined as being 'potentially abnormal,i.e. dormant commitments in respect of which no payment has been made for the last two financial years and old commitments which have been in the budget for at least five financial years. Whilst the budgetary authority has asked the Commission to examine such cases under the budget headings annexed to the Joint Declarations of 2001 and 2002, it should be stressed that the Commission services are regularly reviewing all commitments falling under this definition. At the beginning of 2003, the Commission had identified some 14 500 potentially abnormal commitments, amounting to EUR 17,3 billion. By end 2003, practically all of such cases have been examined by the Commission services and either closed, paid, decommitted or retained in the accounts for justified reasons. The work will continue in 2004.

This year, as in 2002 and 2003, the Commission will transmit to the budgetary authority, together with the PDB, a detailed monitoring report on the outcome of the 2003 budget regarding potentially abnormal RAL.

At the same time, the Commission will transmit the budget implementation plan for 2004. The Commission will report regularly on actual implementation figures and also compare these with the forecast, and will justify any significant deviation. It will provide a significant management tool and early warning system for the services, and allow the budgetary authority to monitor the ongoing budget period.

2.4. Budget headings for technical and administrative assistance

The 'B...A, headings (now to be found in XX 01 04 articles) exist for many of the operational programmes. They provide funding for technical and administrative assistance to the management and running of the specific action, activity or programme, to the mutual benefit of the Commission and the beneficiary. Since letter of amendment No 1/2001, they also cover expenditure related to the phasing-out of the technical assistance offices, on a provisional basis. Specific budget remarks continue to indicate the purpose for which expenditure on outside personnel is charged to appropriations in B...A headings.

In PDB 2005, total appropriations in the B...A headings and Structural Funds 'mini budgets' amount to EUR 357 million. This amount is significantly above (+ 6,6 %) the EUR 335 million authorised in the 2004 budget. The total number of B...A headings increases to 121 against 111 in budget 2004. Some 58 % of the requested appropriations concerns external actions and preaccession aid; a further 29 % is related to internal policies and, the remaining 13 % covers appropriations for agriculture and structural policies. For preaccession aid, including devolution to delegations, the amount on B...A headings is down by 30 % on 2004, essentially as a result of accession. Some EUR 5 million is foreseen for the Executive Agency for Intelligent Energy while new headings without appropriations are created for the executive agencies envisaged for the Education and culture and Health and consumers programmes.

2.5. The Financial Regulation and headings without legal bases

The Financial Regulation [7], as revised in 2002, incorporates the provisions of the Interinstitutional Agreement of 6 May 1999 relating to legal bases (and the implementation of the budget). Article 49 states that: 'a basic act must first be adopted before the appropriations entered in the budget for any Community action may be used,. It defines the basic act in question as, 'an act of secondary legislation which provides a legal basis for the Community action or Union action and for the implementation of the corresponding expenditure entered in the budget,, excluding acts with no legal effect such as communications, resolutions, conclusions or declarations. The Financial Regulation provides three types of exceptions: pilot schemes and preparatory actions, within the limits of EUR 32 million and EUR 75 million respectively, actions undertaken on the basis of the institutional prerogatives and specific powers conferred on the Commission by the Treaties or stemming from the administrative autonomy of the institution. For pilot schemes and preparatory actions, the Commission, according to its right of initiative, may propose new budget headings or activities.

[7] Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ L 248, 16.9.2002, p. 1).

The Interinstitutional Agreement provides that, when presenting its PDB, the Commission should submit a report on the actions referred to as pilot schemes and preparatory actions, which covers the objective of the action, an assessment of results and the follow-up envisaged. The implementation of the Agreement in this field is therefore the subject of detailed information to the budgetary authority, in the form of a working document accompanying the PDB.

As regards the specific powers conferred on the Commission by the Treaties, Article 33 of the implementing rules [8] contains a list of the articles in the EC and Euratom Treaties conferring such powers. As provided in Article 33(3), this preliminary draft budget adds the following detail to the list:

[8] Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ L 367, 31.12.2002, p. 1).

-- EC Treaties, Articles 131 to 134 (Trade policy, headings 20 02 01 and 20 01 04): for a total amount of EUR 10,7 million in 2005.

The Interinstitutional Agreement also requires that, when submitting its PDB, the Commission takes into account the possibilities for new activities of this type (by leaving a sufficient margin) or continuing multiannual operations which are coming to an end, after assessing whether it will be possible to secure a basic act (point 28 of the Interinstitutional Agreement). The relevant proposals, particularly the pilot projects of the PDB comply with the Financial Regulation provisions and ceilings and leave, particularly in heading 3, an ample margin (EUR 28 million). As far as preparatory actions are concerned, the margin left is of EUR 11,885 million, because of the significant increase in heading 18 03 08 concerning the Financial Instrument for return management in the area of migration (up to EUR 15 million) and of heading 08 14 01 relating to the action for the enhancement of European security research (up to EUR 24 million).

KEY ASPECTS OF PDB 2004 BY FINANCIAL PERSPECTIVE HEADINGS

Under each of the eight headings of the financial perspective, the budget proposal is discussed according to the following structure: summary table, key aspects and general presentation.

3. Agricultural expenditure: heading 1

3.1. Summary table

(in million EUR, at current prices)

>TABLE POSITION>

3.2. Key aspects of heading 1

The 2005 budget is the first in which the 10 new Member States will be present for the full year. For the financing of this enlarged Union, the Commission proposes budgeting EUR 50 676 million for heading 1, of which EUR 43 835 million is for agricultural market organisation and veterinary expenditure (subheading 1a) and EUR 6 841 million is for rural development (subheading 1b). This leaves a margin of EUR 764 million under the ceiling of the financial perspective for EU-25 as adjusted in December 2003 [9]. The proposed 2005 budget appropriations constitute an increase of 8,3 % or EUR 3 894 million compared to the appropriations of the 2004 budget. This increase can be split between EUR 3 589 million for subheading 1a and EUR 305 million for subheading 1b.

[9] The financial perspective ceilings are fixed at 1999 prices and are adjusted each year by the Commission on the basis of the most recent economic forecasts available. For the 2005 procedure the adjustment can be found in COM(2003) 785 final.

As to enlargement, more than EUR 1,4 billion will be spent on direct aids paid to farmers in the new Member States.

Budget 2005 is the first to feel a significant financial impact of the 2003 reform of the common agricultural policy (CAP). New or modified direct aids, which principally concern the milk sector, rice, arable crops and nuts, entail an additional cost for budget 2005 of more than EUR 1,9 billion. However, taking into account the cost-reducing effects brought about by the 2003 reform package, the net cost of the CAP reform will add up to EUR 1,3 billion in 2005.

After excluding the impact of the direct aids to be paid in the new Member States and the net cost of the CAP reform, the increase for subheading 1a is still significant compared to budget 2004. To a large extent, however, this represents the return to normal market conditions. In 2003, EUR 404 million of premiums in the cattle, sheepmeat and goatmeat sectors, which normally would have been disbursed in 2004, was paid in advance for certain regions affected by drought or forest fires. The increase is also due to the return to normal production and export levels for some products in the arable sector.

The Commission intends to use the facility offered by the Interinstitutional Agreement to reassess needs in the context of the Letter of Amendment in October 2004. This allows the Commission to base its budgetary proposals for agriculture on the most recent economic and market information.

3.3. General presentation of heading 1

3.3.1. Agricultural market organisation and veterinary expenditure - Sub-heading 1a

In budget year 2005, the Community will pay out for the first time direct aid to the 10 new Member States. The Single Area Payment Scheme for the new Member States is foreseen to cost EUR 1 394 million. This enlargement effect accounts for more than one third of the increase in subheading 1a for 2005.

As in the past, the PDB takes into account the financial aspects of the legislative proposals tabled by the Commission. However, the reform proposals concerning the tobacco, olive oil, cotton and hops sectors which the Commission adopted in November 2003, will have no impact in 2005.

The CAP reform, formally adopted by the Agriculture Council on 29 September 2003, will have a substantial budgetary effect in 2005. This is in particular the case for the milk, rice, cereals, durum wheat and nut sectors. Thus, the newly introduced dairy premium and the additional payments to milk producers will lead to an extra cost for budget 2005 of EUR 959 million and EUR 431 million, respectively. In 2005 the modified crop specific payment for rice will involve supplementary spending of EUR 321 million compared to budget 2004. In the arable sector, new or increased direct payments such as the specific quality premium for durum wheat, the regional drying aid, the protein crop premium and aid for energy crops will cost the 2005 budget an extra EUR 226 million. The new area payment for nuts is budgeted for EUR 97 million. On the other hand, cost-cutting measures lead to decreased spending such as a reduction of EUR 104 million in supplementary aid for durum wheat. The CAP reform allows intervention savings in the milk, cereals, rice and dried fodder sector of EUR 630 million as well. All in all, the CAP reform can be said to occasion a net rise in expenditure of about EUR 1 300 million.

There is also a significant increase in financial needs due to the «return to normal» for direct aids and the expectation of a normal harvest in 2005. The 'drought, advances of EUR 404 million paid in 2003 instead of 2004, diminished outlays in the current year but this is only temporary. Also linked to the return to normal, are the increased appropriations for export refunds in the cereals sector. The combination of increased quantities of barley available for export, the lower world price for barley and the higher euro/dollar exchange rate cause export refunds for barley to rise by EUR 102 million compared to budget year 2004, despite the halving of the monthly increments of the intervention price following CAP reform 2003. Quantities in intervention are also up, bringing additional costs.

The increased expenditure in the fruit and vegetables sector is, apart from the direct payments for nuts mentioned earlier, due to the fact that in 2005 an additional EUR 138 million will be made available for operating funds for producer organisations.

The appropriations for veterinary measures change slightly compared with 2004 (+ EUR 24 million). Three factors explain this change: (1) a new regulation on official food and feed controls, which is due to enter into force before summer 2004 and to apply from 1 January 2005, will increase the needs by nearly EUR 6 million; (2) the compulsory slaughter programme in the wake of the BSE crisis was, up to the 2004 budget, financed under the AGRI heading 05 03 02 10 (from 2005, it is transferred, for the sake of transparency, to SANCO heading 17 04 01 (+ EUR 20 million)); (3) a slight economy is made in the phytosanitary area.

The average euro/dollar exchange rate of EUR 1 = USD 1,25, used for budget 2005, is 11,6 % above the rate used for budget 2004 i.e. EUR 1 = USD 1,12. The depreciation of the dollar is expected to cause increased needs of about EUR 240 million.

3.3.2. Rural development - Subheading 1b

A total amount of EUR 6.8 billion is earmarked for the second pillar of the common agriculture policy.

The appropriations allocated for rural development for the EU-15 are set exactly at the level of the ceiling of the financial perspective (EUR 4 910 million). The good outturn for 2003 suggests that Member States will take up the full amount allocated for 2005.

It should be noted that the breakdown of appropriations between different schemes under rural development, which is based on the plans as presented by the Member States and adopted by the Commission, is only indicative. In fact, according to the principle of subsidiarity, Member States can shift between the different schemes within certain limits.

As for EU-10-related expenditure, the commitment appropriations proposed correspond to the amount agreed in Copenhagen (EUR 1 931 million). These appropriations for rural development will be differentiated expenditure. Associated payment appropriations amounting to EUR 1 369 million have been pencilled in.

The budgetary ceilings and the needs for heading 1, by ABB activity, are presented in the following table.

( in million EUR)

>TABLE POSITION>

4. Structural measures: heading 2

4.1. Summary table

( in million EUR, at current prices)

>TABLE POSITION>

4.2. Key aspects of heading 2

-- The key point of note is the overall increase in payment appropriations, which are some 14,8 % higher than the 2004 budget. A significant part of this increase is due to the doubling of payments appropriations for the new Member States arising from the Copenhagen Agreement. However, appropriations for 2004 were relatively low (7 % lower than 2003).

-- The payment appropriations proposed for the 2000 to 2006 EU-15 programmes represent 95 % of commitments for the mainstream programmes and 80 % of the average annual tranche for the Community initiatives. These rates are higher than last year, but the increase is in line with the trends in implementation.

-- The RAL outstanding on the 2000 to 2006 programmes is expected to see a small increase during 2005, as payments appropriations are estimated at 95 % of commitments for the bulk of the programmes.

-- The proposed commitment appropriations for the structural operations for EU-25 are fully in line with the financial perspective annexed to the Interinstitutional Agreement (IIA) and the presidency conclusions of the European Council in Copenhagen.

-- For the Cohesion Fund there is a drop in commitments relative to 2004 of 9,7%. The bulk of this change arises in the allocation for the new Member States, and derives from the Copenhagen Agreement. There is a reduction of around EUR 61 million (2005 prices) for the EU-15 due to Ireland's loss of eligibility for the Cohesion Fund.

4.3. General presentation of heading 2

An overall amount of EUR 195 010 million is programmed for the Structural Funds for EU-15 for the period 2000 to 2006, and an amount of EUR 18 000 million forEU-15 is allocated for the Cohesion Fund during the same period (both amounts at 1999 prices). For the new Member States, the Copenhagen Council allocated EUR 14 156 million to the Structural Funds and EUR 7 591 million to the Cohesion Fund (also in 1999 prices) over the period 2004 to 2006

Under the terms of the Structural Funds regulation, annual allocations in current prices for the Structural Funds are obtained by indexing these amounts in 1999 prices at a flat rate of 2 % per year. Appropriations for the Cohesion Fund are also indexed each year, using the relevant price deflator used for the technical adjustment of the financial perspective. Determining the overall budget is therefore straightforward.

Heading 2 of the financial perspective covers the Structural Funds, i.e., the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agricultural Guidance and Guarantee Fund (EAGGF), the Financial Instrument for Fisheries Guidance (FIFG) and the Cohesion Fund.

It relates to the following ABB policy areas:

-- regional policy for the ERDF and the Cohesion Fund,

-- employment and social affairs for the ESF,

-- agriculture and rural development for the EAGGF Guidance Section,

-- fisheries for the FIFG.

4.3.1. The Structural Funds

During the period 2000 to 2006, some 94 % of the Structural Funds for EU-25 is devoted to the main programmes (Single Programming Documents or Operational Programmes) and 5,35 % of the overall allocation is reserved for the Community initiatives. The remaining part of the allocation (0,65 %), is devoted to innovative measures (up to 0,4 %) and technical assistance (up to 0,25 %).

For 2005, commitment appropriations in 2005 prices for EU-25 amount to EUR 37 246 million, including the re-budgeted EUR 1 395 million stemming from the 2000 under-implementation.

(in million EUR, at current prices)

// Preliminary draft budget 2005

Main programmes // 34 868

Community initiatives // 2 259

Technical assistance/Innovative measures // 120

Total // 37 247

4.3.1.1. Main programmes

The main objectives of the Structural Funds are:

-- Objective 1: promoting development and structural adjustment in less-developed regions,

-- Objective 2: promoting economic and social conversion of areas in structural difficulty,

-- Objective 3: supporting the adaptation and modernisation of policies and systems for education, training and employment, and

-- Structural measures in the fisheries sector outside the regions of Objective 1.

In line with the conclusions of the European Council in Copenhagen and the Treaties of Accession, the following amounts (in 2005 prices) are allocated in 2005 for the main objectives in the new Member States:

-- Objective 1, financed by the four Structural Funds: EUR 5 014,9 million,

-- Objective 2, financed by ERDF and ESF: EUR 45,5 million,

-- Objective 3, financed by ESF: EUR 41,9 million,

-- an amount of 1,1 million is foreseen for FIFG outside objective 1.

The breakdown of allocations between the different funds within Objective 1 and 2 depends on the outcome of the new Member States' programming, to be approved by the Commission.

For EU-15 the general regulation of the Structural Funds allows the following breakdown for 2005 for the main objectives:

-- Objective 1 (including transitory support), financed by the four funds: EUR 22 218,1 million,

-- Objective 2 (including transitory support), financed by ERDF and ESF: EUR 3 498,8 million,

-- Objective 3, financed by ESF: EUR 3 869,1 million,

-- FIFG (excluding Objective 1): EUR 178,9 million,

Objective 1 also provides assistance to the specific programme for the Northern Ireland Peace Process (PEACE) as well as a special additional programme to some Swedish regions.

The regions which were eligible for Objective 1 during the previous period (1994 to 1999), and which no longer meet the required eligibility criteria during for 2000 to 2006, receive a transitory support under Objective l from all the Structural Funds, at least until 2005. Similarly, the regions which were eligible for Objective 2 or 5b in 1999, and which are not eligible for the new Objective 2, receive transitional support under Objective 2, from the ERDF, until 2005.

The breakdown of allocations between the Funds within Objectives 1 and 2 derives from the programmes that are established in partnership with the Member States.

During the early part of 2004 the Member States will be allocating and programming the 'performance reserve, that was established by the Structural Funds Regulation. This reserve is 4% of the total allocation for2000 to 2006 which was held back in order to allow it to be allocated to the best performing programmes, following the mid-term review of programmes in 2003. The precise split of the total allocation between funds will therefore evolve over time as these reserves are programmed.

The tables below give the anticipated breakdown of commitment appropriations. The table for EU-25 assumes a distribution key by policy area for EU-10 identical to the one that stemmed from the programming for EU-15 observed to date. This assumption will need to be revised in the light of the actual distribution by policy area of the EU-10 programming, and the programming of the performance reserve for EU-15.

Commitment appropriations in 2005 (including re-entry from 2000)

(in million EUR, at current prices)

>TABLE POSITION>

In each policy area, there are specific budget headings covering the completion of earlier programmes. For commitments, these headings have a token entry ('p.m.,). Payments are the only outstanding issue to be addressed in these headings, but a marginal one given that most of the RAL for these headings is expected to be cleared in 2004.

4.3.1.2. The Community initiatives

There are four Community initiatives, each being financed by only one Fund:

1) Interreg for the promotion of cross-border, trans-national and interregional cooperation, financed by the ERDF;

2) Leader+, for rural development, financed by the EAGGF Guidance Section;

3) EQUAL, for the development of human resources in a context of equal opportunities, financed by the ESF; and

4) URBAN, for the economic and social regeneration of cities and urban neighbourhoods in crisis with a view to promoting sustainable urban development, financed by the ERDF.

For the new Member States, the Copenhagen Council decided to support only Interreg and EQUAL.

The commitment appropriations for the four Community initiatives for EU-25 in 2005 amount to EUR 2 259 million at 2005 prices, of which EUR 2 022 million is earmarked for EU-15. In accordance with the Structural Funds Regulation, the Commission's guidelines on each initiative, and the Copenhagen conclusions, the sharing-out of the allocation for 2005 is the following:

( in million EUR, at current prices)

// Preliminary draft budget 2005

Interreg // 1 110

Leader+ // 402

EQUAL // 615

URBAN // 132

Total // 2 259

There is also a separate budget heading to cover payments from previous programming periods that includes all former Community initiatives.

4.3.1.3. Innovative actions and technical assistance

These appropriations (see table in point 2.3.1) cover innovative actions at the Community level such as studies, pilot projects and experience-sharing, as well as technical assistance actions such as preparation, monitoring, evaluation and control measures. Structural Funds' technical assistance of an administrative nature is now fully budgeted under Chapter 1, except for the payment of the RAL associated with previously dissociated appropriations (Chapter 49).

In line with the conclusions of the Copenhagen Council, commitment appropriations for the new Member States for technical assistance and innovative actions amount to EUR 14,4 million (in 2005 prices). For EU-15 the commitment appropriations amount to EUR 105,1 million (in 2005 prices). The total allocation is therefore EUR 119,5 million.

4.3.1.4. Payment appropriations

New programmes 2000 to 2006

EU-15

For the new programmes the payments in 2005 will be almost all reimbursements. For the sixth year of implementation of the new programmes, an amount of EUR 28 544 million (which represents an increase of 13,2 %) is foreseen.

It is assumed that payments in 2005 will be on average 95 % of the annual average commitment instalment. This is higher than the assumption that was made for the 2004 PDB (80 %). However, the increase from 2004 to 2005 is broadly in line with the trend increase in payments as a percentage of the average commitment tranche. Payments rose from 66 % of the average annual tranche in 2002 to 78 % of a tranche in 2003.

For the Community initiatives, whose budgetary implementation is lagging behind the main programmes, payments are projected to be at 80 % of the average annual tranche. This broadly corresponds to the rate of 2003 implementation of the main programmes. For Technical Assistance/Innovative Actions, the payment appropriations are based on a 'bottom up, assessment by the Commission services in charge.

For the PEACE II programme, the payment appropriations amount to EUR 101 million.

Payment needs for 2005 will depend partly on 2004 implementation. In view of this, the Commission will take stock of budgetary implementation in July 2004 and take corrective action should this be needed.

EU-25

Total payments for the new (2000 to 2006) programmes are EUR 31 637 million, out of a total of EUR 32 391 million for the Structural Funds as a whole. The payments for the new programmes are split by Objective in the table below:

(in million EUR, at current prices)

>TABLE POSITION>

Of these totals, the part that is payment appropriations for EU-10 fully reflects the conclusions of the Copenhagen European Council. Payments for EU-10 equal the sum of 6 % of the overall commitments' allocation 2004 to 2006 together with 40 % of the average annual commitment for this three-year period.

Earlier programmes pre-2000

For these programmes, due to be closed for the major part in 2004, only a residual amount of payments is foreseen for 2005 for late payments. Appropriations foreseen are EUR 754 million, which corresponds to roughly 10 % of the RAL at the end of 2003.

4.3.2. The Cohesion Fund

The commitment appropriations are EUR 5 132 million for EU-25, of which EUR 2 738 million is for EU-15 and EUR 2 394 million for EU-10. For the EU-10 these figures are the conclusions of the Copenhagen Council. Within EU-15, Ireland will no longer be entitled to new commitments, as it became ineligible for the Cohesion Fund in 2004. As a result, the amount budgeted for the Cohesion Fund in 2005 is EUR 61 million lower than the financial perspective ceiling.

Payment appropriations amount to EUR 3 006 million for EU-25 and EUR 2 335 million for EU-15. The amount for EU-10 is based on the Copenhagen conclusion and represents 3 % of the commitment instalment for 2005 plus 21 % of the annual commitment tranche for 2004. The amount for EU-15 is around 17 % lower than the amount included for EU-15 in the 2004 budget.

5. Internal policies: heading 3

5.1. Summary table

(in million EUR, at current prices)

>TABLE POSITION>

5.2. Key aspects of heading 3

The proposed budget for heading 3 covers, in particular, two of the three political priorities proposed by the Commission for 2005 on the basis of 25 Member States: 'Competitiveness and cohesion,, and 'Security and European citizenship,.

For the first priority, 'Competitiveness and cohesion,, the activities financed by heading 3 aim, in particular, at strengthening efforts in the field of research, and the development of human and technological capital, by ensuring respect of the environment and the social dimension.

With regard to the second priority, 'Security and European citizenship,, the contribution of heading 3 will focus on the consolidation of the European area of freedom, security and justice, arising from the Tampere programme, and from the citizens' right to protection against natural or environmental disasters and to access to fundamental goods (health, consumer safety, food security, transport safety, and the safety of telecommunications and information networks).

For the financial year 2005, the Commission proposal, with regard to expenditure intended for internal policies, is raised to a total of EUR 8 958,6 million in commitment appropriations, and to EUR 7 728,6 million in payment appropriations, which represents, respectively, an increase of 2,9 % in relation to 2004. The resulting margin is EUR 53,4 million.

The proposed net increase of EUR 254 million as compared to the 2004 budget, may largely be explained as follows:

-- the reprogramming of the sixth RTD framework programme, was reinforced by EUR 33 million in 2003, leading to a reduction by the same amount in 2005 of the appropriations envisaged by the financial plan of May 2003. This amount is therefore assigned to other policies in 2005,

-- approximately EUR 144 million, as compared to the financial programming, can be assigned to other policy areas. The source of these appropriations is, in particular, the policy areas of economic and financial affairs, agriculture and rural development, fisheries, and energy and transport.

These savings help to make possible significant increases compared to the 2004 budget in the following policy areas:

-- research and technological development (+EUR 232 million),

-- decommissioning of nuclear installations and waste management (+EUR 51 million),

-- justice and home affairs (+EUR 44 million),

-- education and culture (+EUR 37 million),

-- transport and energy (+EUR 35 million),

-- health and consumer protection (+EUR 13 million),

-- information society (+EUR 9 million),

-- taxation and customs union (+EUR 8 million).

5.3. General presentation of heading 3

Research and technological development: The sixth framework programmes were instituted by Decision of the European Parliament and of the Council 2002/1513/EC and by Council Decision 2002/668/Euratom. Both Decisions have been amended according to the agreement reached at the conciliation meetinf of 24 November 2003. The sixth framework programmes were adopted with a view to contributing to achieving the objectives set out in Article 163(1) of the Treaty, namely 'strengthening the scientific and technological bases of Community industry and encouraging it to become more competitive at international level, while promoting all the research activities deemed considered by virtue of other chapters of this Treaty,.

The framework programme remains the most significant expenditure under this heading, the total appropriations being established at EUR 5 047 million, i.e. an increase of EUR 232 million. It constitutes a central element of the process of developing within the Union, a knowledge-based economy and society, essential for innovation, competitiveness and employment, sustainable economic growth and social cohesion.

The table indicates the distribution of the appropriations for the sixth framework programme by policy area:

in million EUR, at current prices)

>TABLE POSITION>

The support of the Joint Research Centre (JRC) to the policies of the EU will primarily take the form of scientific and technical support in the fields of environmental protection, safety and security of the population, and sustainable development. These activities include risk assessment, testing, validation and improvement of methods, materials and technologies, and aim to support a number of policies from food safety to protection against fraud, chemical substances, the environment and sustainable development, and nuclear safety. This support will be ensured in close cooperation with the laboratories and research centres of research of the Member States and of third countries

As regards enlargement, the specific actions of the JRC will aim at encouraging the integration of the research organisations and staff of the new Member States in its networks and projects, in particular in fields such as the environment, food and nuclear security, where these countries still have to develop in relation to the scientific and technical needs of Community legislation. The JRC will also continue information actions and promotion of its activities within the three remaining applicant countries, and will increasingly open up towards the countries of the western Balkans. It will also provide scientific and technical support to the new Neighbourhood policy of the Union.

With regard to the activity entitled 'Historical liabilities resulting from the nuclear activities carried out by the Joint Research Centre (JRC) under the Euratom Treaty,, the Commission has been implementing, since 1999, an action plan to dismantle and downgrade all the nuclear facilities inherited from the nuclear activities of the past.

The action plan includes the construction of waste-processing facilities at the Ispra (IT) centre, and the construction of a storage centre on the Ispra site, since Italy is lacking such a storage centre. The plan will continue with the existing waste processing and the dismantling of all the facilities, including the treatment and the storage of resulting waste.

The implementation of the action plan concerns, initially, the Centre of the JRC in Ispra where almost all of the nuclear activities are completed. The centres at Petten (NL), Geel (BE) and Karlsruhe (DE), which are still active, will implement their action plan after the shutting down of their nuclear facilities, which could happen in about 2015 for Petten, and 2025 for Geel and Karlsruhe.

The evaluation of the Commission's programme carried out in 2002 and 2003 by a consortium of external companies, confirmed the guidelines envisaged by the JRC and re-estimated the cost of the programme, while recommending its acceleration. Any delay or extension in the duration of the project will result in an increase in its cost. The outcome is an increase in the budgetary requirements for 2005, with the aim of returning the irradiated fuel of American origin at Petten to the USA (before 2006, when this possibility disappears), and to build the waste storage centre in Ispra. The latter stage constitutes a preliminary condition to the launching of the operations of waste processing and of dismantling.

The proposed budget for 2005 for the decommissioning of nuclear installations and waste management amounts to EUR 66,9 million as explained by the following workload:

-- EUR 27.5 million corresponding to the appropriations already foreseen related to:

-- completion of the Ispra waste management facilities (construction, refurbishing),

-- retrieval and treatment of old waste at Ispra (in compliance with the JRC commitment to the safety authorities),

-- decommissioning at Karlsruhe of obsolete glove boxes, and removal of nuclear materials, in order to limit the nuclear material inventory (as prescribed) and allow for new activities to take place,

-- EUR 10 million to allow for the early return of fuel from Petten to the USA, since this possibility will end in 2006,

-- EUR 20 million to create a turnkey contract for the construction of the interim store. This option of one single contract is preferable to several contracts, even if the expenditure related to the construction will be paid over three years to optimise accountability and security,

-- EUR 9,4 million is explained by the need for compacting the waste, either by the construction of a compacting facility on the Ispra site, or another external solution if it should prove more economical.

The bulk of the increase is explained by one-off investments for the interim store, the return of fuel to the US, and the compaction of waste.

Its is important to recall that the independent expert decommissioning group advising the JRC on the programme recommended that the programme be implemented as quickly as possible, in order to save running costs related to safe conservation, security and maintenance. These costs can be estimated at around EUR 6 million per year.

Other actions:

-- research programme of the research fund for coal and steel financed by the net revenue generated by the investment of ECSC holdings on the expiry of its Treaty,

-- strengthening of the potential of European industry in research on security: this preparatory action, in its second year, is additional to the efforts made by the Member States and by the other European institutions in this field, and concentrates in particular on the development of a research programme in advanced security. Its objective is to study in which conditions and by which mechanisms an environment more favourable to the scientific, technological and industrial competitiveness of Europe as regards security can be created.

Energy and transport: despite the increase (excluding research) of EUR 35 million in relation to the 2004 budget, thus reaching an amount of EUR 1 047 million, this policy area sees a reduction of EUR 52 million in relation to the previously agreed financial programming. This results from the withdrawal of the amendment to the TEN regulation concerning frontier regions.

The appropriations assigned to this political field will enable, in particular:

-- the development and implementation of the mature projects identified under the Growth initiative via the extension of the transEuropean networks. Indeed, within the context of the White Paper on the common transport policy, an update of Community guidelines for the development of transEuropean transport networks was adopted in 2003, and aims to complete the list of priority projects proposed in 2001 with new projects including the development of transnational motorways of the sea, bringing the total number of projects to 29. It also aims to grant a label of European interest to these projects, to introduce a mechanism to strengthen the operational and financial coordination of the Member States, and to proceed with 2020 as the goal for the achievement of the transEuropean network. The guidelines of the transEuropean energy network were also revised in order to establish new priorities and greater flexibility in the adoption of the projects,

-- the development of a policy of safety and of the citizens' protection in energy and transport, in particular with the creation of a new activity 'Safety and protection of the users of energy and of transport,. It includes the transport safety, nuclear safety, and radiation protection;

-- the adoption of the European Agency for Railway Safety, and the deployment of the activities of the European Agency for Air Safety and the European Agency for Maritime Safety (in particular with the possibility of chartering anti-pollution ships, in provision of the Member States), able to intervene in accidental or continual maritime pollution as a result of the expansion of the activities of the latter Agency.

The increase in the Community subsidy in these three Agencies will also make it possible to accelerate their full setting in place in the seats decided by the European Council of December 2003,

-- the provision of a satellite surveillance system for maritime vessels, in order to monitor vessels that pollute EU waters, thereby enforcing the new regulation which prohibits the emptying of tanks out at sea. As a complement to this [10], a feasibility study and measures for the coordination of EU coastguards services are also proposed,

[10] In response to a proposal made by the European Parliament on 13 January 2004.

-- the continuation of the Marco Polo programme, which aims to promote innovative actions in the markets for logistics and intermodalities,

-- the deployment of the programme 'Intelligent Energy -- Europe,, intended to promote energy saving, in particular in transport, and the development of renewable energy,

-- the modernisation of the infrastructure of the management of the air traffic (Deploy project),

-- the financing (EUR 139 million) from the nuclear safety measures aiming to the dismantling of the nuclear power stations of Ignalina (Lithuania) and of Bohunice (Slovakia).

An amount of EUR 242.3 million is planned for the actions in the field of energy and of the transport financed by the sixth framework programme for research, in line with the financial planning of the programme. Priorities are to consolidate the position of the European industry in the aeronautical (technology relating to the implementation of the single sky) and space field (Galileo) and to help to exploit the potential of this sector in the service of the improvement of safety and of environmental protection. For the energy field, priorities aim in particular to manage the energy demand and to incorporate on a large scale renewable energy and to encourage the use of clean public transport and substitution fuel resources. For the field of transport, initiatives meet the need to develop environmentally friendly and competitive innovative systems for all the modes of surface transport (rail, roads and inland waterways), to rebalance and incorporate the various modes of transport, and to strengthen security.

Economic and financial affairs: The appropriation proposed for this political field is EUR 49.7 million, i.e. a reduction of EUR 50 million in relation to the 2004 budget.

This is explained by the following facts:

-- the commitment appropriations entered into the 2004 budget for the 'programme for enterprises - improvement of the financial environment for SME's (MAP), amounted to EUR 91 million. According to the information provided by the trustee, the European Investment Fund (EIF), that amount is expected to be fully used under the MAP programme in 2004. For 2005, however, the proposed commitment appropriations are significantly less than for 2004. This proposal takes into account the EIF pipeline of expected projects for the last year of commitments under the MAP programme (2001 to 2005).

It should be noted that the MAP financial instruments are market driven. In particular, for ETF start-up, the downturn of the stock exchanges, the reassessment of innovative fast-growing businesses and subsequent heavy losses for investors, contributed decisively to the lower take-up expected in 2005, as also reflected in the EIF pipeline for this year. The EIF pipeline for MAP supports projects amounting to EUR 44.5 million. This amount is based on the latest pipeline information provided by the EIF for all MAP financial instruments together and it must be considered as a more realistic target that the one foreseen in the financial programming of May 2003 (EUR 63.5 million). It represents projects that are expected to be submitted for approval until the end of the MAP commitment period, as well as eligible costs under the programmes (for example, EIF management fees, marketing and legal costs, etc.). For 2005 only the commitment appropriations that can reasonably be expected to be used under the programme are requested,

-- expenditure on the budget heading 'Nuclear safety, in this policy area is contingent on receipt of applications for Euratom loans which could be met within existing lending limits and eligibility criteria. In accordance with budgetary practice and to reflect current expectations on the possibilities for entertaining applications requiring expenditure on this budget heading during 2005, a token entry, rather than a definite amount, has therefore been proposed in this PDB.

Information society: this policy area benefits from an increase, excluding research, of EUR 8.9 million in relation to the 2004 budget, in accordance with the financial plan.

This policy area consists of three operational activities: communication policy, eEurope, and research and technological development in the area of information society.

The communications policy provides a major contribution to the objectives set by the Heads of State or Government in Lisbon in 2000, i.e. to make Europe the world's most competitive and dynamic economy by 2010.

This contribution consists of enabling and promoting the development of an open and competitive internal market for communications networks and services, in which growth, innovation and efficiency are stimulated.

The electronic communications policy contributes not only to generating competition in the market, but also to enabling European citizens to benefit from the information society

The eEurope activity contains several programmes that contribute to the implementation of the eEurope action plan which provides an overall policy umbrella. The broad objective of the eEurope 2005 action plan is to accelerate the transformation to the information society, and to ensure that the benefits are available to all citizens. To this end the eEurope activity encompasses:

-- Modinis (monitoring of the eEurope 2005 action plan, dissemination of good practices and the improvement of network and information security),

-- eTen - supporting the set-up of «public e-services» identified in the action plan, by bringing services of common interest based on electronic data transmission networks to an operational level,

-- eContent and eContentplus supporting the development of European digital content on global networks, thus addressing the central requirements for a wider take-up of broadband,

-- The Internet action plan and Safer Internet action planplus addressing a more secure information infrastructure by promoting the safer use of the Internet through combating illegal and harmful content,

-- Finally, the European Agency for Network and Information Security will be fully operational and facilitate a Co-ordinated approach on security issues on European scale.

The focus of the information society technologies priority under the sixth framework programme (FP6) of research and technological development is on the future generation of technologies that will allow computers and networks to be seamlessly integrated into the everyday environment. This vision places the users, people and businesses, at the centre of future developments for an inclusive knowledge-based society for all. An amount of EUR 1 119,5 million is foreseen for that activity, in line with the financial programming of FP6.

Education and culture: a total amount of EUR 884,6 million is proposed for this policy area that aims to strengthen the human dimension of Europe, while contributing to building a Europe of knowledge, to developing European cultural space, and to involving the citizens with European integration.

This amount will make it possible to finance in particular:

-- the interventions under the education activity. An appropriation of EUR 428.6 million is proposed, which reflects an increase of EUR 43.8 million in relation to 2004.

This increase is explained to some extent by the strengthening of the appropriations allocated to the Socrates programme (EUR 361,2 million proposed for 2005), in line with the programming of the total allocation for the duration of the programme (2000 to 2006). It is also explained by the progression of the appropriations for the programme Erasmus Mundus, which passes from EUR 8 million in 2004 to EUR 27 million in 2005.

In contrast, the appropriations for the programme eLearning falls by EUR 16 million in 2004 to EUR 14 million in 2005, so as to respect the total appropriations allocated to the programme for its duration (2004 to 2006).

Finally the appropriations proposed for the other headings of the activity, covered by the programme of support for the organisations active in the field of education, do not present any considerable divergence in relation to the appropriations of 2004,

-- the key Community intervention under the activity 'Vocational training,, concerns the second phase of the Leonardo da Vinci programme, for which EUR 208.2 million is proposed for 2005.

This chapter also contains the subsidies intended for Cedefop (EUR 16.1 million proposed for 2005), and the European Training Foundation in Turin (EUR 18.5 million proposed for 2005, including EUR 2.5 million under the Phare programme),

-- the main Community intervention under the activity 'Culture and languages, is the framework programme for culture, for which EUR 34.9 million is proposed for 2005, in line with the programming of the total allocation for the duration of the programme (2000-2004, in the process of being extended to 2005 and 2006).

The appropriations for the other headings of the activity, covered by the programme of support for organisations active in the field of culture, are proposed for amounts making it possible to respect the multiannual allocation of the programme,

-- the principal Community intervention carried out under the audio-visual policy and sport activity is the implementation of the programmes MediaPlus and MediaTraining. For 2005 a total appropriation of EUR 93.3 million is proposed, in line with the programming of the total allocations for the programmes for their duration (2001 to 2005, in the process of extension to 2006).

The reduction of the overall appropriation for this activity is primarily explained by the fact that the 2004 appropriations included EUR 8.6 million under the European year of education through sport.

-- for the principal Community intervention under the activity 'Youth,, the Youth programme, an allocation of EUR 111,5 million is proposed for 2005, which explains the rise of the appropriations of the activity,

-- finally, it is proposed to create a single executive agency for the education and culture field. It will assist the Commission in the current programme management, the basic acts of which all anticipate the resort to external assistance. The creation of this agency, firstly motivated by the need to replace the TAOs, offers moreover the opportunity to improve programme management, and of ensuring a better service for recipients, while concentrating the activities of the Commission departments on more political and priority tasks in this field.

The information and communication actions are distributed between various policy areas: press and communication, education and culture, economic and financial affairs, enlargement, justice and home affairs, external actions, and coordination of the policies of the Commission. An overall appropriation of EUR 89.7 million is proposed, including EUR 63.8 million for the policy area 'Press and communication,. This amount will allow:

-- inform the media and the citizens of the activities of the Commission, and make the goals of its policies known,

-- inform the Commission of the development of public opinion in the Member States.

Taxation and customs union: a total amount of EUR 58.2 million, i.e. an increase of EUR 8 million in relation to 2004, is foreseen for this policy area, as anticipated in the financial plan, and will make it possible to fully incorporate the new Member States into the current programmes, in particular:

-- Customs 2007 (EUR 35.1 million): the actions envisaged in 2005 aim primarily at the application of Community legislation, in order to ensure the orderly functioning of the single market in an enlarged Community. The specific objectives of the programme take account of the need to ensure the smooth operation and development of the existing computer systems, to strengthen the actions of fraud prevention, and to reduce the costs of setting in conformity, by encouraging the creation of a competitive environment for enterprise. Actions concern communication systems and information exchange, management and project groups, comparative analysis, exchange of officials, organisation of seminars and workshops, and of training and follow-up activities.

In view of the extension of the customs union to the 10 new Member States, with the displacement of a major part of the external frontier of the EU towards the east, actions will be taken to help the administrations of the new Member States to exercise a control mechanism which protects the internal market in relation to trade with the third countries,

-- Fiscalis 2007 (EUR 14.6 million): This programme aims at improving the smooth operation of the tax systems in the internal market by strengthening cooperation between the participating countries, their administrations and officials, and at establishing, with a view to remedying, the problems likely to make this cooperation more difficult in the fields of legislation and administrative practices. In particular, various actions are envisaged in the fields of communication systems and information exchange, exchange of officials, working parties, multilateral seminars and controls, and common training initiatives.

Health and consumer protection: EUR 120,6 million is assigned to this policy area, i.e. an increase of EUR 12,6 million compared to 2004.

The main elements of the activities in this policy area over the medium term are identified in the actions set out in the Consumer policy strategy 2002 to 2006, the implementation of the Public health programme 2003 to 2008, and the completion and implementation of the actions set out in the White Paper on food safety, along with the general activity of adapting to a Community of 25 and, in due course, more Member States.

In particular the specific objectives for 2005 financed by heading 3 are, notably:

-- to implement a programme of actions under the five-year Consumer policy strategy (2002 to 2006). That strategy sets a clear sense of political direction by setting three mid-term objectives: 'a high common level of consumer protection,, 'effective enforcement of to consumer protection rules,, and 'involvement of consume organisations in EU policies,. In 2005, the work will continue in building an environment in which consumers feel confident, benefiting in terms of choice and prices from the Internal Market unrestricted by national borders. This work contributes to the global competitiveness of the EU by ensuring that the full force of competition is felt in the business-to-consumer market. An amount of EUR 20,2 million is foreseen for the programme,

-- to implement the Public health programme 2003 to 2008 (EUR 58.9 million for 2005), with reinforced support from an Executive Agency,

-- to develop the activities of the European Food Safety Authority, which will be located in Parma, as set out in the decision of the European Council of December 2003, ensuring that the Agency can continue its development and meet the various demands placed upon it. This will require some additional financial support over and above that planned for 2005, hence the request for an additional EUR 2,5 million to give a total of EUR 36.7 million,

-- to launch the new European Centre for Disease Prevention and Control (EUR 4.8 million).

Enterprise: the actions in this policy area aim primarily at:

-- encouraging entrepreneurial activity and contributing to the improvement of the enterprise environment,

-- guaranteeing the access of goods and services to the market, while ensuring a high level of safety and of environmental protection,

-- helping the creation of an environment favourable to innovation and to change,

-- strengthening the overall competitive position of European enterprise, encouraging sustainable production, and ensuring the profitability of the environmental and social pillars of the EU strategy for sustainability, in particular by impact assessments.

An amount of EUR 136.4 million, excluding research, is planned for this policy area, and aims in particular at:

-- the strengthening of growth and competitiveness of enterprise, and the improvement of the administrative, regulatory and financial environment of enterprise, in particular through the programme for enterprise and entrepreneurship, especially the SME (EUR 26 million) and the IDA network (EUR 29.3 million);

-- the development of the internal market (EUR 19.7 million), in particular by sectoral alignment, notification and certification, designed to stimulate the exchanges between the EU and its new neighbours, and standardisation and approximation of legislation (EUR 18.8 million). An amount of EUR 5.8 million of this is planned for the financing of preparatory work linked to the implementation of the new EU regulatory framework for chemicalsincluding the creation of the new Chemicals Agency, which will be located in Helsinki, as decided by the European Council of December 2003. This Agency will have a central role for the administration of the REACH system (new strategy for chemicals), which is priority of this policy area,

-- the subsidy for the operation of the Agency for the evaluation of medicines, amounting to EUR 29.1 million, i.e. + EUR 0,6 million in relation to 2004, includes an additional subsidy of EUR 3.7 million for the fee exemptions for orphan medicines.

The activity 'Research, - promoting innovation and change under the sixth RTD framework programme is intended to stimulate technological innovation, utilisation of research results, transfer of knowledge and technologies, and the setting-up of technology businesses in the Community and in all its regions. The amount of EUR 75.6 million allocated to that activity is in line with the financial programming of the FP6.

The overall aim is to make a tangible improvement in Europe's innovation performance, in the short, medium and long term, by stimulating a better integration between research and innovation, and by working towards a more coherent policy and regulatory environment across the European Union. In the field of research and innovation, positive externalities can be obtained only by complementing existing national activities by coordination and action at European level. Important economies of scale can be obtained by avoiding fragmentation and duplication of efforts at national level. The predominance of the co-ordination role and exchange of best practices ensures these results while at the same time respecting the principles of subsidiarity and proportionality.

Environment: an appropriation of EUR 234.5 million is proposed for this policy area, including EUR 142.5 million for the extension of the LIFE programme in 2005 and EUR 56.9 million for the implementation of the environmental policy and the development of new political initiatives.

The strategic objectives of the Commission, targeted towards ensuring a high level of protection of the environment and sustainable development, are set in the sixth environment action programme 2002 to 2012, and will not change fundamentally in 2005.

Within this strategic framework, continued priority will be granted to climate change, the quality of natural resources and bio-diversity, sustainable use of resources, environment and health (air quality and the urban environment) and global environment issues.

The protection of the environment is a key element of all the 2005 priorities. In the context of competitiveness and cohesion, investment in environmental technologies will give a boost to the economy, delivering growth while reducing negative impacts on health and the environment, and will enhance the quality of life. Concerning citizenship and security, EU citizens look to the EU level for protection against disasters as well as CBRN threats, in the form of a rapid response in the event of natural or man-made disasters, and of risk prevention measures, in particular to ensure that hazardous chemicals are controlled. This has an significant environmental dimension and is closely linked with the implementation of environmental legislation. Finally, concerning the third priority of global security and stability, environmental policy has a key role to play in the effort to promote the external dimension of sustainable development.

Justice and home affairs: 2005 will coincide with the start of the second stage of establishment of the area of freedom, security and justice, following the evaluation of the results achieved under the Tampere programme. The core and overarching strategic objective will remain to work on the completion of this area, and this objective will represent a key contribution to the Commission's second priority for 2005 (Security and European citizenship).

A total of EUR 536.7 million is proposed for this policy area, i.e. an increase of EUR 44.5 million compared to 2004. This amount will enable, in particular, the development of the integrated system of information for visas (VIS), the Schengen information system II, as well as common policies in regard to immigration, asylum and integration of third-country nationals into the EU. An important initiative in this field is the extension of the European Refugee Fund for the period 2005 to 2010.

An amount of EUR 336 million is included to finance the implementation of the transitional Schengen facility, in order to help the new Member States to control the new external frontiers of the Union. EUR 13 million will be used to finance the transitional facility for Kaliningrad.

Employment and social affairs: under Article 138 of the Treaty, the Commission has the task of promoting the consultation of management and labour at Community level, and shall take any relevant measures to facilitate their dialogue by ensuring balanced support to the parties. This social dialogue must create the right conditions for workers t