COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT FINANCIAL PROGRAMMING 2002-2006 Financial Perspective Headings 3 and 4

The Financial Perspective provides a general framework by broad categories of expenditure that needs to be detailed further if the Commission is to put operations into a medium-term context. The allocations for 2000-2006 were agreed following the Berlin European Council on Agenda 2000 as an integral part of the Interinstitutional Agreement on improvement of the budgetary procedure. It is not, however, equivalent to multiannual financial programming. Financial programming is the tool which allows departments to programme the various Community policies and actions. An agreement reached with the budgetary authority in July provides for systematically examining the compatibility of the planned programmes with the financial perspective. The Commission has undertaken to adopt and transmit to the budgetary authority the financial programming of headings 3 (internal policies) and 4 (external actions).

The projections remain indicative and do not prejudge any decisions which may be taken in future budget procedures or any future Commission initiative for new programmes covering several financial years.

The financial programming of headings 3 and 4 of the financial perspective over the period 2000-2006

(1) Heading 3 : Internal Policies

The attached tables cover the period 2000-2006. The figures shown for 2000 to 2002 are those already decided or proposed in the respective budgetary procedures. For the sake of consistency, the projections for 2003-2006 follow the nomenclature of the 2002 preliminary draft budget.

The allocation between the internal policies of more than four-fifths of this expenditure is predetermined by the amounts agreed by co-decision for multiannual programmes, in addition to which there are a small number of major programmes containing reference amounts.

Three types of expenditure can therefore be differentiated:

-Multiannual programmes that have been adopted or proposed and for which the amounts are programmed in accordance with the Interinstitutional Agreement of 6 May 1999 with regard to the incorporation of financial provisions in legislative decisions. Two categories are found here: programmes already adopted by the legislative authority (shown in the tables as 'd' for decided or 'c' for co-decision) and programmes which have been proposed by the Commission but not yet adopted by the legislative authority (shown in the tables as 'p').

-Multiannual programmes which are about to expire and for which no extension or renewal has yet been proposed. These amounts are extrapolated, in most cases, by applying an annual growth rate of 2 %, in line with the expected budgetary deflator (shown in the tables as 'e' with the figures in italics).

-Measures not forming part of multiannual programmes, which are grouped together under the heading 'Other actions'. It is assumed that, in most cases, expenditure will grow in line with the budgetary deflator (2% yearly), starting from the 2002 preliminary draft budget.

The financial programming tables are set out by budget title. Within each title, multiannual programmes are listed separately, while amounts for 'Other actions' are grouped together.

(a) Comments

The heading 3 ceilings for the period 2000-2006 are those of the financial perspective agreed for that period, expressed in current prices. Projections for individual policies which are not yet the subject of a budgetary or legislative decision are essentially mechanical, i.e. an annual growth rate of 2% has been applied, except where there are sound reasons for assuming either that spending should remain at current levels or that it should increase at a faster rate to reflect political priorities.

The following points should be noted:

-Research and technological development (RTD) remains the single largest area of spending (over 60% of heading 3). The allocations for the period 2000-2002 correspond to the programming laid down for the 5th framework programme, plus the amount deducted in 1999 (EUR120 million) to meet the urgent needs of the reconstruction of Kosovo. The amount earmarked for 2002 (EUR4.055 billion) therefore includes EUR45 million in respect of the last tranche of the abovementioned adjustment.

-2002 is not only the last year of the 5th framework programme, but will also see the launch of a new framework programme, for which the Commission is proposing an overall allocation of EUR17.5 billion for the period 2003-2006.

-A number of financially significant programmes (averaging over EUR30 million a year) have been adopted since the first year of the present financial perspective:

-under the co-decision procedure: SOCRATES 2000-2006 (B3-1001), Youth 2000-2006 (B3-1010), Culture 2000-2004 (B3-2008), Trans-European Networks 2000-2006 (Transport B5-700, Energy B5-710, Telecoms B5-720), LIFE III 2000-2004 (B4-320);

-by Council Decision with a financial reference amount: LEONARDO 2000-2006 (B3-1021), MEDIA PLUS 2001-2005 (B3-201), Programme for enterprises and entrepreneurship 2001-2005 (B5-510 and B5-511), European Refugee Fund 2000-2004 (B5-81).

-Allowance has been made for the high political priority accorded to measures in the field of public health. A new programme for 2001-2006 was proposed in May 2000. Pending the adoption of this new strategy for health, the six programmes which were due to terminate at the end of 2000 and the end of 2001 have been extended to the end of 2002. The same political priority has been given to food safety (B3-4), with plans to create a European Food Safety Authority), and safety in air and maritime transport (B2-7), with the proposed creation of two agencies.

-There is a downward trend in this financial programming for a number of areas as certain operations will be completed. This is the case, for instance, from 2003, for the information and communication lines (B3-3), mainly because of the completion of the euro information campaign. Any new initiative to take over from these operations would have to be covered from the margin available beneath the ceiling for the heading, as mentioned below.

-This programming complies with the ceilings set for the European Union in its present configuration of fifteen Member States. The ceilings will be adjusted at the time of enlargement to allow for the expenditure needs deriving from this enlargement in accordance with the relevant provisions of the Interinstitutional Agreement.

(b) Margin available beneath the ceiling for the heading

A number of remarks should be made concerning the margin between the current financial programming of heading 3 and the ceiling for this heading in the financial perspective:

-The programming of heading 3 shows a more or less steady margin of EUR190-270 million for 2003-2005, with a figure of around EUR350 million at the end of the programming period in 2006. However, it must be borne in mind that this scenario is based on a hypothesis of an annual budgetary deflator of 2%. Should this forecast turn out to be inaccurate and the deflator is 0.5 percentage points lower, the ceiling will need to be adjusted downwards and the margin in 2006 will be some EUR150 million lower.

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-A margin also has to be available to meet the cost of new preparatory work, pilot projects or other possible measures to respond to new circumstances. Following preparatory work, the Commission might have to propose new programmes. Neither the scope of such programmes nor their budgetary allocations can be foreseen at present.

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LEGEND :

d : decided

c : co-decided

p : proposal for Council decision

e : estimates (figures in italics

pc : proposal for co-decision

pm : will be determined later

growth rate: annual average growth rate for the period 2000-2006

06/01 : growth rate 2006/2000 // Remarks:

Bold figures indicate Title totals.

Figures in italics are estimates based on average annual growth rate of 2% unless otherwise calculated

(2) Heading 4 : External action

The presentation of the programming for heading 4 (External action) follows the same approach used for heading 3. Therefore, the amounts presented for 2000 and 2001 are those decided by the budgetary authority following the annual procedure. The figures for 2002 represent the proposal made for the 2002 PDB.

Unlike most of heading 3, where the various programmes correspond to specific budget lines, the presentation for heading 4 is either by geographical allocation (encompassing various budget lines) or by theme. As a consequence, the adoption - or, at the other extreme, the expiry - of a single legal basis cannot be singled out in the table: however, the evolution of the geographical or thematic chapters over the period takes into account potential changes in the programmes.

(a) The period 2000-2006: General Comments

The geopolitical events of the recent past in the Central and Eastern European Countries have greatly influenced the external action of the European Union: indeed most of the major EU assistance programmes (MEDA, TACIS and CARDS) have been created in the course of the last decade (PHARE in 1989). In particular, in 1995 the Community adopted new strategies concerning the enlargement of the European Union to the associated CEEC and the reinforcement of the partnerships between the European Union and third Mediterranean countries, the New Independent States (NIS) and the developing countries of Asia and Latin America. Moreover, following different conflicts and natural disasters in various regions of the world (e.g. Central Africa, Balkans, Central America, East Timor), EC crisis interventions have also assumed an increasing relevance in recent years.

In the Community budget, the annual commitment appropriations for external policies increased from EUR1.9 billion for 1990 to EUR8.2 billion for 2000 and EUR8.6 billion for 2001 (taking into account the pre-accession strategy, amounting in 2001 to EUR1.62 billion for PHARE, EUR1.08 billion for ISPA and EUR540 million for SAPARD).

According to the financial perspective included in the Interinstitutional Agreement of 6 May 1999, the ceiling for heading 4 increases from EUR4.627 billion in 2000 to EUR4.787 billion in 2006, at constant 2000 prices. The additional financial needs for the Balkans region have nevertheless significantly changed the original programming: since no revision of the financial perspective - and in particular no increase in the heading 4 ceiling - has been possible, these supplementary needs have been satisfied by mobilising the flexibility instrument in 2000 and 2001 and by overhauling external strategies. In practice, the Commission has undertaken a serious effort aiming at redeploying funds, within heading 4, according to specific criteria.

In particular, redeployment has been carried out in accordance with the following priorities:

-the geo-political weight and priorities attached to certain regions;

-the poverty-focus dimension of external programmes;

-the Commission's record in terms of management of these programmes.

(b) The financial programming of Heading 4: Key elements

As mentioned above, the financial programming that accompanied the 2001 PDB included a proposal for revising the financial perspective in order to cope with the significant needs for financing the programme for the Balkans region. The budgetary authority failed to reach an agreement on this revision.

Moreover, the adoption - or renewal - in 2000 of important assistance programmes, such as CARDS, MEDA and TACIS, has undoubtedly marked the programming of heading 4.

The new programming is compatible with the financial reference amounts, determined by the Council, for the MEDA (EUR5.35 billion) and CARDS (EUR4.65 billion) programmes; for the other financial operations, the financial programming has relatively minor changes compared with what was adopted by the Commission in May 2000.

For the NIS, the overall allocation is programmed at a level of EUR3.66 billion, which is higher than the financial framework adopted by the Council (EUR3.138 billion) for the TACIS programme. Although this is slightly less than the amount put forward in last year's programming (a reduction of around EUR24 million), it would enable the Commission to supply an appropriate level of macro-financial assistance throughout the reference period.

For the last four years of the period (i.e. 2003-2006), the margin would increase from EUR211 million to EUR400 million, allowing the Commission to tackle unforeseeable events in the area of external relations, and to reinforce external programmes when necessary.

The total amount proposed for heading 4 in 2002 is EUR4.82 billion, which is lower than the one adopted for the 2001 budget. This is due to the mobilisation of the flexibility instrument (EUR200 million) for 2001, which has allowed proper assistance to the Balkans without significantly affecting all the other external programmes.

The external priorities set out by the Commission for 2002, the Mediterranean and development cooperation (not to mention the pre-accession strategy, which falls under Heading 7), also represent medium-term objectives.

The Mediterranean region is therefore a priority for cooperation, and this explains the level of the financial allocation. The European Union needs to build closer links with its immediate neighbours, supporting their path towards stability and democracy. However, the management of the programmes, in particular MEDA, needs some improvements, in terms of efficiency and impact: this justifies a limited level of commitment appropriations at this stage and an increase towards the end of the programming period.

For other regional operations, such as technical and economic cooperation with Asia and Latin America, the focus is on poverty alleviation, with specific support for the health and education sectors. However, whereas the allocation for Asia shows an annual increase in financial terms over the period (+1.4%), assistance to Latin America will be slightly reduced (an average annual decrease of 1.1%): this mostly stems from bad implementation records, as well as the phasing-out of specific programmes (e.g. post-Mitch reconstruction in Central America). The process of rationalising the management of external assistance programmes will hopefully improve the efficiency of the Community's operations in this region.

With respect to the Balkans region, the CARDS programme aims to consolidate the legal and budgetary basis for the EC's activities in Albania, Bosnia Herzegovina, Croatia, FYROM and the FRY (Serbia, Kosovo and Montenegro). The programme provides for stable or decreasing (BiH) country allocations except for Montenegro, Croatia, Kosovo and Serbia, where the political change justifies increased support (possible, in 2000 and 2001, with the mobilisation of the flexibility instrument).

The assistance programme for South Africa has both high political relevance and a significant poverty focus: that is why the financial effort will be continued at the present level for the whole period (the Regulation adopted by co-decision provides for an annual allocation of EUR125 million).

On the thematic side, the Commission proposes to increase the overall allocation for food aid (an annual average increase of 2.7%), which is aimed at the poor and therefore needs continuing financial support.

As far as the section "other cooperation actions" is concerned, the overall allocation will decrease by an annual average of 0.5%, essentially due to the new estimates of financial needs for fishery agreements (in particular with Morocco). Within this section an important rationalisation effort has already been undertaken in the sense that budget lines have been regrouped according to their thematic orientation - geographic, environmental, social - or their end user (NGOs).

Humanitarian aid should be spared cuts because of its good performance, visibility and targeting of the poorest crisis-hit populations: average annual growth will be 1%.

Finally, the pre-accession assistance to Cyprus, Malta and Turkey will continue to be financed in heading 4: transfer of these funds will be possible only after revision of the financial perspective. At present, Cyprus and Malta have their own specific pre-accession instrument, whereas the legal basis for Turkey is under preparation (most of the financial assistance for Turkey comes from the MEDA programme).

In conclusion, the present programming offers scope for gradually building up over the entire period a margin that leaves some room for unforeseeable events in the area of external relations, reinforcement of programmes when necessary, and possible deflator fluctuations. The multiannual programming is indicative.

This proposal is compatible with the Commission's priorities and medium-term objectives: the approach adopted strikes a proper balance between the need to support the regions of geopolitical importance to the EU and the commitment to ensuring adequate financial assistance to the poorer regions in the world as a whole. It also respects the constraints imposed by the financial perspective and takes account of the past and present performance record of the various programmes involved, and leaves open the possibility of reinforcing programmes in the light of improved performances and new needs.

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