Communication from the Commission to the Council and the European Parliament on the establishment of a new financial perspective for the period 2000-2006
Date: 1998-03-18
Institutions: European Commission
Subjects: Community budget, accession to the European Union, budgetary procedure, interinstitutional agreement, multiannual financial framework

«<H^(W*W>. 

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 18.03.1998 
COM(1998) 164 final 

COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL AND THE EUROPEAN PARLIAMENT 

ON THE ESTABLISHMENT OF A NEW 

FINANCIAL PERSPECTIVE FOR THE PERIOD 2000-2006 

CONTENTS 

INTRODUCTION 

1.  BASIC  DATA  FOR  THE  NEXT  FINANCIAL  FRAMEWORK 

AND  THE  ECONOMIC  ASSUMPTIONS 

1.1  Economie  background 

1.2  The  financial  perspective at constant  1999 prices 

1.3  Term  of the  financial  perspective 

1.4  Assumptions  in connection  with  enlargement 

1  c-

2 

2 

2 

3 

3 

2.  THE  STRUCTURE  OF THE  NEXT  FINANCIAL  PERSPECTIVE 

3 

2.1  The current  Community 

2.2  Pre-accession  aid 

2.3  Expenditure  in connection  with  accession 

3.  CHANGES  IN THE  VARIOUS  HEADINGS  OF THE  FINANCIAL 

i 

PERSPECTIVE 

3.1  Agriculture  (heading  1) 

3.2  Structural  operations  (heading  2) 

3.3  Internal  policies  (heading  3) 

3.4  Hxtern.al action  (heading  4) 

3.5  Administrative  expenditure  (heading  5)... 

3.6  Reserves  (heading  6) 

3 

4 

4 

4 

4 

7 

10 

14 

17 

1 S 

<--\ 

4.  OVERALL  FINANCIAL  PERSPECTIVE  CEILINGS  AND  MARGINS 

AVAILABLE  BENEATH  THE  OWN  RESOURCES  CEILING 

4.1  Overall  ceiling  on  appropriations  lor commitments 

4.2  Determining  the overall  ceiling  on  appropriations  for  payments 

4.3  Margins  available  beneath  the own  resources  ceiling 

5.  PLANNING  AND  FINANCING  ACCESSION-RELATED 

EXPENDITURE 

5.1  Accession-related  expenditure 

5.2  financing  accession 

5.3  Incorporating  the  impact  of accession  in the  financial  perspective 

of an  enlarged  Community 

V) 

\{> 

20 

20 

21 

21 

22 

22 

TABLES 

ANNEXES 

INTRODUCTION 

In  last  July's  Agenda  20001  the  Commission  proposed  a reference  financial  framework 
for  2000-06  in  anticipation  of  the  enlargement  of  the  European  Union.  This  framework 
shows  that  it  is  possible  to  provide  for  the  development  of  the  revamped  Community 
policies  for  the  current  Member States  and,  under  certain  conditions,  finance  the 
accession  of a number  of countries  from  central  and  eastern  Europe  and  Cyprus  without 
changing the own resources ceiling of  1.27% of GNP between now and 2006. 

in  response 

to  paragraph 25  of 

the 
This  communication  has  been  produced 
Interinstitutional  Agreement  of  23 October  1993  on  budgetary  discipline  and 
improvement  of  the  budgetary  procedure,  which  requires  the  Commission  to  present 
proposals  for  a  new  financial  perspective  before  1  July  1998.  The  financial  perspective 
determines  the  general  development  in  the  Community  budget  for  the  current  fifteen 
Member  States and the pre-accession  aid  for  the  applicant  countries.  It must  also  ensure 
that  resources  are  available  for  use  in  due  course  to  finance  accession  under  the 
conditions  set  out  in  Agenda 2000.  The  communication  thus  meets  the  Luxembourg 
European  Council's  call  for  a  clear  distinction  between  the  financing  intended  for  the 
current  fifteen  Member States  and  that  for  the  applicant  countries  both  before  and  after 
accession. 

The  financial  perspective  set  out  in  the  communication  is  consistent  with  the  other 
proposals  presented  by  the  Commission  in  relation  to  the  common  agricultural  policy, 
structural  operations, pre-accession  aid and the Guarantee Fund for  lending operations. 

the 

report  on 

implementation  and 

The  accompanying 
the  1993 
Interinstitutional  Agreement  shows  how  useful  this  instrument  is  for  orderly  and 
controlled  growth  in Community  expenditure  in line with  the resources provided  and as a 
jointly agreed  reference  to improve collaboration  between  the institutions  in the course of 
the annual  budgetary  procedure.  When Agenda 2000 was first  discussed,  the two arms of 
the  budgetary  authority  made  it  clear  they  wanted  this  instrument  to  be  retained.  The 
financial  perspective  is  meant  to  form  an  integral  part  of  the  new  Interinstitutional 
Agreement. 

renewal  of 

The basic assumptions used  for drawing  up the financial  framework  are set out  in Part  1, 
thé structure is described in Part 2, Part 3 shows how each heading will change and Part 4 
determines  the  ceilings  on  total  expenditure  and  the  margins  available  under  the  own 
resources  ceiling.  Finally,  Part 5  deals  with  the  programming  and  financing  of  the 
expenditure planned in connection with  accession. 

Agenda 2000: For a stronger and wider  Union, COM(97) 2000 final. 

1. 

BASIC  DATA  FOR  THE  NEXT  FINANCIAL  FRAMEWORK  AND  THE 
ECONOMIC  ASSUMPTIONS 

1.1 

Economic  background 

The Commission  has  based  the  next  financial  perspective  on  the  most  recent  short-term 
economic  forecasts  available, which  were presented  last November and  which  were used 
for the adjustment  cf the financial  perspective for  1999.2 

For  the  period  2000-06  the  Commission  has  applied  the  same  medium-term  economic 
assumptions  as in Agenda 2000, viz. a GNP economic  growth  rate of 2.5% a year and a 
GNP  deflator  of  2%  a  year.  In  actual  fact,  the  GNP  deflator  is  used  only  to  check  the 
consistency  between the expected  level  of agricultural  expenditure, which  is evaluated  at 
current prices, and the agricultural  guideline. 

The  most  recent  developments  in the Community  economy  and  the prospects  opened  up 
by  the  move  to  the  third  stage  of  economic  and  monetary  union  lend  support  to  the 
economic assumptions made. 

For  the  applicant  countries,  the  Commission  has  taken  the  latest  economic  forecasts 
available  and  applied  a medium-term  economic  growth  rate  of  4% a year  beyond  1999. 
These  forecasts  do  not  affect  the  financial  perspective  at  present  but  they  will  after 
accession. 

Annex A sets out the main economic parameters used. 

1.2 

The financial perspective at constant  1999 prices 

The  financial  perspective  proposed  has  been  drawn  up  at  constant  1999 prices,  making 
comparison  easier  with  the  1999  budget  which  is  now  in  preparation.  The  financial 
perspective  ceilings  for  that  year  also  serve  as  the  starting  point  for  the  changes  to  be 
expected  for  the  following  period.  Another  advantage  of  this  price  base  is that  it  can  be 
used throughout the negotiations. 

For this  purpose, the  amounts  initially  set out  in Agenda  2000 at  1997 prices have been 
converted  into constant  1999 prices by applying the latest deflator,  without any change in 
the  proposals  contained  in  that  communication.  This  exercise  produced  more  exact 
amounts expressed in tens of millions of euros. 

Communication  from  the  Commission  to  the  Council  and  the  European  Parliament  on  the  technical 
adjustment  of  the  financial  perspective  for  1999  in  line  with  movements  in  GNP  and  prices. 
SEC(98) 306. 

1.3 

Term of the financial perspective 

As  in  Agenda  2000,  the  Commission  has  decided  to  present  a  seven-year  financial 
perspective as it feels  that a period  of this length is needed  to assess the full  effect  of the 
proposed reforms to Community policies and the impact of the first wave of enlargement. 

1.4 

Assumptions  in connection with  enlargement 

These  proposals  are based  on the  same  assumptions  as Agenda  2000, viz. the  accession 
of  five  countries  from  Central  and  Eastern  Europe  and  Cyprus  as  part  of  an  overall, 
gradual  and  inclusive  enlargement  process.  As  a  technical  working  assumption,  this 
communication  supposes that this accession will occur in 2002 and does not prejudge the 
decisions which will actually be taken. 

2. 

THE STRUCTURE OF THE NEXT FINANCIAL  PERSPECTIVE 

The main  innovation  in the next financial  framework  is that alongside  allocations  for  the 
current  Member  States,  it  also  covers  expenditure  in  connection  with  the  enlargement 
process,  both  in  terms  of  pre-accession  aid  and  the  expenditure  resulting  from  the 
accession  of  new  Member  States.  However,  a  distinction  must  be  made  between 
pre-accession  aid,  the  level  of  which  will  already  have  to  be  decided  at  this  stage  and 
included  in  the  financial  perspective  within  the  limits  of  the  resources  available  to  the 
current  Community,  and  expenditure  resulting  from  accession,  which  will  not  be 
incorporated  in  the  financial  framework  until  the  time  of  accession  by  means  of  an 
adjustment  of  the  financial  perspective.  This  adjustment  will  cover  both  the  new 
requirements  resulting  from  accession  and  the  financing  of  this  expenditure  from  the 
resources  left  available  for  this purpose  in the fifteen-nation Community  as well  as  from 
the  additional  resources  obtained  from  the  rise  in  Community  GNP  as  a  result  of 
enlargement. 

2.1 

The current Community 

As regards the current Community, the financial framework  proposed  by the Commission 
is directly  based  on the  structure  of the present financial perspective,  which  is now  well 
known.  The  various  categories  of  expenditure  are  homogeneous  and  clearly  identify  the 
main areas of Community  spending. The financial  framework  will therefore  comprise  six 
headings: agriculture,  structural  operations  (divided  into two subheadings: the  Structural 
Funds  and  the  Cohesion  Fund),  internal  policies,  external  action,  administrative 
expenditure  and  the  reserves,  divided  into  three  separate  subheadings:  the  monetary 
reserve, the reserve for emergency aid and the guarantee reserve. 

2.2 

Pre-accession  aid 

The  Commission  has  proposed  that  pre-accession  aid  be  financed  from  three  different 
headings  of  the  financial  perspective.  The  new  beefed-up  Phare  programme  will  still 
come under external  action. Two new instruments, proposed  elsewhere, would  operate in 
the agricultural  and structural  sectors and would come under the headings  for  agriculture 
and  structural  operations respectively.  This distinction  is intended  to allow  the  applicant 
countries  to  accustom  themselves  gradually  to  Community  procedures  and  practices. A 
coordinating  regulation  is  also  being  proposed  to  provide  a  clear  definition  of  the 
objectives of each instrument and to coordinate operations. 

The  Commission  proposes  that  the  amounts  intended  for  pre-accession  aid  be  identified 
under  a  specific  subheading  in  each  of  the  three  headings  concerned.  This  would 
guarantee  appropriate  financing  for  both  the  fifteen  Member  States  and  the  applicant 
countries and also provide a clearer picture of Community  action. Once the first wave of 
applicants  has  joined,  the  level  of  pre-accession  aid  will  not  be  changed  and  will  be 
concentrated on those countries not forming  part of the first group. 

2.3 

Expenditure in connection with accession 

Expenditure in connection with the accession of new Member States cannot be entered in 
the  Community's  current  financial  framework.  It  is,  however,  covered  by  specific 
programming  for  headings  1,  2,  3  and 5,  which  would  be  the  common  position  of  the 
fifteen-nation Community for the forthcoming  negotiations. This programming, set out in 
Table 2, is based on the same guidelines and assumptions as Agenda 2000. 

3. 

CHANGES  IN  THE  VARIOUS  HEADINGS  OF  THE  FINANCIAL 
PERSPECTIVE 

The  new  financial  perspective  which  the  Commission  proposes  for  the  lifteen-nation 
Community  is set out in Table  1. This table will have to be approved  by the two arms of 
the  budgetary  authority  and  annexed  to  the  next  Interinstitutional  Agreement.  It  should 
again  be  pointed  out  that  the  purpose  of  the  financial  perspective  is  to  set  overall 
expenditure ceilings for a relatively  long period. It is then up to the budgetary  authority to 
decide  on  the  level  and  breakdown  of  annual  appropriations  within  this  predetermined 
framework. 

3.1 

Agriculture (heading 1) 

1. 
The  Commission  proposes  that  the  ceiling  for  heading  1  should  still  be 
determined  by the agricultural  guideline. On the basis of the economic  forecasts  used by 
the Commission, heading  1 should  increase by  1.9%  a year in real terms and thus rise by 
around  EUR  6.4  billion  from  EUR  45.2  billion  in  1999  to  EUR  51.6  billion  (at  1999 
prices) in 2006. 

However,  the  Commission  proposes  a  change  in  the  expenditure  financed  by  EAGGF 
Guarantee and covered by the agricultural  guideline. It therefore  proposes a review of the 
regulation  on  the  financing  of  the  CAP  and  will  later  present  an  amendment  to  the 
decision  on  budgetary  discipline.3  Apart  from  expenditure  on  markets  and  direct 
compensatory aid, heading  1  would cover: 

•  rural  development  measures,  including  the  existing  accompanying  measures,  and 

horizontal  measures in the fisheries  sector; 

•  veterinary and plant-health measures; 

• 

the agricultural, agri-foodstuff  and rural component of pre-accession  aid, which would 
form  a separate subheading and be covered by the agricultural  guideline. 

2. 
As most  of the agricultural  intervention  measures are fixed in nominal  terms, the 
analysis  of  expenditure  within  heading  1, unlike  other  headings,  is  presented  at  current 
prices, assuming a deflator  of 2% a year. 

The table in Annex B shows the change in agricultural  expenditure at current prices  from 
EUR  40.4  billion  in  1999 to  EUR  49.4  billion  in  2006.  This  increase  of  EUR  9  billion 
would  be  most  pronounced  in  the  early  years  from  2000  to  2003  and  would  then  level 
off.  This  is  due,  first,  to  new  expenditure  of  EUR  2.8  billion  to  be  covered  under  the 
agricultural  guideline  in  2000.  Second,  market  expenditure  should  increase  by  around 
EUR  6.2 billion  between  2000  and  2003  because  of  the  gradual  effect  of  agricultural 
policy  reform. 

The  substantial  margin  which  the  1999  budget  should  leave  available  beneath  the 
agricultural  guideline  (around  EUR  4.8 billion)  would  thus  be  gradually  reduced  at  the 
start of the period to around EUR 3 billion a year over the period  2001-03.  Subsequently, 
the  steady  increase  in  the  agricultural  guideline  and  the  stabilisation  of  agricultural 
spending  should  produce  a  growing  margin  which  should  come  to  EUR  9.7  billion  by 
2006. 

The existence of this substantial  margin at the end of the period will be welcome. First, it 
should  provide  cover  for  the  enlargement-related  costs  without  it  being  necessary  to 
increase  the  agricultural  guideline  at  the  time  of  accession.  The  Commission  also  feels 
that a large margin is needed to accommodate agricultural  market uncertainties.  It should 
also  allow  the  transitional  arrangements  applied  to  the  new  Member  States  to  be 
terminated  when  necessary.  The  Commission  therefore  considers  that  the  heading 1 
ceiling  does not  have to be revised  at this stage  but could  be reviewed  before  2005. The 
Commission  will  contact  the  budgetary  authority  at  the  appropriate  moment  in 
accordance with the Interinstitutional  Agreement. 

3  Council  Decision 94/729/EC of 31 October  1994 on budgetary discipline (OJ L 293, 12.11.1994). 

5 

The expenditure covered by heading  1  of the financial perspective  should  develop 

3. 
as follows over the period: 

Market  expenditure  under  the  reformed  agricultural  policy  should  increase  from 
EUR 37.8 billion in  1999 to EUR 43.7 billion in 2006 according to estimates based on 
the latest trends on the agricultural  markets. This increase in expenditure, partly due to 
the effect  of the reforms  proposed  for arable crops, milk  and  beef, should  extend  over 
2001-03  as  the  impact  of  agricultural  policy  reform  is  felt  before  levelling  off  after 
2003. 

Export  refunds  and market  intervention  measures  will  fall  by around  EUR 4.8 billion 
as  a  result  of  the  reform  (EUR  1.6  billion  for  cereals,  EUR  1.6  billion  for  beef  and 
veal, EUR  1.1  billion  for the  milk  sector  and  EUR  0.5 billion  for  other  sectors  where 
expenditure 
rnarket  organisations)  as 
Community  prices  swing  into  line  with  world  prices.  Agricultural  policy  reform 
should  also  lead to an increase  of  around  EUR  8.2  billion  in direct  compensatory  aid 
(EUR  1.6  billion  for  cereals, EUR  3.6 billion  for  beef and veal  and  EUR  3 billion  for 
the milk sector). 

the  reformed 

linked  with 

indirectly 

is 

The main differences  in relation to the proposals in Agenda 2000 are that the premium 
for  silage  grain  is  retained,  a  further  cut  has  been  made  in  the  price  of  milk,  milk 
quotas are increased and the premium for steers has been reduced. 

The  reform  of  the  common  agricultural  policy  will  be  accompanied  by  a  beefed-up 
rural  development  policy  as  the  upcoming  changes  on  the  agricultural  markets  will 
also affect  the future  of rural economies. 

Under  heading  1,  this  new  rural  development  policy  will  group  together  the 
accompanying  measures introduced  in the  1992 reform  (afforestation,  early  retirement 
and agri-environmental  measures), aid to less-favoured  areas under objective  5a of the 
Structural  Funds  (including  operations  of  this  type  in  objective  1 regions)  and  other 
existing  EAGGF Guidance operations  under objectives  5a and  5b (outside objective 1 
regions). 

However,  operations  of  this  type  in  objective  1 regions,  with  the  exception  of  the 
current accompanying measures and aid to less-favoured  areas, will  be financed under 
heading 2 of the EAGGF Guidance Section. 

The  Commission  still  feels  that  the  Community's  rural  development  instruments 
should  be reorganised  and  is therefore  presenting  a new single regulation  on  EAGGF 
support  for  rural  development  which  will  apply  throughout 
the  Community 
irrespective of the source of  finance. 

In  the  fisheries  sector,  EAGGF  Guarantee  would  also  cover  measures  to  restructure 
fishing  fleets  outside  objective  1 regions  and the other  structural  measures  relating  to 

fisheries  and  aquaculture  outside  objective  1 and  2  regions  provided  for  in  the  new 
regulation on structural operations  in the fisheries sector. 

The  allocation  for  this  new  rural  development  accompanying  policy  and  for  the 
measures  in  the  fisheries  sector  will  thus  increase  from  EUR  2.6  billion  in  1999  to 
EUR 4.7 billion in 2000, rising to an estimated  EUR 5 billion at the end of the period. 

The  veterinary  and  plant-health  measures  currently  financed  from  Article  B2-510  of 
the budget under heading 3 of the financial  perspective will be transferred  to heading 1 
as they are closely  linked to an agricultural  policy concerned  with  product quality and 
food  safety.  Some EUR  100 million a year could be envisaged during the period. 

The  agricultural  pre-accession  instrument  w'iJl  be  allocated  a  constant  HI JR.  520 
million  a  year  (1999  prices)  throughout  the  period.  The  Commission  is  presenting  a 
proposal  for  a regulation  establishing  this agricultural  pre-accession  instrument  which 
would  finance  measures  to  improve  farm  structures,  channels  for  the  processing  and 
marketing  of  agricultural  and  fish  products,  veterinary,  plant-health  and  food  quality 
inspections and integrated rural development measures. 

3.2 

Structural operations (heading 2) 

1. 
During  the  next  programming  period  (2000-06)  the  allocations  for  structural 
operations  in  the  fifteen-nation  Community  would  come  to  around  EUR  247  billion, 
including  a  total  of  EUR  7 280  million  to  finance  structural  pre-accession  aid.  This 
consolidates  and  even  substantially  boosts  the  cohesion  effort  since  the  fifteen 
Member States alone will receive a total  allocation  of nearly  EUR  240 billion,  compared 
with some EUR 208 billion  (1999 prices) over the period  1993-99. 

In order to concentrate  aid  under the  Structural  Funds during the phasing-out  period,  the 
allocations  for  structural  operations  will  fall  slightly  between  2000  and  2006,  dropping 
by  an  average  of  1.4%  a  year  to  EUR  32 470  million  in  2006  compared  with  the  base 
allocation  of EUR 35 730 million  in  1999.4 However, they  will  still  be far  higher than at 
the start of the previous period (around EUR 22 billion in  1993 at  1999 prices). 

The Commission  proposes three subheadings  under heading  2 (Structural  operations)  for 
the  Structural  Funds,  the  Cohesion  Fund  and  the  structural  pre-accession  instrument. 
New regulations for these instruments are being proposed. 

This base  allocation  does  not  include  the  BUR  3 294  million  not  used  in  earlier years  and  transferred 
to  1999 by decisions already  adopted  and the Commission  proposal  on the adjustment  of the  financial 
perspective to take account of the conditions  in which  the  1997 budget was implemented  (proposal  for 
an  adjustment  of  the  financial  perspective  to  take  account  of  the  conditions  of  implementation, 
presented  by the Commission  to Parliament and the Council  on 25 February  1998, SEC(98) 307  final). 

2.  The Structural  Funds 

•  Breakdown  of  the  overall  allocation 

In  view  of  the  efforts  still  to  be  made  in  the  objective  1 regions,  in  particular  to  develop 
infrastructures  and  fight  unemployment,  it  is  proposed  that  the  proportion  accounted  for 
by  this objective  should  be kept  unchanged  at around  two  thirds of the  total. 

Community  initiatives  would  receive  5%  of  the  resources  available  for  the  Structural 
Funds.  A  further  0.7%  of the  Structural  Fund  allocations  would  go  to  innovation  schemes 
carried  out  on  the  Commission's  initiative  to  improve  the  quality  of  aid  under  objectives 
1 to  3. Finally,  0.3% of the allocation  would  be used  to  finance  technical  assistance. 

•  Reduction  in the  number  of  objectives 

It  is  proposed  that  the  current  seven  objectives  be  cut  to  three  -  two  regional  and  one 
horizontal.  Objective  1 will  be  for  regions  lagging  behind  in  their  development,  the  new 
the  new 
objective  2  for  regions  undergoing  economic  and  social  conversion  and 
objective  3  for  the  development  of  human  resources  outside  the  regions  eligible  for 
objectives  1 and  2. 

Various  measures  currently  financed  from  the  Structural  Funds  at  a  cost  of  some 
EUR  2 billion  would  no  longer  be covered  by  heading  2 since  it  is proposed  that  in  future 
similar  measures  be  financed  from  the EAGGF  - Guarantee  Section  under the  agricultural 
guideline.  This  concerns  the  whole  of  agricultural  objective  5a  (outside  objective  I 
regions),  aid  to  less-favoured  areas  in  objective  1  (and  6)  regions,  EAGGF  Guidance 
operations  in  current  objective  5b  regions  and  certain  objective  5a  -  fisheries  operations, 
namely  restructuring  of  fishing  fleets  (outside  objective  1  regions)  and 
the  other 
structural  measures  connected  with  fisheries  and  aquaculture  (outside  objective  1 and  2 
regions). 

•  Geographical  concentration  of  assistance 

The  Commission  is proposing  a gradual  phasing-out  of the  regions  which  no  longer  meet 
the  eligibility  criteria  for  objective  1 and  the  new  objective  2. The  regions  concerned  will 
be  covered  by  a  transitional  scheme  of  six  years  for  objective  1  (seven  years  if  they 
satisfy  the criteria  for  objective  2 in  1999) and  four  years for  objective  2. 

The  population  eligible  for  objective  1  would  thus  be  cut  to  around  20%  of  the 
population  of  the  European  Union  instead  of  the  25% at  present.  I Iowcver,  assistance  to 
the  regions  still  eligible  could  be  boosted  and  they  should  also  receive  the  EAGGF 
Guarantee-financed  aid  for  less-favoured  areas under  heading  1. 

Similarly,  the  new  objective  2  should  cover  no  more  than  18% of  the  population  of  the 
European  Union  (excluding  the  areas  in  objective  1 regions  which  would  be  covered  by 
objective  2  at  the  end  of  the  phasing-out  period).  However,  the  regions  eligible  for 

8 

objective 2  would  receive  more  funds  since  the development  of  human  resources  would 
be financed  under this objective  instead  of objective  3 as at present. These regions could 
also  receive  EAGGF  Guarantee  aid  for  less-favoured  areas  under  heading  1 and  benefit 
from  the other rural development measures under a single programming  framework. 

•  Changes in Structural Fund allocations 

Structural  Fund allocations  would thus come to EUR 28 430 million  in 2006, an average 
of  2%  a  year  lower  than  the  base  allocation  of  EUR  32 730  for  1999.  Since  EAGGF 
Guarantee  will be taking over the financing  of some measures from  the Structural  Funds, 
the annual average fall would be around  1% a year if the situation  remained  unchanged. 

3. 

Cohesion Fund 

The  Cohesion  Fund,  which  helps  to  finance  environment  and  transport  infrastructure 
projects,  will  be  kept  unchanged.  Its  allocation  will  remain  fixed  at  EUR  3  billion  over 
the whole period. 

Member  States  will  be  eligible  if  their  per  capita  GNP  is  lower  than  90%  of  the 
Community  average, irrespective of whether or not they join  the third  stage of economic 
and monetary union. Eligibility for this criterion will be subject to a mid-term review. 

The macro-economic  conditions will be retained: a convergence programme  will have to 
be introduced for any Member State not joining the third stage of economic and monetary 
union and those Member  States taking part will have to present a stability  programme to 
the Council. 

4. 

The structural pre-accession  instrument 

The  structural  pre-accession  instrument  will  be  allocated  EUR  1  040  million  a  year 
throughout the period. This instrument  is intended to part-finance  projects  in two sectors: 

• 

transport  infrastructure  projects, in particular  for the trans-European  networks; 

•  environmental projects to bring the recipient countries  into line with the  Community's 

environmental  legislation. 

3.3 

Internal  policies  (heading  3) 

The  total  allocation  for  internal  policies  will  gradually  increase  by  an  average  of 

1. 
2.5%  a year  from  EUR  6 390  million  in  1999 to EUR  7 600  million  in 2006. 

The  Commission  does  not  propose  raising  the  ceiling  for  this  heading  in  2000  in  view  of 
the  margin  which  the  1999  budget  will  probably  leave  beneath  this  ceiling.  After  2000 
the  Commission  proposes  gradually  raising  the  ceiling  by  just  over  EUR  1.2  billion, 
comparable  to  what  the  Edinburgh  European  Council  decided  for  an  equivalent  period. 

2. 
Heading  3 will  have  the  highest  rate  of  increase  in  the  new  financial  perspective, 
reflecting  the  priority  which  the  Commission  intends  to  give  internal  policies  in  view  of 
the  contribution  they  can  make  to  growth  and  employment.  This  development  of  internal 
policies  would  also  go  hand  in  hand  with  market  integration,  which  should  advance 
considerably  with the  transition  to the third  stage of Economic  and  Monetary  Union. 

The  measure  essential  for  the  smooth  operation  of  the  internal  market,  for  which 
Community  assistance  is  of  general  interest,  will  remain  a  Community  priority  and 
should  be  continued  in  future.  The  financing  of operations  now  coming  under justice  and 
home  affairs  will  without  doubt  deserve  particular  attention  as  some  of  them  are 
incorporated  in  the  first  pillar  as  a  result  of  the  Amsterdam  Treaty  and  in  view  of  the 
principle,  also  embodied  in  that  Treaty,  that  the  Community,  unless  it  is  decided 
otherwise, should  finance  operations  which  still  come  under  the third  pillar. 

internal  policies.  In  strict  compliance  with 

The  increased  allocations  for  heading  3  should  be  accompanied  by  a  boost  to  the 
3. 
effectiveness  of  the 
the  principle  of 
subsidiarity,  funding  should  not  therefore  be  dispersed  among  too  many  programmes 
since  some  might  not  be  large  enough  to  have  a  significant  impact,  in  particular  in  an 
enlarged  Community,  and  would  demand  a management  effort  out of all  proportion  to  the 
benefits  expected.  The  methods  for  managing  the  various  programmes  will  doubtless 
have  to  be  changed  and  the  proliferation  of  small  budget  headings  avoided.  In  particular, 
the  priorities  of  Community  action  must  be  clearly  stated  and  increases  in  budget 
allocations  must  be  targeted. 

In  this  desire  for  greater  concentration,  the  Commission  set  out  five  major  priorities  for 
the  financing  of internal  policies  in  Agenda  2000: trans-European  networks, research  and 
innovation,  education  and  training,  introduction  of  environment-friendly 
technologies 
and  measures  to support  smaller  businesses. 

4. 
indirect 
These  priorities  were  based  on  the  dual  criteria  of  the  direct  or 
contribution  they  could  make  to  employment  and  Community  value  added  level  in  the 
light  of  external  effects  or  economies  of  scale.  Coordination  measures  alone  soon  reveal 
their  limitations  if  they  are  not  backed  by  an  adequate  contribution  from  the  Community 
budget  to create  a catalyst  effect. 

10 

Trans-European 

networks 

Community  spending  on  the  trans-European  transport,  energy  and  telecommunications 
networks,  which  is still  low  compared  with  what  is at stake,  should  increase  substantially 
during  the  coming  period.  The  Commission  is  therefore  presenting  the  new  Financial 
Regulation  for  the  trans-European  networks  at the same  time.  Most  of  the  allocations  will 
go to the transport  networks. 

transport  networks  make  an  enormous  contribution  to  growth  and 
The  trans-European 
employment:  apart  from  directly  creating  the jobs  needed  to  build  them,  they  make  trade 
easier  and  thus  enhance  the  effectiveness  of  the  single  market.  They  are  also  important 
vehicles  for  applying  new  technologies,  directly  exploiting  research  results.  In  future, 
assistance  should  still  be  concentrated  on  a  limited  number  of  projects  and  as  much  use 
as possible  should  be made  of partnerships  between  the private and  public  sectors. 

Financial  requirements  should  rise  appreciably  in  future  since  only  three  or  four  of  the 
fourteen  priority  projects  selected  at  the  Essen  European  Council  will  have  been 
completed  by  the  time  the  next  financial  perspective  starts.  However,  most  of  them  will 
pass  from  the  preliminary  stage  of  feasibility  studies  to  the  active  phase  of  construction, 
requiring  a  higher  Community  funding  contribution  in  the  form  of  subsidies  or  interest 
relief:  while  the  average  rate  of  Community  funding  has  remained  rather  low  during  the 
current  period  (around  4 to  5% of the  investment  carried  out), it should  tend  towards  10% 
so that  the  Community  can  play  an effective  role  in  putting  together  funding  packages. 

In  addition  to  the  fourteen  priority  projects,  other  major  projects  which  had  already  been 
identified  could  be  given  priority  status  in  future.  At  the  same  time,  intelligent  transport 
in 
technology,  which  will  make  for  more  efficient  use  of  existing 
particular  in  traffic  management  systems,  will  move  from  the  pilot-project  stage  to  actual 
implementation. 
level,  such  as 
navigation  satellites  or  the  rail  traffic  management  system,  significant  Community 
funding  will  be  required. 

implications  at  European 

For  those  which  have 

infrastructure, 

There  is  therefore  a  case  for  an  appreciable  boost  to  allocations,  given  the  proposed 
increase  in  the  rate  of  Community  assistance  combined  with  the  faster  rate  of  total 
investment  for  the  fourteen  priority  projects  (an  expected  increase  of  around  50%  in 
nominal  terms  in  relation  to  1995-99)  as  well  as  the  need  for  additional  funds  for  other 
major  projects  and  the  traffic  management  projects. 

The  projects  involving  trans-European  energy  and  télécommunications  networks  should 
also  move  into  a higher  gear. 

©  The  purpose  of  the  trans-European  energy  networks  is  to  integrate  gas  and  electricity 
networks.  Their  completion  will  maximise  energy  supply  in  relation  to  demand  and 
thus contribute  to the  objective  of sustainable  development. 

©  The  spread  of  information  technology  satisfies  not  only  economic  bui  also  social 
needs.  The  prime  importance  of  investment  in  this  field  is no  longer  limited  to  sectors 

11 

directly  involved  in  information  technology  but  also  has  a  decisive  effect  on  a  large 
number  of  sectors  which  use  this  technology,  making  it  an  essential  feature  of 
competitiveness. 

of 

for 

view 

assistance 

technological 

development, 

In 
trans-European 
telecommunications  networks,  designed  initially  in  1995  around  Euro-ISDN,  will  be 
expanded  and  focused  on  three  new  main  priorities:  basic  networks,  in  particular 
satellite  networks  and  mobile  networks,  to carry  new  multimedia  applications;  generic 
services  based  on  the  Internet  to  ensure  that  a  maximum  of  small  businesses  have 
access  to  Intranet  and  Extranet  services  with  appropriate  security  arrangements  to 
allow  the  development  of electronic  commerce;  the  development  of computer  services 
of  general  interest  (education,  medicine,  etc.).  The  aim  of  Community  operations  will 
be to guarantee  interoperability  of these networks  and  services  at  European  level. 

In  view  of  these  objectives,  trans-European  networks  can  be  expected  to  account  for  a 
growing  proportion  of heading  3 allocations  during  the  period. 

Research  and  innovation 

In  today's  society,  the  production  and  exploitation  of  new  knowledge  is  more  decisive 
than  ever  before  for  industrial  competitiveness  and,  consequently,  for  economic  growth 
and  employment.  It  also  has  a  direct  effect  on  the  quality  of  life  in  several  sectors 
(communications,  transport,  energy,  health,  environment,  etc.).  However,  expenditure  on 
R&D  represents  only  1.8%  of  European  GDP  as  against  2.4%  in  the  United  States  and 
2.9%  in  Japan.  While  our  main  competitors  are  making  substantial  investments,  Europe 
must  boost  its research  effort  and  improve  coordination. 

Under the  research  framework  programme, projects  can  be carried  out  more  effectively  at 
European  Union  level  for  reasons  of  cost,  the  range  of  expertise  necessary,  the  pan-
European  dimension  of  problems  or  their  links  with  the  development  of  the  internal 
market.  The  experience  gained  in  recent  years  has  already  stimulated  hundreds  of  cross-
frontier  cooperation  networks  embracing  thousands  of  laboratories  in  both  the  public  and 
private  sectors  and  tens  of  thousands  of  researchers,  thus  boosting  the  technological 
capacity  of  many  firms.  While  the  Community's  share  of  all  research  expenditure  in  the 
European  Union  did  not  exceed  4%  in  1996,  it  is  estimated  that  around  8%  of  all  R&D 
personnel  in  the  Member  States  are  involved  in  projects  receiving  finance  under  the 
framework  programme. This shows  the catalyst  effect  of Community  research  policy. 

As  the  Commission  already  proposed  in  the  fifth  research  framework  programme,5  the 
Community  must  try to concentrate  its efforts  on  a limited  number  of topics  and  place  the 

Proposal  of  30  April  1997  for  a  European  Parliament  and  Council  Decision  concerning  the  5th 
Framework  Programme  of  the  European  Community  for  research,  technological  development  and 
demonstration  activities (1998-2002), COM(97)  142 final,  OJ C  173, 7.6.1997,  p.  10, as amended  on 
11 August  1997  by  COM(97)  439  final,  OJ  C  291, 25.9.1997,  p.  15,  and  on  14  January  1998  by 
COM(98) 8 final. 

12 

emphasis  on  the  exploitation  of  results  and  the  transfer  of  technology  within  the 
European Union. This requires an increase  in allocations  to reach a critical  mass.  The 
proportion of heading 3 allocations devoted to research should therefore  at least be kept 
at the proportion accounted for by the fourth research framework programme. 

Education and training 

Last November the Commission presented a communication entitled "Towards a Europe 
of knowledge"6 in which it underlined the growing importance of developing knowledge 
in Europe since in future this will  more than ever be the key to the competitiveness  of 
industry,  the  level  of  employment  and  the  quality  of  life.  The  new  programmes  for 
education, training and youth will have three essential objectives:  using the possibilities 
offered  by European cooperation to enhance lifelong  learning, developing the skills and 
abilities  required  in  a  society  based  on  globalisation  of  knowledge  and  enhancing 
European citizenship by means of a European educational area. 

This will be done by: 

• 

increasing  the  mobility  of  students,  schoolchildren,  apprentices,  young  voluntary 
workers,  teachers  and  instructors  by  doubling  the  number  of  available  places  in 
programmes such as ERASMUS, COMENIUS, LEONARDO or Voluntary Service; 

•  using  the  resources  of  the 

information  society  to  provide  easy  access  to 

multimedia-based education and training methods; 

•  encouraging  virtual  mobility  by  setting  up  networks  between  schools,  universities, 

training centres and youth projects; 

•  promoting  language  skills  and  the  understanding  of  different  cultures  in  order  to 
encourage  the broadest possible  participation  of  European citizens  in a multilingual 
European Union; 

•  developing innovation through European pilot projects which could act as a catalyst or 

testing grounds for new approaches to education and training; 

•  promoting  the  exchange  of  experience  and  knowhow  and  thus  establishing 

European-level reference criteria for education. 

Resources  will  have  to  be  concentrated  on  a  limited  number  o\'  measures  and 
implementation  must  be  simplified,  especially  as  these  programmes  are  also  likely  to 

Proposal  of 30 April  1997 for  a Council  Decision  concerning  the  5th  Framework  Programme  of  the 
European  Atomic  Energy  Community  (Euratom)  for  research  and  training  activities  (1998-2002), 
COM(97)  142  final,  OJ  C  173, 7.6.1997,  p.  30,  as  amended  on  11 August  1997  by  COM(97)  439 
final, OJ C 291,25.9.1997, p. 16, and on  14 January  1998 by COM(98) 8 final. 

Communication  of  12 November  1997 from  the Commission to the Council, the European  Parliament, 
the  Economic  and  Social  Committee  and  the  Committee  of  the  Regions  -  Towards  a  Europe  of 
knowledge, COM(97) 563 final. 

13 

attract  a  growing  number  of  non-member  countries  as part  of the  policy  leading  up  to 
accession.  To attain these objectives  the proportion  of heading 3 allocations  devoted  to 
education and training should therefore be increased above the 1999 level. 

Introduction of environment-friendly technologies 

Greater  importance will have to be attached  to environment policy  in future  in  response 
to public concern and the development of consumption and production systems. This was 
confirmed  by  the  Amsterdam  Treaty  which  included  the  concept  of  sustainable 
development among the Community objective. 

Although  environment  policy  has  a  role  to  play  in  all  Community  policies,  special 
emphasis should also be given to the promotion and introduction of  environment-friendly 
technologies.  This  would  mean  beefing  up  measures  in  this  field  under  the  LIFE 
programme:  innovative  and  demonstration  actions  designed  to  implement  Community 
legislation  and technical  assistance to local  authorities. Particular targets could  be clean 
production  processes  in those  sectors responsible  for  most  pollution,  new  processes  for 
treating  pollution  and  industrial  waste  and  procedures  for  recycling  household  waste. 
these  new 
Although 
environment-friendly technologies could lead to new jobs. 

the  prime  objective, 

introduction  of 

is  not 

this 

the 

Measures to support small businesses 

The central role played by small business in the development of the  European  economy 
and employment is not disputed. The objective of European programmes relating to small 
businesses is to allow them to exploit the full  potential of the single  market and operate 
more  effectively  at  European  level  through  the  dissemination  of  information  and 
experience as well as access to Community programmes and sources of European  finance 
such as the EIB or the European Investment Fund. More particularly  the development of 
financial  engineering  for  small  businesses  will  be  a  major  aspect  of  the  initiatives  for 
growth and employment.  Apart from  continuing existing measures, the next multiannual 
programme for small businesses will pay specific attention to the smallest  linns and seek 
to provide businessmen with all the capacity they need to set up and  run a small  firm  at 
European level. 

3.4 

External action (heading 4) 

The  overall  allocation 

for  external  action  will  gradually 

from 
1. 
EUR 6 870 million  in  1999 to EUR 7 900 million in 2006, an average increase of around 
2%  a  year.  This  overall  ceiling  will  also  cover  the  allocations  lo  finance  the  pre-
accession  strategy  through  the  PHARE  programme,  which  will  be  isolated  in  a 
subheading  with  a constant amount  of EUR  1  560 million a year over  the entire  period. 
These ceilings will not come up for adjustment  at the time of enlargement. 

rise 

14 

As is the case with  heading  3, the Commission  can see no need  for  raising  the heading 4 
ceiling  for  the  year  2000  in  view  of  the  large  margin  that  the  1999  budget  will,  in  all 
likelihood,  leave  available  beneath  the  ceiling.  For  the  remainder  of  the  period  the 
Commission  is proposing  a gradual  increase of around  EUR  1  billion  for the heading, an 
amount  representing  about  half  the  increase  set  by  the  Edinburgh  European  Council 
(1999 prices)  for the same length of time.  This higher ceiling  for heading 4 should cover 
needs already announced  by the Commission  and also make it possible to give priority to 
stepping  up cooperation  with certain  regions of the world. 

The  ceiling  proposed  for  heading 4  does  not  allow  for  the  entry  of  the  European 
Development  Fund  in  the  budget.  As  the  Commission  stated  in  Agenda  2000,  the 
question  of the incorporation  in the Community  budget of development  cooperation  with 
the countries of Africa,  the Caribbean and the Pacific  may have to be addressed  by 2005. 

Proposals resulting  from  the general  balance of the new  financial  framework  will 

2. 
result in an increase in financing requirements under heading 4. 

•  At  the  start  of  the  next  period  allocations  for  the  PHARE  programme  for  countries 
receiving  pre-accession  aid  will  need  to  be  increased  by  around  EUR 200 million  in 
relation to the amount earmarked  by the Cannes European  Council  for  1999. 

•  The Commission  is also proposing that the reserve for emergency  aid be cut by around 
EUR  150 million.  This proposal  needs to  be  backed  by  a corresponding  increase  for 
the  operational  items  for  financing  humanitarian  aid  in  order  to  preserve  the 
Community's  capacity  for  action 
leading 
humanitarian  aid donor, it traditionally  has a high  profile. 

in  a  sector  where,  as  the  world's 

3. 
In the wake of the Amsterdam  Treaty the Union must be in a position  to assert  its 
presence even more strongly on the international  scene and to optimise budget  operations 
in the twin perspective of economic globalisation  and régionalisation. 

As the Commission has already stated in Agenda 2000, a number of priorities for  coming 
years can be distinguished. 

First of all, the Community  should be in a position, over the coming period, to step up 
cooperation  with  its  closest  neighbours  -  the  Republics  of  the  former  Soviet  Union, 
former  Yugoslavia, Albania and non-member  Mediterranean  countries.  This need will 
become  even  more  pressing  in  the  future  given  the  proximity  of  some  of  these 
countries  to  the  applicant  countries.  The  future  development  of  the  Community's 
external  action  should  therefore  be  viewed  today  in  the  perspective  of  an  enlarged 
Union. 

-  Cooperation  with  the  non-member  Mediterranean  countries  will  be  shaped  by  the 
strategy  laid  down  at  the November  1995  Barcelona  Conference  for  bringing  the 
two sides closer together and with a view to the subsequent creation of a  free-trade 

15 

area,  which  will require  structural  adjustment  in the economies  of the countries  in 
the region.  The Union should therefore  step up its efforts  to support the economic 
and social transition policies being implemented by these countries. 

Turkey will continue to be a beneficiary  under the M EDA programme.  In addition 
the special financial cooperation action will have to be implemented  or some other 
aid  provided,  involving  an  equivalent  amount,  under  the  arrangements  for 
strengthening cooperation  with Turkey. 

Increased  support  for  the  Middle  East  peace  process  could  also  be  envisaged  if 
political  circumstances so demand and allow. 

The  Union  recently  concluded  partnership  and  cooperation  agreements  with  most 
of  the  New  Independent  States. 
In  parallel  with  this  enlarged  cooperation  the 
TACIS  programme  will  have  to  go  on  financing  technical  assistance  and  its 
resources will increasingly  need to act as a catalyst for  financing  infrastructure  and 
for supporting  investment  in small businesses.  With a view to an increase in trade, 
transport networks and environmental  protection should also be priorities. 4 

The  Community  will  also  need  to  have  the  financial  resources  to  continue  and 
adjust  its  cooperation  with  the  countries  of  former  Yugoslavia.  This  aid  will 
continue to be dependent  on compliance  with the Dayton  principles  and will  have 
the 
target  of  repairing  war  damage,  economic  conversion  and 
establishment of democratic institutions. 

threefold 

Humanitarian  aid and  food  security  will continue to be one of the essential  aspects of 
Community action in the years ahead. 

As  regards  humanitarian  aid,  simply  transferring  allocations  from  the  emergency  aid 
reserve  to  operational  headings  cannot  be  interpreted  as  stepping  up  Community 
action.  Decentralised  management  of  Community  humanitarian  aid,  based  in 
particular  on  framework  partnership  contracts  with  international  organisations  and 
NGOs,  has  proved  its  worth.  Financial  resources  will  need  to  be  increased  if  the 
Community  is to be more active  in rehabilitation  or development  operations,  hitherto 
purely ancillary to humanitarian  aid, in order to ensure that emergency  aid  is a lasting 
success. 

The  Community  budget  will  also  have to be  in a position  to provide  appropriate  and 
permanent financial  support for implementing the common foreign  and security policy 
(CFSP) since the Treaty of Amsterdam has laid down the principle, unless the Council 
unanimously  decides  otherwise,  that  operational  expenditure  should  be  financed  by 
the  Community.  However,  as  the  Commission  pointed  out  in  Agenda  2000,  the 
amounts envisaged  for  heading 4 assumed  that  there would  be no major  development 
of  financing  requirements  in  this  area,  although  this  does  not  rule  out  the  possibility 
that the CFSP will boost expenditure of the same kind under the first pillar. 

16 

The  priorities  mentioned  above  should  not be at the expense  of cooperation  with 

4. 
other parts of the world or other Community external  action. 

Cooperation  with  Asia  and  Latin America  will  have  to  continue  on  a  more 
regionalised  basis.  Given  the economic  development  of these two  geographical  areas 
in recent years, the development cooperation  policy, which should essentially  focus on 
the  least  advanced  countries,  should  therefore  be  supported  by  the  strengthening  of 
economic  and political  cooperation  with the various regional  groupings  to the  mutual 
benefit  of all parties. 

Under  the  common  fisheries  policy  the  Community  will  have  to continue  taking  part 
in  international  and  regional  fisheries  organisations  and  it  will  have  to  pursue  its 
policy  on  fisheries  agreements  with  a  shift  towards  cooperation  agreements  and  an 
extension of the network  of existing agreements. 

The  Community  will  also  have  to  remain  active  in  its  work  for  democracy,  human 
rights,  the  environment  and  forests,  support  for  NGOs,  health  and  population  and  in 
rehabilitation  and  mine  clearance.  However,  even  though  certain  horizontal 
into 
programmes  will  be  maintained,  these  operation  should  be  incorporated 
regionalised  cooperation  programmes  wherever  this  is judged  to  be  appropriate  and 
feasible  in  order  to  enhance  the  coherence  and  complementarity  of  operations 
conducted  in a given geographical  area. 

3.5 

Administrative expenditure (heading 5) 

1. 
The overall  allocation  for  administrative  expenditure  for  a fiflcen-member Union 
will  rise  from  EUR 4 730 million  in  1999  to  EUR 5 300 million  in  2006,  an  average 
increase of around  1.7% a year. 

As with headings 3 and 4 the Commission  is proposing that the heading 5 ceiling  remain 
unchanged  in 2000  in view of the margin  that the  1999 budget  should  leave beneath  the 
ceiling.  The  gradual  increase  over  the  rest  of  the  period  would  be  just  over 
EUR 550 million, vor  three-fifths  of  the  increase  agreed  by  the  Edinburgh  European 
Council for the same length of time. 

2. 
Nearly  half  of  this  increase  will  be  taken  up  by  the  expected  sharp  rise  in 
expenditure  on  pensions  which,  on  the  basis  of  available  forecasts  and  assuming  no 
change  in  the  arrangements,  will  require  an  additional  EUR 260 million  by  2006,  an 
average increase of over 6% a year in relation to  1999. 

17 

The growth  in other expenditure  for  all the institutions  should  not therefore  exceed  1 % a 
year on average.  This will mean that the institutions will have to take a very strict line in 
managing all items of administrative expenditure. 

•  Staff  numbers  should  by  and  large  remain  at  the  same  level  as  authorised  in  1999. 

Staff costs would still  increase because of changes in category  or grade. 

The  various  institutions  will  have  to  envisage  providing  extra  staff  for  certain 
activities, in particular  as a result  of the Treaty  of Amsterdam.  These  reinforcements 
will  have  to  come  essentially  from 
internal  redeployment  of  available  human 
résources.  Generally  speaking,  the  central  functions  on  which  the  Commission  will 
have to focus should be identified  more clearly. 

The  Commission  also  intends  to  press  ahead  with  the  reform  of  its  administration. 
Greater  effectiveness  will  have  to  be  sought  in  the  management  of  operational 
programmes.  In  particular,  in  implementing  all  programmes,  care  will  have  to  be 
taken  to  ensure  that  projects  are  of  an  adequate  size  in  order  to  avoid  excessive 
management costs. 

The  building  programmes  initiated  in recent years  by the Council  and  Parliament  are 
now complete or will  be by  1999 and  the corresponding  expenditure  should  therefore 
level  off. 
The  additional  expenditure  under  this  head,  estimated  at  around 
EUR 50 million, should concern the following  operations: 

- 

for  the Commission,  it will mainly  concern the return to the licrlaymonl and other 
related operations connected  with the reorganisation of the building stock. 

-  The  Court  of Justice  will  have  to  renovate  and  extend  its  building.  The Court  of 

Auditors is also planning an extension. 

Other  administrative  expenditure  will  therefore  have  to  remain  at  the  same  level  in 
real terms over the entire period. 

3.6 

Reserves (heading 6) 

Monetary reserve 

As announced  in Agenda 2000 the Commission  is proposing that the monetary  reserve be 
gradually  abandoned  since the reform  of the common agricultural  policy  should  radically 
reduce the proportion  of agricultural  expenditure accounted  for  by refunds  and  hence the 
influence  of variations in the euro/dollar rate on total agricultural  expenditure. 

As the effects  of the reform  of the common  agricultural  policy  should  not begin to work 
through  until  2001  and  will  be progressive  for  the  beef and  dairy  sectors,  it  is proposed 
that  a  similar  line  be  taken  for  abandoning  the  monetary  reserve.  It  will  remain  at  its 
present  level  of EUR 500 million  in current  prices  in 2000 and  2001, will  be reduced  to 

18 

EUR  250  million  in  2002  and  eliminated  altogether  in  2003.  This  will  require  an 
appropriate  amendment  of the decision  on budgetary  discipline. 

Reserve for  emergency  aid 

As  the  Commission  explained  in  its  report  on  the  operation  of  the  Interinstitutional 
Agreement,  the  reserve  for  emergency  aid  has  proved  very  useful  in  responding  to  urgent 
humanitarian  aid  requirements.  However,  it  has  not  always  been  used  as  initially 
planned.  In  view  of  the  relatively  large  amounts  it  contains,  the  use  to  be  made  of  it  has 
already  been  planned  when  budgets  have  been  drawn  up  and  operational  items  have 
tended  to  be  under-endowed.  The  reserve  for  emergency  aid  should  be  restored  to  its 
original  role of coping  with  genuinely  new and  unforeseeable  requirements. 

It  should  then  be  possible  to  reduce  the  reserve  to  EUR  200  million  a year  (1999  prices) 
by  2000.  This  will,  however,  require  a  corresponding  increase  in  the'operational  items 
covered  by  heading  4. 

Reserve for  loan  guarantees 

The  purpose  of the  reserve  for  loan  guarantees  is to  endow  the  Guarantee  Fund  and,  as  a 
secondary  function,  to  make  direct  payments  if  the  Fund  does  not  have  sufficient 
resources.  The  amount  set  for  the  reserve  has  allowed  Community  lending  activities  to 
develop  as  required  and  the  Guarantee  Fund  has  reached  its  target  figure  of  10% of  total 
guaranteed  loan  liabilities. 

As  the  Commission  states  in  its  report  on  the  functioning  of  the  Guarantee  Fund,  the 
Fund  has  never  been  called  on  to  provide  more  than  5%  of  total  liabilities.  The 
Commission  has  therefore  proposed  in that  report  that  the  provisioning  rate be  lowered  to 
6%  of  new  guaranteed  loans  granted  and  at  the  same  lime  the  amount  of  the  guarantee 
reserve  be  reduced  to  EUR  150 million  (1999  prices)  in  2000  while  maintaining  an 
equivalent  lending  capacity. 

4. 

O V E R A LL  FINANCIAL  PERSPECTIVE  CEILINGS  AND  MARGINS  AVAILABLE 

BENEATH  THE  OWN  RESOURCES  CEILING 

4.1.  Overall  ceiling  on  appropriations  for  commitments 

The  overall  ceiling  on  appropriations  for  commitments  will  rise  from  EUR  103.4  billion 
in  1999  to  EUR  105.2  billion  in  2006,  an  average  annual  growth  rate  of  0.2%  in  real 
terms,  including  pre-accession  aid.  These  expenditure  ceilings,  which  represent  a  very 
slight  increase  for  a 
include  the  total  amount  of  the 
guideline,  which  should  leave  a  significant  unused  margin  as  long  as  the  Community 
continues  with  its present  members. 

fifteen-member  Community, 

19 

4.2.  Determining the overall ceiling on appropriations for payments 

For  the  coming  period  the  Commission 

1. 
is  proposing  that  the  ceiling  on 
appropriations  for  payments  be raised  by  an average  of  1.2% a year,  faster  than  for  the 
ceiling  on  appropriations  for  commitments,  even  though  the  payments  ceiling  remains 
below the commitments ceiling throughout the period. 

After  a  period  of  strong  growth,  appropriations  for  commitments  will  tend  to  level  off 
during  the  next  period.  Financing  past  commitments  will  therefore  become  increasingly 
important  for  determining  the  payments  ceiling  in  relation  to  new  commitments  in  the 
year.  It follows  that the gap between  the appropriations  for commitments  ceiling and  the 
appropriation  for payments ceiling will gradually narrow during the next period. 

The new system of payments  and advances  in the legislation  on the Structural  Funds has 
also been taken into account in determining the ceiling cm appropriations for payments. 

2. 
As  the  rate  at  which  commitments  are  actually  cleared  can  always  differ  from 
what  has  been  theoretically  planned,  it  is  important  that  the  next  Interinstitutional 
Agreement  retain  the  procedure  for  adjustments  to  take  account  of  the  conditions  of 
implementation.  This  enables  the  two  arms  of  the  budgetary  authority,  acting  on  a 
Commission  proposal, to adjust  the overall  ceiling on appropriations  for payments to the 
actual pace of payments to compensate for any backlog which may have built up during a 
financial  year by catching up at a later date. This operation may require using part of the 
margin available beneath the own resources ceiling. 

4.3.  Margins available beneath the own resources ceiling 

In  the  light  of  these  considerations,  the  ceiling  on  appropriations  for  payments  should 
rise,  at  constant  1999  prices,  from  EUR 96.4  billion  in  1999  to  EUR  104.6 billion  in 
2006.  The  economic  forecasts  used  by  the  Commission  indicate  that  this  ceiling  will 
represent  a  percentage  of  Community  GNP  that  falls  from  1.23%  in  1999  to  1.13%  in 
2006 and will therefore  leave a substantial  margin  beneath  the own  resources ceiling that 
will gradually  increase to (\.14% of GNP in 2006. 

With regard to the use which can be made of the margin, from  2002 on a distinction must 
be made between the margin for unforeseen  expenditure and the margin  set aside to cover 
the cost of accession. 

In  the  light  of past  experience,  the  Commission  believes  that  the  margin  for  unforeseen 
expenditure  should  be  0.03% of  Community  GNP.  The  impact  of  an  economic  growth 
rate  below  what  is  forecast  would  have  to  be covered  by  this  margin.  It would  also  be 
to  take  account  of  conditions  of 
used 
implementation and any revisions of the financial  perspective. 

the  financing  of  adjustments 

to  cover 

The  Commission  is  proposing  that  the  remainder  of  the  margin  beneath  the  own 
resources  ceiling,  which  will  grow  gradually  from  0.02%  of  GNP  in  2002  to  0.11%  in 

20 

2006,  equivalent  to  EUR  1.3  billion  in  2002,  growing  to  EUR  10.5 billion  in  2006  (1999 
prices),  should  remain  available  for  accession  in  the  financial  perspective  for  the 
fifteen-nation  Community. 

5. 

PLANNING  AND  FINANCING  ACCESSION-RELATED  EXPENDITURE 

5.1.  Accession-related  expenditure 

fable  2  shows  the  expenditure  scheduled  in  Agenda  2000  for  accession.  This  financial 
planning  links  up  with  the  financial  perspective  agreed  for  the  existing  Community  by 
means  of  the  amounts  left  available  for  accession.  It  will  be  the  common  negotiating 
position  of the  Fifteen. 

Heading  1 

On  the  basis  of  current  estimates,  expenditure  for  market  measures  will  amount  to 
between  EUR  1.1  billion  and  EUR  1.4  billion  a  year  at  current  prices,  excluding  direct 
aid.  On  top  of  this  there  will  be  enhanced  accompanying  measures,  including  specific 
modernisation  aid  similar  to  that  financed  by  the  pre-accession  instrument,  the  amount  of 
which  will  rise  at  current  prices  from  EUR  0.6  billion  to  EUR  2.5  billion  a  year. 
Converted  to  1999  prices  for  the  purposes  of  comparison  and  to  serve  as  a  guide,  the 
overall  amount  to  be  provided  will  rise  from  EUR  1.6  billion  in  2002  to  EUR  3.4  billion 
in  2006. 

Heading  2 

The  new  Member  States  will  receive  a  total  allocation  of  almost  EUR 40  billion  (1999 
prices), rising  gradually  from  EUR  3 750 million  in  2002  to  EUR  12 080  million  in 2006. 
Current  economic  forecasts  suggest  that,  with  the  post-accession  increase,  the  overall 
ceiling  for  heading  2  will  account  for  the  same  percentage  of  the  GNP  of  the  enlarged 
Community  as  in  1999. 

Heading  3 

Many  programmes  under  heading  3  are  likely  to  be  greatly  affected  by  accession.  This 
will  apply  particularly  to  policies  where  population  or  language  (such  as  education  and 
training,  culture  and  information)  are  the  relevant  reference  criteria  and  all  programmes 
aimed  at ensuring  the  smooth  functioning  of the  single  market  (statistics,  standardisation, 
administrative  cooperation  and 
inspections).  The  development  of  Trans-European 
networks  will  also  assume  a  new  significance  in  an  enlarged  Union,  both  in  the  new 
Member  States  and  in  the  current  Community  Member  States.  Consequently,  an  average 
allocation  of  around  EUR  800  million  per  year  will  be  set  aside,  which  amounts  to  an 
increase  of about  10%  in relation  to the  Community  of  Fifteen. 

21 

Heading  5 

Accession  will  involve  significant  additional  costs  for  the  institutions,  which  will  depend 
on  the  procedures  accepted  at  the  accession  negotiations.  The  institutions  will  have  to  be 
able  to  work  in  the  new  languages,  cope  with  an  increased  volume  of  tasks  and 
accommodate  nationals  from  the  new  Member  States.  By  analogy  with  the  previous 
the  Commission  has  assumed  an  average  overall  cost  of  around 
enlargement, 
EUR  400  million,  increasing  from  EUR  370  million  at  the  beginning  of  the  period  to 
EUR  450  million  at the  end. 

5.2. 

Financing  accession 

Table  2  shows  the  appropriations  for  payments  earmarked  to cover  the  cost  of  accession. 
They  increase  progressively  as  payments  have  to  be  made  against  the  new  commitments. 
The  fable  also  indicates tf?e origin  of the  financing. 

Agricultural  expenditure  should  be  entirely  financed  by  the  margin  available  beneath  the 
guideline  and  therefore  the  financial  perspective  ceilings  do  not  need  to  be  raised.  When 
the  cost  of  enlargement  is  taken  into  account,  overall  agricultural  expenditure  should 
leave  a  significant  margin  beneath  the guideline  only  at  the end  of  the  period,  i.e.  in  2005 
or 2006. 

The  appropriations  for  payments  for  other  headings  will  be  covered  by  the  reserve  of 
amounts  earmarked  for  this  purpose  in  the  financial  perspective  table  for  the  fifteen 
Member  States  and  by  the  additional  own  resources  authorised  by  the  increase  in  the 
Union's  GNP  resulting  from  accession. 

However,  current  forecasts  for  the  GNP  indicate  that  the  financing  sources  available  will 
exceed  the  appropriations  for  payments  required.  The  unused  net  resources  will  then  be 
added  to  the  margin  for  unforeseen  expenditure,  which  will  increase  from  0.03%  of  the 
GNP  of  the  fifteen  Member  States  to  0.05%  and  then  0.06%  of  the  GNP  of  the  enlarged 
Community. 

5.3. 

Incorporating  the  impact  of  accession  in  the  financial  perspective  of  an 
enlarged  Community 

For  each  accession 
financial 
perspective,  taking  account  of  the  actual  accession  arrangements  and  basing  itself  on  the 
planning  set out  in Table  2. 

the  Commission  will  propose  an  adjustment  of  the 

This  adjustment  will  consist  of  raising  the  ceilings  for  headings  2,  3  and  5  to  cover 
accession-generated  expenditure.  The  agricultural  guideline  will  not  be  raised  at  the  time 
of  accession,  since  the  new  expenditure  will  be  covered  by  the  margin  beneath  the 
guideline.  Nevertheless,  it  will  be  calculated,  by  the  same  method,  using  parameters  that 
relate  to  the  enlarged  Community,  and  especially  taking  account  of  increased  economic 
growth  from  2003,  given  the  faster  growth  rate  of  the  Central  and  Eastern  European 
countries. 

22 

EUR million -1999 prices - Appropriations for 
commitments 

1.  AGRICULTURE**) 

of which: Pre-accession  aid 

2. STRUCTURAL  OPERATIONS 

Structural  Funds 

Cohesion  Fund 

Pre-accession  structural  instrument 

adjustments (**) 

3. INTERNAL  POLICIES 

4. EXTERNAL  ACTION 

of which: Pre-accession  aid 

5. ADMINISTRATION 

6.  RESERVES 

Monetary  reserve 

Emergency  aid  reserve 

Guarantee  reserve 

32.731 

3.000 

3.294 

6.386 

6.870 

4.723 

1.192 

500 

346 

346 

Table 1 
Financial perspective 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

45.205 

46.050 

46.920 

47.820 

••" 

48.730 

49.670 

50.630 

51.610 

520 

520 

520 

520 

520 

520 

39.025 

36.640 

37.470 

36.640 

35.600 

32.600 

3.000 

1.040 

33.430 

3.000 

1.040 

32.600 

31.560 

3.000 

1.040 

3.000 

1.040 

34.450 

30.410 

3.000 

1.040 

33.410 

29.370 

3.000 

1.040 

520 

32.470 

28.430 

3.000 

1.040 

6.390 

6.870 

1.560 

4.730 

850 

500 

200 

150 

6.710 

6.880 

7.050 

7.230 

7.410 

7.600 

7.070 

1.560 

4.820 

850 

500 

200 

150 

7.250 

1.560 

4.910 

600 

250 

200 

150 

7.430 

1.560 

5.010 

350 

0 

200 

150 

7.610 

1.560 

5.100 

350 

0 

200 

150 

7.790 

1.560 

5.200 

350 

0 

200 

150 

7.900 

1.560 

5.300 

350 

0 

200 

150 

TOTAL  APPROPRIATIONS  FOR  COMMITMENTS 

103.401 

101.530 

103.840 

104.100 

104.170 

104.410 

104.790 

105.230 

TOTAL  APPROPRIATIONS  FOR  PAYMENTS 

96.380 

98.800 

101.650 

102.930 

103.520 

103.810 

104.170 

104.560 

Appropriations  for payments  as % of GNP 

1,23% 

1,24% 

1,24% 

1,22% 

1.20% 

1.18% 

1.15% 

, 

1,13% 

Margin 

Available for  accession 

Own resources  ceiling 

• 0,04% 

0,03% 

0,03% 

0,03% 

0,02% 

0.03% 

0.04% 

0.03% 

0.06% 

0.03% 

0.09% 

0,03% 

0,11% 

1,27% 

1,27% 

1,27% 

1,27% 

1,27% 

1,27% 

1,27% 

1,27% 

(*) The ceiling corresponds to the agricultural guideline. 

(**)  Including the amount in respect of the EEA financial mechanism and the adjustment  proposed by the Commission to take account of the conditions of 
implementation  of the  1997 budget. 

Table  2: 
Expenditure resulting from accession;  financing 

EUR million -1999  prices 

2002 

2003 

2004 

2005 

2006 

Expenditure 

Heading  1 (*) 

Heading 2 

Heading 3 

Heading 5 

1.600 

3.750 

730 

370 

2.030 

5.830 

760 

410 

2.450 

7.920 

790 

450 

2.930 

3.400 

10.000 

12.080 

820 

450 

850 

450 

Total appropriations  for  commitments 

6.450 

9.030 

11.610 

14.200 

16.780 

(1) Total appropriations  for  payments 

4.140 

6.710 

8.890 

11.440 

14.220 

Sources of financing available 

Financing of agricultural expenditure by drawing on the margin available 
beneath the guideline 

Amounts earmarked for accession in the financial framework of the fifteen-
nation Community  (estimate) 

Increase in own resources resulting from growth in Union GNP following 
enlargement (estimate) 

1.600 

2.030 

2.450 

2.930 

3.400 

1.280 

3.300 

5.680 

8.060 

10.470 

3.440 

3.510 

3.580 

3.660 

3.740 

(2) Total financing  available 

6.320 

8.840 

11.710 

14.650 

17.610 

Changes in the margins beneath the own resources 
ceiling 

Margin  (2)-(1) 

2.180 

2.130 

2.820 

3.210 

3.390 

Margin  in the financial framework of the fifteen-nation  Community (0.03% of 
GNP) 

2.520 

2.580 

2.650 

2.720 

2.780 

Total margin  available in an enlarged Community  (estimate) 

4.700 

4.710 

5.470 

5.930 

6.170 

Total margin as a percentage of the GNP of the enlarged Community 

0,05% 

0,05% 

0,06% 

0,06% 

0,06% 

c 

(*)  Expenditure estimated at 199S prices for the purposes of comparison.  Only estimates at current prices are relevant. 

ANNEX A 

Basic economic data 

EUR billion -1999 prices 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

GNP - Fifteen 

7804,3 

7999,4 

8199,4 

8404,4 

8614.5 

8829,8 

9050,6 

9276,9 

GNP - new Member States 

GNP- TOTAL 

291,9 

303,6 

315,7 

328,4 

341.5 

8696,3 

8918.1  ' 

9145,6 

9378,9 

9618,3 

Growth forecasts 

2000 - 2001 

2002 - 2006 

GNP - Fifteen 

GNP-new  Member States 

GNP - enlarged Community 

Deflator 

2,5% 

4,0% 

2,0% 

2.5% 

4.0% 

2,6% 

2,0% 

SO 

ANNEX B 

Estimate of agricultural expenditure (current prices) 

EUR million 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

Agricultural guideline (current prices) (*) 

45.205 

46.940 

48.750 

50.630 

52.600 

54.650 

56.790 

59.020 

Agricultural expenditure (current prices) 

40.400 

42.650 

45.710 

47.515 

49.040 

49.250 

49.270 

49.360 

Fifteen-nation Community  (**) 

40.400 

42.120 

45.170 

46.965 

48.480 

48.680 

48.680 

48.760 

Reformed CAP (market  measures) 

37.800 

37.275 

40.280 

42.035 

43.510 

43.670 

43.620 

43.670 

Accompanying rural development  measures and 
horizontal measures in the fisheries sector 

2.600 

4.745 

4.790 

4.830 

4.870 

4.910 

4.960 

4.990 

Veterinary  and plant-health  measures 

100 

100 

100 

100 

100 

100 

100 

Pre-accession aid  (***) 

530 

540 

550 

560 

570 

590 

600 

Margin 

4.805 

4.290 

3.040 

3.115 

3.560 

5.400 

7.520 

9.660 

Estimated expenditure for accession  (pm) 

1.700 

2.200 

2.700 

3.300 

3.900 

-

(*) Guideline for the fifteen.  Assuming a deflator of 2% a year between 2000 and 2006. 
'(**) For 1999 the figure shown is not necessarily the exact amount to be proposed in the preliminary draft. 
(***) EUR 520 million at constant  1999 prices. 

ISSN 0254-1475 

COM(98)  164 final 

DOCUMENTS 

EN 

09  01  10 

Catalogue  number  :  CBC098-187-EN-C 

ISBN 92-78-32444-2 

Office  for  Official  P':b!:c"':f>;is  o<'<b<-  pj.n-r-r^-'r. O'^nmsrrties 

1.-298.S  Luxembourg 

7  N,