Proposal for a Council Regulation (EC, ECSC, Euratom) amending the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities
Date: 1998-04-03
Institutions: European Commission
Subjects: euro, financial management, financial regulation, general budget (EU)

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 03.04.1998 
COM(1998) 206  final 

98/0130 CNS 

Proposal for a 

COUNCIL REGULATION (EC,  ECSC, Euratom) 

amending the Financial Regulation of 21 December 1977 applicable to the 
general budget of the European Communities 

(presented by the Commission) 

EXPLANATORY MEMORANDUM 

Since  the  comprehensive  reform  in  March 1990,1  there  have  been  seven  Commission 
proposals for amendments to the Financial Regulation, each one a response to a specific 
event: these include the adoption of the Maastricht Treaty and the entry into force of the 
agreement on the European Economic Area,-the conclusions of the Edinburgh European 
Council,  the  adoption  of  the  Fourth  Framework  Research  and  Technological 
Development Programme, each of these events necessarily having an impact on the text 
of the Financial Regulation. Of the seven proposals, five have already been adopted by 
the Council,2 while the Commission decided to withdraw a proposal on the treatment of 
budget  balances.3  The  seventh  proposal,  which  is  concerned  with  applying  the 
conclusions of the plan to improve financial management (SEM 2000), is currently under 
consideration by the Council.4 

In its opinion 4/97, regarding this last Commission proposal, the Court of Auditors stated 
that this series of amendments to the Financial Regulation had made the text increasingly 
incoherent and that it should undergo a general review in order to clarify the  fundamental 
principles  on  which  it  must  rest.  This  would  involve  an  almost  total  rewrite  of  the 
Regulation with very significant changes to the substance of the document. 

It  is  clear  to  the  Commission  that  such  a reworking  of  the  Financial  Regulation  is  a 
long-term task because it first requires a consensus to be reached between the institutions 
on  the  principles  which  should  serve  as  a  foundation  for  the  financial  rules.  The 
Commission proposes to begin work on this at once and will submit its conclusions to the 
other institutions. 

However,  other  events  have  occurred  which  require  selective  amendments  to  the 
Financial Regulation before there can be any comprehensive reworking of it. 

First,  the  start  of  the  third  phase  of  economic  and  monetary  union  involves  the 
introduction  of  the  euro,  replacing  both  the  ecu  and  the  national  currencies  of  the 
participating Member States as the common currency of these countries. The introduction 
of  the  euro  will  be  accompanied  by  a  "stability  and  growth  pact"  designed  to  avoid 
excessive public sector deficits in the Member States which are participating in the euro. 

Council Regulation No 610/90 (Euratom, ECSC, EEC) of 13 March 1990, OJ L 70, 13.3.1990. 

Regulation No 1923/94 of 25.7.94, OJL 198, 30.7.94. 
Regulation No 2730/94 of 31.10.94, OJ L 293, 12.11.94. 
Regulation No 2333/95 of 18.9.95, OJ L 240,  7.10.95. 
Regulation No 2334/95 of 18.9.95, OJ L 240, 7.10.95. 
Regulation No 2335/95 of 18.9.95, OJ L 240, 7.10.95. 
Regulation No 2444/97 of 22.9.97, OJ L 340, 11.12.97. 

3  COM(93) 683 final of 21 December  1993, withdrawn by Commission decision of 25 June 1997. 

4  COM(96) 351 final of 26 July 1996. 

2^ 

Second, the Treaty of Amsterdam, signed on 2 October 1997, repealed Protocol No 16 of 
the Maastricht Treaty on the Economic and Social Committee and the Committee of the 
Regions, which provides for a common organisational structure for the two bodies. 

These events justify  the amendment of the Financial Regulation and are the basis for this 
proposal for specific revisions to it. 

In  particular,  replacement  of  the  ecu  by  the  euro  at  a  fixed  parity  of  1:1  on 
1 January 19995 will  inevitably  impact  on  the  Community  budget:  the  instrument  for 
drawing up the budget will no longer be the ecu but the euro, and" any reference to the ecu 
in the Financial Regulation must be replaced by a reference to the euro. This is the case 
with Articles 11(1) and (2), 19(5), 31, 33(5), 44, 69 and 111  of the Financial Regulation. 

But the euro is different from the ecu in that it is also a currency in its own right, going 
well beyond  the concept  of the ecu  as a "basket" of currencies.  Therefore,  rather than 
considering it a simple description, as was the case with the ecu, we need to provide for 
the rights and  obligations  of  the  Community  to  be  expressed  and  executed  in  euros  -
without  prejudice  to  the  specific  provisions  resulting  from  the  application  of  sector-
specific  legislation  governing  revenue  or  expenditure  -  since the  euro will  also  be the 
national currency of the participating Member States (Article 11(3)). 

However, since certain Member States will not be participating in the euro at the start of 
the third stage, the Financial Regulation must keep its references  to national currencies, 
specifying  that  these  are  the  national  currencies  of  the  Member  States  which  are  not 
participating  in  the  euro.  This  is  the  reason  for  the  proposed  amendments  to  Articles 
11(4) and 35. 

As for the "stability and growth pact", the Council has introduced a mechanism designed 
to avoid excessive public sector deficits in the Member States that are participating in the 
euro.6  This  mechanism  consists  of  the  obligation  for  a  Member  State  which  has  an 
excessive deficit  and is not making the adjustment  effort recommended by the Council to 
make a non-interest-bearing deposit with the Commission. If the Member State does not 
correct its excessive deficit in the two years following the decision requiring it to make a 
deposit, the Council can decide to convert the deposit into a fine. It has been decided that 
these fines, and the interest that may have accrued on the deposits, must be redistributed 
between  the  Member  States participating  in  the  euro  which  do  not  have  an  excessive 
deficit. 

It  was  also  agreed  that  these  sums,  while  they  have  a  specific  purpose,  (distribution 
between  those  Member  States  without  an  excessive  debt),  should  pass  through  the 
Community  budget  so  that  the  operations  can  be  monitored  in  a  totally  transparent 
fashion. 

It is therefore necessary to amend the second subparagraph of Article 4(2), to add a new 
indent  expressly  stating that these amounts constitute  earmarked revenue, and it is also 

5  Council Regulation No  1103/97 (EC) of  17 June  1997, OJ L 162 of  19.6.1997, p.l. 

6  Council Regulation No  1467/97 (EC) of 7 July  1997, OJ L 209 of 2.8.1997, p.6. 

proposed that a new Article 126a be created describing the exact technique of accounting 
for these sums in the Community budget, on both the revenue si^e and the expenditure 
side. This technique is comparable to what is already laid down for participation by third 
parties in Community activities (Articles 124 et seq.), for which reason it is proposed that 
a new section be created in Title XI of the Financial Regulation. The final result of these 
operations will be entirely neutral as it is only the entry of the amounts in the statement 
of  revenue  which  gives rise to  appropriations  becoming  available  in  the  statement  of 
expenditure. Article 28a also needs to be adapted to take into consideration cases which 
might arise where a Member State appeals to the Court of Justice against a decision by 
the Council to impose a fine. The amounts involved in a penalty will therefore  only be 
taken into account when there is no further possibility of appeal and the penalty becomes 
definitive. 

A final point to take into consideration is the fact that Article 2, point 59 of the Treaty of 
Amsterdam repeals Protocol No 16 of the Treaty on European Union on the Economic 
and Social Committee and the Committee of the Regions, which provided for a common 
organisational  structure  for  the  two  Committees.  Consequently,  the  references  to  this 
common  organisational  structure  (the  third  indent  of  the  third  subparagraph  of 
Article 19(1), the first indent of Article 20(3), the second subparagraph of Article 22(2), 
and second  subparagraph  of Article 22(5), the first paragraph  of Article 24, the  second 
paragraph  of  Article 25  and  the  second  subparagraph  of  Article 26(2)  of  the  Financial 
Regulation) must be deleted. A budget section must also be created for each of these two 
bodies. 

As regards the date of entry into force of this amendment of the Financial Regulation, it 
should be timed to coincide with the entry into force of the Treaty of Amsterdam. 

<*• 

XDC/61/98 

Proposal for a Council regulation (EC, ECSC, Euratom) 
amending the Financial Regulation of 21 December 1977 applicable to the 
general budget of the European Communities 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Coal and Steel Community, and in 
particular Article 78h thereof, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 209 thereof, 

Having regard to the Treaty establishing the European Atomic Energy Community, and 
in particular Article 183 thereof, 

Having regard to the proposal from the Commission, 

Having regard to the opinion of the Court of Auditors, 

Having regard to the opinion of Parliament, 

Having regard to the opinion of the Economic and Social Committee, 

Having regard to the opinion of the Committee of the Regions, 

Whereas  the  conciliation  provided  for  by  the  Joint  Declaration  of  4  March  1975  by 
Parliament, the Council and the Commission has taken place in a conciliation committee; 

Whereas  it  is  necessary  to  amend  the  Financial  Regulation  of  21 December 1977 
applicable  to the general budget  of the European  Communities,1  hereinafter  "Financial 
Regulation", in order to take account of the entry into force of the Treaty of Amsterdam 
of  2 October 1997,  the  implementation  of  the  third  phase  of  economic  and  monetary 
union  and  the  adoption  of  Council  Regulation  (EC)  No  1467/97  of  7  July  1997  on 
speeding up and clarifying the implementation of the excessive deficit procedure;2 

Whereas the Treaty of Amsterdam provides for the repeal of Protocol No 16 of the Treaty 
on European Union on the common organisational structure for the Economic and Social 
Committee and the Committee of the Regions; 

1  OJ  L  356,  31.12.1977,  p.  1.  Regulation  last  amended  by  Council  Regulation  2444/97  (EC)  of 

22 September  1997 (OJ L 340,  11.12.1997, p. 1). 

2  OJL  209, 2.8.1997, p. 6. 

Whereas, in accordance with Regulation No 1103/97 on certain provisions relating to the 
introduction of the euro,3 all references to the ecu are replaced by references to the euro at 
the rate of one euro to one ecu; whereas, in accordance with Regulation .../97 of.... 19984 
on the introduction of the euro, the euro will be the currency of the participating Member 
States starting from 1 January 1999; 

Whereas, during the transition period (from  1.1.1999 to 31.12.2001), any reference in this 
regulation to the euro must, as a general rule, also be read as a reference to the euro as a 
currency unit as specified  in the second sentence of Article 2 of Regulation  .../97 of .... 
1998;5 

Whereas,  following  the  adoption  by  the  Council  of  the  abovementioned  Regulation 
No  1467/97, a mechanism must be provided for ensuring that the revenue from payment 
by the Member States of fines imposed by the Council is allocated for distribution of the 
amounts in question between the Member States participating in the system which do not 
have  an  excessive  deficit,  while  guaranteeing  that  the  requirements  of  budgetary 
transparency in those operations are met, 

HAS ADOPTED THIS REGULATION: 

The Financial Regulation is amended as follows: 

Article 1 

1.  After  the first indent in the second subparagraph of Article 4(2), the following new 

indent is inserted: 

"  - interest on the deposits and fines referred  to in Section 4 of Council Regulation 
(EC) No 1467/97,6 in accordance with Article 126a". 

2.  Article 11  is replaced by the following: 

1.  The budget shall be drawn up in euros. 

"Article 11 

2.  The euro shall be the single currency as defined in Regulation (EC) No ...797 of 

1998 on the introduction of the euro.7 

3  OJL  162, 19.6.1997, p. 1. 

4 

5 

[OJC 236, 2.8.1997, p. 7] 

[OJC 236, 2.8.1997, p. 7] 

6  OJL  209, 2.8.1997, p. 6. 

7 

[OJC 236, 2.8.1997,p. 7] 

3.  Without  prejudice  to  specific  provisions  deriving  from  the  application  of 
sector-specific  rules  governing  either  revenue  or  expenditure,  the  rights  and 
obligations of the Communities shall be expressed and executed in euros. 

4.  Conversions between the euro and the currencies of the Member  States which 
have not adopted the euro shall be made at the exchange rate applicable on the 
day  of  the  operation;  derogations  from  this  principle  may  be  permitted  in 
exceptional  cases,  in  accordance  with  the  implementing  rules  referred  to  in 
Article 139." 

3.  Article 19(1) is amended as follows: 

a) 

in the first subparagraph, the second indent is replaced by the following: 

"-  separate sections subdivided into statements of revenue and expenditure of 
the  European  Parliament,  the  Council,  the  Commission,  the  Court  of 
Justice, the Court of Auditors, the Economic and Social Committee and the 
Committee of the Regions." 

b) 

the third subparagraph is deleted. 

4. 

In paragraph 5 of Article 19, "ECU" is replaced by "EUR". 

5. 

In the first indent of Article 20(3), "the staff of the Economic and Social Committee, 
the Committee  of the Regions  and their common  organisational  structure  shall be 
shown separately in their specific section" is deleted. 

6.  Article 22 is amended as follows: 

a) 

in paragraph 2, the second subparagraph is deleted; 

b) 

in paragraph 5, the second subparagraph is deleted. 

7.  In the first paragraph of Article 24, "The Economic and Social Committee and the 
Committee  of  the  Regions  shall  appoint  a  financial  controller  by  common 
agreement" is deleted. 

8. 

9. 

In the second paragraph of Article 25, "The Economic and Social Committee and the 
Committee  of  the  Regions  shall  appoint  an  accounting  officer  by  common 
agreement" is deleted. 

In the second subparagraph of Article 26(2), "- the two latter each with regard to the 
part  which  relates  to  it  and  by  common  agreement  with  regard  to  the  common 
organisational structure -" is deleted. 

10.  In  the first subparagraph  of Article  28a,  after  "imposed  by  the  Commission",  the 

words "or the Council" are added. 

11.  In Article 31, "ecus" is replaced by "euros". 

12.  In Article 33(5), "ecu" is replaced by "euro". 

* 

13.  Article 35 is replaced by the following: 

" Article 35 

The Commission shall, every three months, send each Member State which has not 
adopted the euro a statement indicating the transfers effected  in that Member State's 
national currency into another currency and vice versa". 

14.  In the third indent of Article 44, "ecus" is replaced by "euros". 

15.  In Article 69, "ecus" is replaced by "euros". 

16.  In Article 111(2) and (3), "ecus" is replaced by "euros". 

17.  Under Title XI, the following new section la is inserted: 

"Section la 

PROVISIONS APPLICABLE TO THE SANCTIONS REFERRED TO IN 
SECTION 4 OF COUNCIL REGULATION (EC) No 1467/97» 

Article 126a 

The budgetary structure for the proceeds of the sanctions referred  to in Section 4 of 
Council Regulation (EC) No 1467/97 is as follows: 

a) 

b) 

the statement of revenue shall carry a budget heading to receive the amounts of 
each  sanction  imposed by the Council  on a Member  State in  accordance with 
Section 4 of Council Regulation (EC) No 1467/97; 

in  parallel,  and  without  prejudice  to  Article  28a,  commitment  and  payment 
appropriations  shall be entered  in a heading in the statement  of expenditure to 
match  these  amounts  in  the  statement  of  revenue.  These  appropriations  shall 
cover  the  repayments  provided  for  in  Article 16  of  Council  Regulation  (EC) 
No 1467/97". 

This Regulation shall enter into force on 1 January 1999. 

Article 2 

This  Regulation  shall  be binding  in  its  entirety  and  directly  applicable  in  all  Member 
States. 

Done at 

8  OJL209,  2.8.1997, p. 6. 

For the Council, 
The President 

? 

ISSN 0254-1475 

COM(98) 206 final 

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