Commission working document - Proposal for renewal of the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure
Date: 2004-07-14
Institutions: European Commission
Subjects: budgetary discipline (EU), budgetary procedure, interinstitutional agreement

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.7.2004 
COM(2004) 498 final 

COMMISSION WORKING DOCUMENT 

Proposal for renewal of the 
INTERINSTITUTIONAL AGREEMENT  
on budgetary discipline and improvement of the budgetary procedure 

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EXPLANATORY MEMORANDUM 

The  enclosed  draft  Interinstitutional  Agreement  (IIA)  on  budgetary  discipline  and 
improvement of the budgetary procedure is intended as a working paper for the negotiations 
between the European Parliament, the Council and the Commission. 

The purpose of this Interinstitutional Agreement is to provide a set of agreed rules concerning 
the  management  of  the  multiannual  financial  framework  and  the  sequence  of  operations  as 
regards the annual budgetary procedure. 

Guidelines for a new agreement on budgetary discipline 

Maintaining the fundamentals 

Agenda  2000  successfully  fulfilled  its  main  purposes  as  regards  financial  discipline,  the 
orderly  evolution  of  expenditure  and  interinstitutional  collaboration  during  the  budgetary 
procedure. The Budget of the European Union has been adopted on time each year, and the 
two arms of the budgetary authority have jointly adjusted Agenda 2000 to face supplementary 
financial requirements linked to the enlargement to ten new member States. 

The  present  Interinstitutional agreement  therefore  proposes  to  maintain  unchanged  the  main 
features of the financial framework:  

–  expenditure  is  broken  down  by  broad  categories  of  expenditure  called  headings; 

for each year of the 2007-2013 period; 

–  maximum amounts called ceilings are established in the financial framework table 
for  the  period  2007-2013  (see  Annex  I)  in  terms  of  appropriations  for 
commitments and for each heading;  

–  overall  annual  amounts  are  expressed  both  for  commitment  appropriations  and 

payment appropriations; 

–  the  annual  ceiling  for  payment  appropriations  must  respect  the  own  resources 
ceiling currently established at 1,24 % of the EU gross national income (GNI). 

Simplification, consolidation 

The  present  Interinstitutional  Agreement  provides  for  the  renewal  of  the  Interinstitutional 
Agreement of 6 May 1999 in the light of experience acquired with its implementation but also 
for the consolidation of all the joint declarations and interinstitutional agreements concluded 
on budgetary matters since 1982. 

In particular, the present agreement aims at incorporating the Interinstitutional Agreement of 
7  November  2002  on  the  creation  of  the  European  Union  Solidarity  Fund  (EUSF),  agreed 
upon  during  the  current  period  of  the  financial  perspective.  It  is  proposed  that  the  EUSF 
develops into a European Solidarity and Rapid Reaction instrument. 

In  the  perspective  of  future  institutional  developments,  the  present  Interinstitutional 
Agreement  proposes  to  replace  the  term  'financial  perspective'  with  'multiannual  financial 
framework', also referred to as the 'financial framework'. 

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Flexibility and transparency: taking stock of the experience of Agenda 2000 

Flexibility  within  the  agreed  multiannual  financial  framework  is  the  essential  corollary  to 
financial  discipline.  If  properly  designed,  it  contributes  to  enhancing  effective  resources 
allocation  while  allowing  responding  to  unforeseen  needs  or  new  priorities.  Several 
parameters  influence  the  degree  of  flexibility  of  the  financial  framework:  the  length  of  the 
period covered by the financial perspective; the number of expenditure headings; the margins 
available  within  each  expenditure  ceiling;  the  margin  below  the  own  resources  ceiling;  the 
share of EU spending pre-determined by 'amounts of reference' in co-decided legislation; pre-
allocated multiannual programmes; the general attitude towards using the revision procedure. 

The  degree  of  flexibility  has  evolved  over  time  with  the  changing  mix  of  those  parameters. 
Agenda  2000  has  so  far  succeeded  in  answering  unforeseen  challenges  to  the  EU  budget, 
though that has been done at the price of greater complexity and lower transparency, without 
necessarily improving effective resource allocation. The existing instrument of flexibility and 
the  European  Union  Solidarity  Fund  (EUSF)  had  to  be  created  outside  the  financial 
perspective to respond to acknowledged needs. The actual use of the instrument of flexibility 
reveals  a  departure  from  its  original  purposes  which  risks  weakening  the  credibility  of  the 
system  and  undermining  the  interinstitutional  collaboration  on  budgetary  matters.  The 
Commission  considers  that  more  transparent  instruments  fully  integrated  in  the  financial 
framework  would  reinforce  budgetary  discipline.  The  Commission  proposes  the  following 
measures  to  address  future  challenges  and  find  the  proper  balance  between  budgetary 
discipline and efficient resources allocation.  

(1) 

(2) 

(3) 

First, the procedure to revise expenditure ceilings should be given its original role as 
the main instrument to allow adjustments to the financial framework when substantial 
and  lasting  changes  in  political  priorities  occur.  To  give  the  revision  procedure  its 
original role, the Commission proposes a regular review of needs, e.g. in the form of a 
trialogue  meeting  between  Parliament,  Council  and  the  Commission  ahead  of  the 
presentation of each preliminary draft budget. 

Secondly, the intensive use of the flexibility instrument during Agenda 2000 shows its 
creation  was  justified.  However,  this  instrument  does  no  longer  fulfil  its  original 
purposes and, to a large extent, has been used as an indirect means to raise the ceiling 
for external actions. Such a departure from its original purposes risks weakening the 
credibility  of  the  system  and  undermining  the  interinstitutional  collaboration  on 
budgetary matters. Therefore the Commission proposes a new reallocation flexibility, 
replacing  the  existing  'flexibility  instrument',  which  would  allow  the  budgetary 
authority on a Commission proposal to re-allocate appropriations between expenditure 
headings within certain limits and within the overall ceilings. 

Thirdly,  the  creation  of  a  growth  adjustment  fund  is  proposed  to  adjust  the  financial 
framework  to  economic  environment.  The  growth  adjustment  fund  can  be  mobilised 
up to € 1 billion within the ‘competitiveness for growth and employment’ expenditure 
heading  (1a).  This  amount  may  be  increased  by  unused  appropriations  from  the 
Structural instruments, when the situation allows, in application of the N+2 rule, up to 
a maximum of € 1 billion per year. 

(4) 

Fourthly,  the  proposed  new  classification  of  expenditure  is  also  going  to  enhance 
flexibility  and  the  effective  allocation  of  resources  by  avoiding  unnecessary  ring-
fencing. 

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The  structure  of  expenditure  in  Agenda  2000  is  to  a  large  extent  the  legacy  of  the 
establishment of the first financial perspective and its successors. It is structured in 8 
expenditure headings, which become 11 when taking sub-headings into account. Ring-
fencing of resources in a large number of headings and sub-headings makes the system 
rigid  and  can  prevent  proper  adjustment  and  a  more  effective  use  of  resources  to 
achieve the Union’s policy goals, thus hindering the ultimate goal to have budgetary 
means at the service of a policy objective. 
A more limited number of budgetary headings not only reflects the broad policy goals, 
but  also  provides  the  necessary  room  for  manoeuvre  for  developments  that  cannot 
always  be  precisely  predicted  many  years  in  advance.  For  the  2007-2013  financial 
framework, the Commission proposes five main expenditure headings which appear in 
the financial framework table (see Annex I). 

(5) 

Finally,  it  is  proposed  to  include  the  European  Solidarity  and  Rapid  Reaction 
Instrument  within  the  financial  framework  for  budgetary  discipline  and  transparency 
purposes. The creation of its predecessor, the European Union Solidarity Fund, outside 
the financial framework revealed that, in the absence of sufficient flexibility within the 
FP, ways would be found around it in case of need. The Commission believes that this 
instrument  remains  necessary  but  proposes  to  integrate  it  fully  in  the  multiannual 
financial framework 

Consequence for the Regulation on budgetary discipline 

The  experience  with  the  2000-2006  financial  perspective  has  shown  that  there  is  no  longer 
any  need  for  maintaining  the  agricultural  guideline  foreseen  in  Council  Regulation  no. 
2040/2000  on  budgetary  discipline,  since  agriculture  expenditure  is  already  constrained  by 
ceilings  agreed  till  2013.  The  other  provisions  concerning  budget  discipline  for  agriculture 
will  be  overtaken  and  reinforced  by  the  proposed  new  Regulation  (articles  18-20)  on  the 
financing of the common agricultural policy. With the shift from market intervention towards 
direct payments to farmers and rural development measures agriculture expenditure has also 
become more predictable.  

The monetary reserve does no longer exist, and the enclosed proposals for the renewal of the 
interinstitutional  agreement  would  no  longer  require  ad-hoc  provisions  concerning  the 
reserves for external operations and for emergency aid.  

Under  these  conditions,  the  Commission  considers  that  Council  Regulation  no.  2040/2000 
should be repealed. The Commission will accordingly propose the appropriate legal act in due 
time.  

Guidelines on interinstitutional collaboration for the budgetary procedure 

Provisions included in Part II aim at improving the annual budgetary procedure. Most of these 
provisions result from budgetary practice or previous agreements and declarations. They have 
been  updated  in  relation  with  the  new  financial  regulation1.  The  annexes  I  to  IV  form  an 
integral part of the present proposed agreement. 

1 

OJ L 248, 16.9.2002, p. 1.  

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Structure and classification of expenditure 

Annex  III  provides  an  update  of  the  classification  of  expenditure  between  compulsory  and 
non-compulsory expenditure for the new structure by heading. A provision is maintained so 
that the two arms of the budgetary authority determine the classification of new budget items 
within the annual conciliation procedure. 

Financial provisions in legislative instruments 

The principle set out in the Joint Declaration of 6 March 1995, and incorporated in point 33 of 
the Interinstitutional Agreement of 6 May 1999, whereby the institutions undertake to comply 
during  the  budgetary  procedure  with  the  reference  amounts  adopted  in  the  legislative 
codecision  procedure,  is  maintained.  However,  the  codecision  procedure  has  been  regularly 
extended since 1995 and the strict provisions as regards reference amounts impose increasing 
constraints  for  budgetary  policy.  The  Commission  therefore  proposes  that  the  budgetary 
authority  and  the  Commission,  when  drawing  up  its  preliminary  draft  budget,  are  given  a 
margin  of  manoeuvre  through  the  possibility  to  depart  from  these  amounts  by  a  limited 
margin (5%). 

Conclusion 

The Interinstitutional Agreement on budgetary discipline and improvement of the budgetary 
procedure has proved an efficient tool to frame the annual budgetary practice within an agreed 
multiannual financial framework. Its renewal should be taken as an opportunity to update and 
simplify the various existing agreements and joint declarations concerning budgetary matters. 
Finally, this agreement aims at improving flexibility devices and transparency in order to find 
the proper balance between budgetary discipline and efficient resources allocation. 

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Draft 

EUROPEAN PARLIAMENT 
COUNCIL 
COMMISSION 
INTERINSTITUTIONAL AGREEMENT 

of […] 

between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the 
budgetary procedure 

NB:  in  view  of  the  possible  entry  into  force  of  the  Constitution  in  the  course  of  the  next  financial  perspective,  the  definition 
'multiannual financial framework' replaces 'financial perspective' in the following draft.. 

Comments are referred to changes vis-à-vis the text of the Interinstitutional Agreement of 6 May 1999. 

Comments 

Text of the IIA 
1.  The  purpose  of  this  Agreement  concluded  between  the  European  Parliament,  the 
Council and the Commission, hereafter referred to as the institutions', is to implement 
budgetary discipline and to improve the functioning of the annual budgetary procedure 
and cooperation between the institutions on budgetary matters. 
2. Budgetary discipline under this Agreement covers all expenditure. It is binding on all 
the institutions involved in its implementation for as long as the Agreement is in force. 
3.  This  Agreement  does  not  alter  the  respective  budgetary  powers  of  the  various 
institutions, as laid down in the Treaties. Where reference is made to this point in the 
present text, the Council will act by a qualified majority and the European Parliament 
by a majority of its members and three fifths of the votes cast, in compliance with the 
voting  rules  laid  down  in  the  fifth  subparagraph  of  Article  272(9)  of  the  Treaty 
establishing the European Community (here after referred to as the 'EC Treaty'). 
4. Any amendment of this Agreement requires the consent of all the institutions which 
are  party  to  it.  Changes  to  the  multiannual  financial  framework  must  be  made  in 
accordance with the procedures laid down for this purpose in this Agreement. 

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Text of the IIA 
5. This Agreement is in two parts: 
– Part I contains a definition and implementing provisions for the multiannual financial 
framework2 2007 to 2013 and applies for the duration of that financial framework, 
– Part II relates to improvement of interinstitutional collaboration during the budgetary 
procedure. 
6.  Whenever  it  considers  it  necessary  and  at  all  events  at  the  same  time  as  any 
proposal  for  a  new  financial  framework  presented  pursuant  to  paragraph  29,  the 
Commission  will  present  a  report  on  the  application  of  this  Agreement,  accompanied 
where necessary by proposed amendments. 
7. This Agreement enters into force on 1 January 2007. It replaces with effect from the 
same date: 
–  the  Interinstitutional  Agreement  of  6  May  1999  between  the  European  Parliament, 
the  Council  and  the  Commission  on  budgetary  discipline  and  improvement  of  the 
budgetary procedure3, 
–  the  Interinstitutional  Agreement  of  7  November  2002  between  the  European 
Parliament, the Council  and the  Commission  on the financing of  the European Union 
Solidarity  Fund  supplementing  the  Interinstitutional  Agreement  of  6  May  1999  on 
budgetary discipline and improvement of the budgetary procedure4. 

Comments 
Modification: duration of the multiannual 
financial framework 

Modifications: 
Updating and simplification. 

2 
3 

4 

The multiannual financial framework is also referred to as 'the financial framework' in the present agreement. 
OJ C 172, 18.6.1999, p. 1. This Interinstitutional Agreement already replaced and declared obsolete the following instruments: 
- the Joint Declaration by the European Parliament, the Council and the Commission of 30 June 1982 on various measures to improve the budgetary procedure, 
OJ C 194, 28.7.1982, p. 1.  
-  the  Interinstitutional  Agreement  of  29  October  1993  between  the  European  Parliament,  the  Council  and  the  Commission  on  budgetary  discipline  and 
improvement of the budgetary procedure, OJ C 331, 7.12.1993, p. 1. 
- the Declaration by the European Parliament, the Council and the Commission of 6 March 1995 on the incorporation of financial provisions into legislative 
acts, OJ C 102, 4.1996, p. 4. 
-  the  Joint  Declaration  of  12  December  1996  concerning  the  improvement  of  information  to  the  budgetary  authority  on  fisheries  agreements,  OJ  C  20, 
20.1.1997, p. 109. 
-  the  Interinstitutional  Agreement  between  the  European  Parliament,  the  Council  and  the  European  Commission  of  16  July  1997  on  provisions  regarding 
financing of the common foreign and security policy, OJ C 286, 22.9.1997, p.80.  
- the Interinstitutional Agreement of 13 October 1998 between the European Parliament, the Council and the Commission on legal bases and implementation of 
the budget, OJ C 344, 12.11.1998, p. 1. 
OJ C 283, 20.11.2002, p. 1. 

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PART I – FINANCIAL FRAMEWORK 2007 to 2013: 
DEFINITION AND IMPLEMENTING PROVISIONS 

A. Contents and scope of the financial framework 

8. The 2007 to 2013 financial framework, set out in Annex I, forms an integral part of 
this  Agreement.  It  constitutes  the  reference  framework  for  interinstitutional  budgetary 
discipline. Its contents are consistent with the conclusions of the […] European Council 
[…]. 
9.  The  financial  framework  is  intended  to  ensure  that,  in  the  medium  term,  European 
Union  expenditure,  broken  down  by  broad  category,  develops  in  an  orderly  manner 
and within the limits of own resources. 
10.  The  2007  to  2013  financial  framework  establishes,  for  each  of  the  years  and  for 
each  heading  or  subheading,  amounts  of  expenditure  in  terms  of  appropriations  for 
commitments.  Overall  annual  totals  of  expenditure  are  also  shown  in  terms  of  both 
appropriations for commitments and appropriations for payments.  
All these amounts are expressed in 2004 prices. 
The financial framework does not take account of budget items financed by earmarked 
revenue within the meaning of Article 18 of the Financial Regulation of 25 June 2002 
applicable to the general budget of the European Communities5, here after referred to 
as the 'Financial Regulation'. 

expenditure 

pre-accession 

Modifications: 
- General updating 
- § 4 deleted (void): no specific heading 
for 
is 
proposed. 
- §5 deleted: this paragraph is no longer 
the  Commission 
relevant 
the  European 
proposes 
Development  Fund 
financial 
framework. 
-  §6:  Deletion  of 
to 
agricultural  guideline  (see  explanatory 
memorandum above). 
-  For  adjustments  concerning  specific 
headings, see Point 15 below. 

the  reference 

since 
to 

include 

the 

in 

5 

OJ L 248, 16.9.2002, p. 1. 

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11. The institutions acknowledge that each of the absolute amounts shown in the 2007 
to  2013  financial  framework  represents  an  annual  ceiling  on  expenditure  under  the 
general  budget  of  the  European  Communities.  Without  prejudice  to  any  changes  in 
these  ceilings  in  accordance  with  the  provisions  contained  in  this  Agreement,  they 
undertake to use their respective powers in such a way as to comply with the various 
annual expenditure ceilings during each budgetary procedure and when implementing 
the budget for the year concerned. 
12.  The  two  arms  of  the  budgetary  authority  agree  to  accept,  for  the  duration  of  the 
2007 to 2013 financial framework, the maximum rates of increase for non-compulsory 
expenditure  deriving  from  the  budgets  established  within  the  ceilings  set  by  the 
financial framework. 
For the purposes of sound financial management, the institutions will ensure as far as 
possible during the budgetary procedure and at the time of the budget's adoption that 
sufficient margins are left available beneath the ceilings for the various headings. 
13. No act adopted under the co-decision procedure by the European Parliament and 
the  Council  nor  any  act  adopted  by  the  Council  which  involves  exceeding  the 
appropriations  available  in  the  budget  or  the  allocations  available  in  the  financial 
framework  in  accordance  with  paragraph  11  may  be  implemented  in  financial  terms 
until  the  budget  has  been  amended  and,  if  necessary,  the  financial  framework  has 
been appropriately revised in accordance with the relevant procedure for each of these 
cases. 
14. For each of the years covered by the financial framework, the total appropriations 
for  payments  required,  after  annual  adjustment  and  taking  account  of  any  other 
adjustments  or  revisions,  must  not  be  such  as  to  produce  a  call-in  rate  for  own 
resources that exceeds the ceiling in force for these resources. 
If  need  be,  the  two  arms  of  the  budgetary  authority  will  decide,  in  accordance  with 
Point 3 of the present Agreement, to lower the ceilings set in the financial framework in 
order to ensure compliance with the ceiling on own resources. 

pre-accession 

§2  deleted  (void):  no  specific  heading 
is 
for 
proposed  for  the  financial  framework 
2007-2013. 

expenditure 

Modifications: 
- § 2: the specific nature of Heading 2 in 
Agenda  2000,  which  only  covered  pre-
allocated  expenditure,  no  longer  exists. 
Appropriations  for  structural  operations 
are  mainly  entered  under  heading  1b, 
which  also  covers  non-pre-allocated 
expenditure. 
-  §  3  deleted: 
the  corresponding 
provision  has  been  inserted  in  Part  II, 
Article 39. 

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Comments and modifications: 
-  §  2:  updating  of  the  procedure  of  the 
technical adjustment in compliance with 
the  new  names  of  agricultural  and 
structural programmes. 
- §2: the deflator of 2% is maintained. 
-  §  3  deleted.  The  possibility  to  review 
the index base is dropped. 

B. Annual adjustments of the financial framework 

Technical adjustments 

15. Each year the Commission, acting ahead of the budgetary procedure for year n+1, 
will  make  the  following  technical  adjustments  to  the  financial  framework  in  line  with 
movements in gross national income (GNI) and prices: 
(a)  revaluation,  at  year  n+1  prices,  of  the  ceilings  and  of  the  overall  figures  for 
appropriations for commitments and appropriations for payments; 
(b) calculation of the margin available under the own resources ceiling. 
The Commission will make these technical adjustments on the basis of the most recent 
economic  data  and  forecasts  available.  However,  the  technical  adjustment  for  the 
Common  Agricultural  Policy  (The  European  Agricultural  Guarantee  Fund  and  the 
European Agricultural Rural Development Fund), the Structural Funds of Heading 1b, 
the Cohesion Fund and the European Fund for fisheries will be based on a deflator of 
2% a year.  
The  results  of  such  adjustments  and  the  underlying  economic  forecasts  will  be 
communicated to the two arms of the budgetary authority. 
No further technical adjustments will be made in respect of the year concerned, either 
during the year or as ex-post corrections during subsequent years. 

Adjustments connected with implementation 

16.  When  notifying  the  two  arms  of  the  budgetary  authority  of  the  technical 
adjustments to the financial framework, the Commission will present any proposals for 
adjustments  to  the  total  appropriations  for  payments  which  it  considers  necessary,  in 
the  light  of  implementation,  to  ensure  an  orderly  progression  in  relation  to  the 
appropriations for commitments. 

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Updating of forecasts for payment appropriations after 2013 

17. In 2010, the Commission will update the forecasts for payment appropriations after 
2013.  This  update  will  take  into  account  the  real  implementation  of  budget 
appropriations  for  commitments  and  budget  appropriations  for  payments,  as  well  as 
the  implementation  forecasts.  It  will  also  consider  the  rules  defined  to  ensure  that 
payment  appropriations  develop  in  an  orderly  manner  compared  to  commitment 
appropriations and the growth forecasts of the European Union Gross National Income 
(GNI). 

Adjustments connected with excessive government deficit 

18.  In  the  event  that  a  procedure  for  excessive  government  deficit  leads  to  the 
suspension of budgetary commitments concerning the Cohesion Fund, the Council can 
decide,  at  the  same  time  this  suspension  is  lifted,  on  a  transfer  of  suspended 
commitments  to  the  following  years.  Suspended  commitments  of  year  n  cannot  be 
rebudgeted beyond year n+1. The Council decides on a proposal from the Commission 
and in compliance with the relevant provisions of the basic regulation. 

19.  The  European  Parliament  and  the  Council  will  take  decisions on  these  proposals 
before 1 May of year n, in accordance with Point 3 of the present Agreement. 

C. Revision of the financial framework 

20.  In  addition  to  the  regular  technical  adjustments  and  adjustments  in  line  with  the 
conditions  of  implementation,  the  financial  framework  may  be  revised  in  compliance 
with  the  own  resources  ceiling,  on  a  proposal  from  the  Commission,  in  the  event  of 
unforeseen circumstances. 
21. As a general rule, any such proposal for revision must be presented and adopted 
before  the  start  of  the  budgetary  procedure  for  the  year  or  the  first  of  the  years 
concerned. 
Any decision to revise the financial framework by up to 0,03% of the Community GNI 
within the margin for unforeseen expenditure will be taken jointly by the two arms of the 
budgetary authority acting in accordance with Point 3.  

Modifications: 
- Point 17 deleted. The related provision 
is  unnecessary 
the  Financial 
if 
framework  and  relevant  basic  acts  are 
in  2005,  as  envisaged.  A 
adopted 
instead 
proposed 
declaration 
(enclosed at the end of this document). 

is 

New Point 18 linked to the proposal for 
a new regulation on the Cohesion Fund 
and  to  the  excessive  deficit  procedure, 
notably  the  sanctions  as  regards  the 
Cohesion 
budgetary 
Fund 
appropriations for commitments. 

Updating: gross national product (GNP) 
has  been  replaced  by  gross  national 
income  (GNI)  since  the  entry  into  force 
of  the  new  decision  on  the  system  of 
(OJ  L  253/42  of 
own 
7.10.2000). 

resources 

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Any revision of the financial framework above 0,03% of the Community GNI within the 
margin  for  unforeseen  expenditure  will  be  taken  jointly  by  the  two  arms  of  the 
budgetary authority, with the Council acting unanimously. 
22.  Without  prejudice  of  Point  39,  the  institutions  will  examine  the  scope  for 
reallocating expenditure between the programmes covered by the heading concerned 
by  the  revision,  with  particular  reference  to  any  expected  under-utilisation  of 
appropriations.  The  objective  should  be  that  a  significant  amount,  in  absolute  terms 
and  as  a  percentage  of  the  new  expenditure  planned,  should  be  within  the  existing 
ceiling for the heading. 
The institutions will examine the scope for offsetting raising the ceiling for one heading 
by lowering the ceiling for another. 
Any revision of the compulsory expenditure in the financial framework may not lead to 
a reduction in the amount available for non-compulsory expenditure. 
Any  revision  must  maintain  an  appropriate  relationship  between  commitments  and 
payments. 

D. Consequences of the absence of a joint decision on the adjustment or 
revision of the financial framework 

23. In the absence of a joint decision by the European Parliament and the Council on 
any adjustment or revision of the financial framework proposed by the Commission, the 
amounts set previously will, after the annual technical adjustment, continue to apply as 
the expenditure ceilings for the year in question. 

E. Emergency Aid Reserve 

24. The emergency aid reserve is included in Heading 4 'the EU as a global partner' of 
the financial framework. This reserve is entered in the general budget of the European 
Communities as a provision. The purpose of the emergency aid reserve is to provide a 
rapid  response  to  the  specific  aid  requirements  of  non-member  countries  following 
events  which  could  not  be  foreseen  when  the  budget  was  established,  first  and 
foremost  for  humanitarian  operations,  but  also  for  civil  crisis  management  and 

Updating: 
§  3  deleted  (void):  no  heading  for  pre-
accession  expenditure  is  proposed  for 
the financial framework 2007-2013. 

Modifications and simplification: 
-  §  1(a):  void.  The  monetary  reserve 
was foreseen only until 2002. 
- § 1(b): deletion of the reference to the 
reserve  for  guaranteeing  loans  to  non-
member countries. The Commission will 
propose  a  new  arrangement  whereby 
to 
the 

appropriations 

necessary 

6 

OJ L 248, 16.9.2002, p. 1. 

EN 

12 

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protection where circumstances so require. Its annual amount is fixed at € 221 million 
for the duration of the financial framework, in constant prices. 
When the Commission considers that this reserve needs to be called on, it will present 
the two arms of the budgetary  authority  a proposal for a transfer from this reserve to 
the corresponding budgetary lines. 
Any Commission proposal for a transfer to draw on the reserve for emergency aid must 
be, however, preceded by an examination of the scope for reallocating appropriations. 
At the same time as it presents its proposal for a transfer, the Commission will initiate a 
trialogue procedure, if necessary in a simplified form, to secure the agreement of the 
two arms of the budgetary authority on the need to use the reserve and on the amount 
required.  The  transfers  are  made  in  accordance  with  Article  26  of  the  Financial 
Regulation6. 

F. European Solidarity and Rapid Reaction instrument 

25. A European Solidarity and Rapid Reaction instrument, here after referred to as 'the 
Solidarity  Instrument',  is  included  in  Heading  3  'Citizenship,  Freedom,  Security  and 
Justice'  and  is  intended  to  allow  rapid  financial  assistance  in  the  event  of  major 
disasters  occurring  on  the  territory  of  a  Member  State  or  of  a  candidate  country,  as 
defined in the relevant basic act. There will be a ceiling on the annual amount available 
for the Solidarity Instrument of € 1 billion. On 1 October each year, at least one-quarter 
of the annual amount will remain available in order to cover needs arising until the end 
of the year. 
When the conditions for mobilising the Solidarity Instrument as set out in the relevant 
basic act are met, the Commission will make a proposal to deploy it. The decision to 
deploy the Solidarity Instrument will be taken jointly by the two arms of the budgetary 
authority in accordance with Point 3. 

figures  of 

properly  provisioning 
the  guarantee 
fund  will  be  entered  in  the  budget,  with 
no  ad-hoc  provision  for  the  related  call 
of resources. 
-  §1: 
reserve 
the  emergency  aid 
remains the only reserve referred to and 
is entered under Heading 4. Its scope is 
enlarged  to  the  management  of  civil 
crisis and its amount is adjusted in 2004 
the  proposed 
prices  (all 
financial  framework  are  expressed  in 
constant prices (2004 prices).  
-  §  2-5: 
the 
the  procedure 
mobilisation of the reserve is updated to 
take  into  account  the  new  Financial 
Regulation. 
If  necessary,  supplementary  needs  for 
this  reserve  could  be  covered  either  by 
transfers 
operational 
budgetary  lines,  or  by  an  amending 
budget to use the available margin. 

other 

from 

for 

New point: 
Point  25  Is  built  upon  the  current  IIA  of 
7  November  2002  on  the  European 
(EUSF)  and 
Union  Solidarity  Fund 
the 
incorporates 
Commission to develop the EUSF into a 
Solidarity 
Reaction 
instrument.  

the  proposal  of 

Rapid 

and 

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13 

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At  the  same  time  as  it  presents  its  proposal  for  a  decision  to  deploy  the  Solidarity 
Instrument,  the  Commission  will  initiate  a  trialogue  procedure,  if  necessary  in  a 
simplified form, to secure the agreement of the two arms of the budgetary authority on 
the need to use the Solidarity Instrument and on the amount required. 

G. Reallocation flexibility  

26. The reallocation flexibility with an annual ceiling of € 200 million is intended to allow 
the  financing,  for  a  given  financial  year  and  up  to  the  amount  indicated,  of  clearly 
identified  expenditure  which  could  not  be  financed  within  the  limits  of  the  ceilings 
available for one or more other headings. 
It  allows  for  a  limited  reallocation  between  headings,  in  compliance  with  the  overall 
annual ceilings and without prejudice of the provisions of Point 39. 
The Commission will make a proposal for the reallocation flexibility to be used after it 
has  examined  all  possibilities  for  re-allocating  appropriations  under  the  heading 
requiring additional expenditure. 
The  proposal  may  be  presented,  for  any  given  financial  year,  during  the  budgetary 
procedure. The Commission proposal will be included in the preliminary draft budget or 
accompanied,  in  accordance  with  the  Financial  Regulation,  by  the  appropriate 
budgetary instrument. 
The decision to deploy the reallocation flexibility will be taken jointly by the two arms of 
the  budgetary  authority  in  accordance  with  Point  3.  Agreement  will  be  reached  by 
means of the conciliation procedure provided for in Part II, Section A and Annex II to 
this Agreement. 

H. Growth adjustment Fund 

27.  Sub-heading  1a  competitiveness 
includes 
appropriations  for  the  growth  adjustment  fund  with  a  maximum  annual  ceiling  of  € 1 
billion.  This  amount  may  be  increased,  when  the  situation  allows,  by  committed  but 

for  growth  and  employment 

flexibility 
the 
in 

Modification: 
The  new  reallocation  flexibility  replaces 
instrument,  as 
the  current 
proposed 
Commission 
communication  of  10.2.2004  Building 
our  Common  Future  [COM(2004)  101 
final]. 
It  allows  a  limited  reallocation  between 
headings respecting the overall ceilings. 
Pre-allocated  expenditure  is  excluded 
from this instrument. 

New Point: 
-  The  Growth  Adjustment  Fund  aims  at 
increasing  appropriations,  when 
the 
conditions  described  in  the  concerned 
existing 
are  met, 
regulation 
instruments and actions in Heading 1. 

of 

EN 

14 

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-  It  is  currently  entered  under  Heading 
1a  and  should  be  used  to  top  up 
programmes 
the  Lisbon 
strategy,  whose  appropriations  are 
mainly entered under Heading 1a. 

linked 

to 

from 

to  react 

to  crises  stemming 

unused  appropriations  from  the  two  cohesion  instruments  (European  Regional 
Development Fund and European Social Fund) in application of the 'N+2' rule7, up to a 
maximum of € 1 billion per year. 
The  purpose  of  the  growth  adjustment  fund  is  to  increase  the  responsiveness  of 
expenditure to changed circumstances in order to optimise delivery of the growth and 
cohesion  objectives,  by  making  the  necessary  adjustments  to  cope  with  unforeseen 
events that have significant impact on growth and employment. It will also enable the 
Union 
trade 
developments.  Following  the  annual  assessment  of  progress  in  the  delivery  of  the 
roadmap made in the Spring Council, it will be used to address the gaps in the delivery 
of the roadmap objectives by topping-up, if necessary, expenditure programmes in the 
competitiveness or cohesion sub-headings, pushing for investment and public support 
on key projects.  
When the conditions exist for mobilising appropriations of the growth adjustment fund, 
the  Commission  will  make a  proposal  to  deploy  it.  The  decision  to  deploy  the  growth 
adjustment  fund  will  be  taken  jointly  by  the  two  arms  of  the  budgetary  authority  in 
accordance with Point 3. 
At the same time as it presents its proposal for a transfer or for a decision to deploy the 
Fund,  the  Commission  will  initiate  a  trialogue  procedure,  if  necessary  in  a  simplified 
form, to secure the agreement of the two arms of the budgetary authority on the need 
to use the Fund and on the amount required. 

international  economic  and 

I. Adjustment of the financial framework to cater for enlargement 

28.  Where  the  Union  is  enlarged  to  include  new  Member  States  during  the  period 
covered by the financial framework, the European Parliament and the Council, acting 
on a proposal from the Commission and in accordance with Point 3, will jointly adjust 
the financial framework to take account of the expenditure requirements resulting from 
the outcome of the accession negotiations. 

§  2  deleted  (void):  no  specific  table 
including 
financial 
supplementary 
requirements for an enlargement during 
the  2007-2013  financial  framework  is 
foreseen. 

7 

OJ L 161/1 of 26.6.1999, article 31(2). 

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15 

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J. Duration of the financial framework and consequences of the absence of a 
financial framework 

29. Before 1 July 2011, the Commission will present proposals for a new medium-term 
financial framework. 
Should  the  two  arms  of  the  budgetary  authority  fail  to  agree  on  a  new  financial 
framework, and unless the existing financial framework is expressly terminated by one 
of the parties to this Agreement, the ceilings for the last year covered by the existing 
financial framework will be adjusted in accordance with paragraph 15 so that their 2013 
ceilings  are  maintained  in  constant  prices.  In  the  event  that  an  enlargement  of  the 
European Union occurs after 2013, and if deemed necessary, the extended framework 
will be adjusted in order to take into account the results of accession negotiations. 

Modification: 
This  provision  aims  at  lifting  current 
ambiguities  concerning  the  coherence 
between  the  financial  framework  and 
accession 
the 
experience of the latest enlargement. In 
the event that no financial framework is 
agreed,  it  should  be  possible  to  adjust 
the 
an 
enlargement. 

treaties,  based  on 

extended 

ceilings 

for 

EN 

16 

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PART II – IMPROVEMENT OF INTERINSTITUTIONAL COLLABORATION DURING 
THE BUDGETARY PROCEDURE 

A. The interinstitutional collaboration procedure 

30.  The  institutions  agree  to  set  up  a  procedure  for  interinstitutional  collaboration  in 
budgetary matters. The details of this collaboration are set out in Annex II, which forms 
an integral part of this Agreement. 

B. Establishment of the budget 

31.  The  Commission  will  present  each  year  a  preliminary  draft  budget  showing  the 
Community's actual financing requirements. 
It will take into account: 
– accurate forecasts in relation to the Structural Funds provided by the Member States,
– the capacity for utilising appropriations, endeavouring to maintain a strict relationship 
between appropriations for commitments and appropriations for payments, 
–  the  possibilities  for  starting  up  new  policies  through  pilot  projects  and/or  new 
preparatory  operations  or  continuing  multiannual  operations  which  are  coming  to  an 
end,  after  assessing  whether  it  will  be  possible  to  secure  a  basic  act,  within  the 
meaning of Article 49 of the Financial Regulation, 
– the need to ensure that any change in expenditure in relation to the previous year is 
in accordance with the constraints of budgetary discipline. 
The preliminary draft budget will be accompanied by Activity Statements including such 
information  as  required  under  Articles  27(3)  and  33(2)(d)  of  the  Financial  Regulation 
(objectives, indicators and evaluation information). 
32. The institutions will, as far as possible, avoid entering items in the budget carrying 
insignificant amounts of expenditure on operations. 
The  two  arms  of  the  budgetary  authority  also  undertake  to  bear  in  mind  the 
assessment of the possibilities for implementing the budget made by the Commission 
in its preliminary drafts and in connection with implementation of the current budget. 

of 

evolution 

Additions: 
-  §1:  new  indent  which  recalls  the 
importance of having accurate forecasts 
payment 
on 
the 
appropriations 
funds. 
These  forecasts  are  provided  by  the 
Member States. 
- New paragraph 2 to take into account 
the  Activity  Statements  which  gather 
information  foreseen  in  the  Financial 
Regulation. 

for  structural 

Additions: 
- New § 2 aims at formalising a practice 
already in use. 
- New §  3 is linked to the previous one 
and  underlines  the  link  between  sound 
financial  management  and  ensuring  a 

EN 

17 

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certain 
nomenclature. 

stability 

in 

the 

budget 

Before the Council 2nd reading, the Commission sends a letter to the Chairman of the 
European  Parliament  Budgets  Committee,  with  a  copy  to  the  other  arm  of  the 
budgetary  authority,  containing its comments  on  the  executability  of  the  amendments 
to  the  draft  budget  adopted  by  the  European  Parliament  in  its  first  reading.  The  two 
arms of the budgetary authority will take these comments into account in the context of 
the conciliation procedure provided for in Annex II. 
In the interest of sound financial management and due to the effect of major changes 
in  the  budget  nomenclature  in  the  titles  and  chapters  on  the  management  reporting 
responsibilities  of  Commission  departments,  the  two  arms  of  the  budgetary  authority 
undertake  to  discuss  any  such  major  changes  with  the  Commission  during  the 
conciliation procedure. 

C. Classification of expenditure 

33.  The  institutions  consider  compulsory  expenditure  to  be  such  expenditure  as  the 
budgetary  authority  is  obliged  to  enter  in  the  budget  by  virtue  of  a  legal  undertaking 
entered into under the Treaties or acts adopted by virtue of the said Treaties. 
34. The preliminary draft budget is to contain a proposal for the classification of each 
new budget item and each item with an amended legal base. 
If  they  do  not  accept  the  classification  proposed  in  the  preliminary  draft  budget,  the 
European  Parliament  and  the  Council  will  examine  classification  of  the  budget  item 
concerned  on  the  basis  of  Annex  III,  which  forms  an  integral  part  of  this  Agreement. 
Agreement will be sought during the conciliation procedure provided for in Annex II. 

D. Maximum rate of increase of non-compulsory expenditure in the absence of a 
financial framework 

35.  Without  prejudice  to  the  first  paragraph  of  point  12,  the  institutions  agree  on  the 
following provisions: 
(a) the European Parliament's autonomous margin for manoeuvre for the purposes of 
the  fourth  subparagraph  of  Article  272(9)  of  the  EC  Treaty  –  which  is  to  be  half  the 
maximum  rate  –  applies  as  from  the  draft  budget  established  by  the  Council  at  first 
reading, including any letters of amendment. 
The  maximum  rate  is  to  be  observed  in  respect  of  the  annual  budget,  including  any 
supplementary  and/or  amending  budgets.  Without  prejudice  to  the  setting  of  a  new 

EN 

18 

   EN

 
 
 
 
rate, any portion of the maximum rate which has not been utilised will remain available 
for  use  and  may  be  used  when  draft  supplementary  and/or  amending  budgets  are 
considered; 
(b) without prejudice to point (a), if it appears in the course of the budgetary procedure 
that  completion  of  the  procedure  might  require  agreement  on  setting  a  new  rate  of 
increase for non-compulsory expenditure to apply to payment appropriations and/or a 
new  rate  to  apply  to  commitment  appropriations  (the  latter  rate  may  be  at  a  different 
level from the former), the institutions will endeavour to secure an agreement between 
the  two  arms  of  the  budgetary  authority  by  the  conciliation  procedure  provided  for  in 
Annex II. 

E. Incorporation of financial provisions in legislative acts 

36.  Legislative  acts  concerning  multiannual  programmes  adopted  under  the  co-
decision procedure contain a provision in which the legislative authority lays down the 
financial envelopes for the programme. 
That amount will constitute the prime reference for the budgetary authority during the 
annual budgetary procedure. 
The  budgetary  authority  and  the  Commission,  when  drawing  up  its  preliminary  draft 
budget,  undertake  not  to  depart  by  more  than  5%  from  this  amount  unless  new, 
objective,  long-term  circumstances  arise  for  which  explicit  and  precise  reasons  are 
given,  with  account  being  taken  of  the  results  obtained  from  implementing  the 
programme, in particular on the basis of assessments. 
This point does not apply to appropriations for cohesion adopted under the co-decision 
procedure and pre-allocated by Member States, which contain a financial envelope for 
the entire duration of the programme. 
37. Legislative instruments concerning multiannual programmes not subject to the co-
decision procedure will not contain an 'amount deemed necessary'. 
Should the Council wish to include a financial reference, this will be taken as illustrating 
the  will  of  the  legislative  authority  and  will  not  affect  the  powers  of  the  budgetary 
authority as defined by the Treaty. This provision will be mentioned in all instruments 
which include such a financial reference. 
If  the  amount  concerned  has  been  the  subject  of  an  agreement  pursuant  to  the 
conciliation procedure provided for in the Joint Declaration of the European Parliament, 

Addition: 
-  The  addition  in  §  3  is  essential  to 
introduce  some  flexibility  in  the  annual 
the  codecided 
budget  compared 
reference  amounts.  This 
flexibility 
should  however  be  limited  to  5%  to 
allow marginal adjustments.  

to 

EN 

19 

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Council  and  the  Commission  of  4  March  1975  (9),  it  will  be  considered  a  reference 
amount within the meaning of paragraph 36 of this Agreement. 
38.  The  financial  statement  provided  for  in  Article  28  of  the  Financial  Regulation  will 
reflect  in  financial  terms  the  objectives  of  the  proposed  programme  and  include  a 
schedule covering the duration of the programme. The appropriations will be revised, 
where necessary, when the preliminary draft budget is drawn up, taking account of the 
extent of implementation of the programme. 
39. Within the maximum rates of increase for non compulsory expenditure specified in 
the first subparagraph of point 12, the two arms of the budgetary authority undertake to 
respect  the  allocations  of  commitment  appropriations  provided  for  in  the  relevant 
regulations  for  structural  operations,  rural  development  and  the  European  Fund  for 
fisheries. 

F. Expenditure relating to fisheries agreements 

40.  The  institutions  agree  to  finance  expenditure  on  fisheries  agreements  in 
accordance with the arrangements set out in Annex IV, which forms an integral part of 
this Agreement. 

Modification: 

Transferred from Point 12 

G. Financing of the common foreign and security policy (CFSP) 

Updating. 

41.  For  the  CFSP  expenditure  charged  to  the  general  budget  of  the  European 
Communities  in  accordance  with  Article  28  of  the  Treaty  on  European  Union,  the 
institutions will endeavour, in the conciliation procedure provided for in Annex II and on 
the  basis  of  the  preliminary  draft  budget  established  by  the  Commission,  to  secure 
each year agreement on the amount of the operating expenditure to be charged to the 
Community  budget  and  on  the  distribution  of  this  amount  between  the  articles  of  the 
CFSP budget chapter suggested in the fourth subparagraph of this paragraph. In the 
absence of agreement, it is understood that the European Parliament and the Council 
will  enter  in  the  budget  the  amount  contained  in  the  previous  budget  or  the  amount 
proposed in the preliminary draft budget, whichever is the lower. 
The total amount of operating CFSP expenditure will be entered entirely in one budget 
chapter (CFSP) and distributed between the articles of this chapter as suggested in the 
fourth  subparagraph  of  this  paragraph.  This  amount  is  to  cover  the  real  predictable 
needs and a reasonable margin for unforeseen actions. No funds will be entered in a 

EN 

20 

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reserve.  Each  article  covers  Joint  Actions  and  Council  Decisions  implementing  joint 
actions  already  adopted,  measures  which  are  foreseen  but  not  yet  adopted  and  all 
future – i.e. unforeseen – action to be adopted by the Council during the financial year 
concerned. 
Since,  under  the  Financial  Regulation,  the  Commission  has  the  authority,  within  the 
framework of a CFSP action, to transfer appropriations autonomously between articles 
within  one  budget  chapter,  i.e.  the  CFSP  allocation,  the  flexibility  deemed  necessary 
for speedy implementation of CFSP actions will accordingly be assured. In the event of 
the amount of the CFSP budget during the financial year being insufficient to cover the 
necessary expenses, the European Parliament and the Council will seek a solution as 
a matter of urgency, on a proposal from the Commission, taking into account Point 24. 
Within  the  CFSP  budget  chapter,  the  articles  into  which  the  CFSP  actions  are  to  be 
entered could read along the following lines: 
–  monitoring and verification of conflicts and peace processes, 
–  non-proliferation and disarmament, 
–  police missions, 
–  emergency measures, 
–  preparatory and follow-up measures, 
–  European Union Special Representatives, 
–  conflict resolution and other stabilisation measures. 
The European Parliament, the Council and the Commission agree that the amount for 
actions entered under the article mentioned in the fourth indent may not exceed 20% of 
the overall amount of the CFSP budget chapter. 
42.  Once  a  year,  the  Council  Presidency  will  consult  the  European  Parliament  on  a 
Council  document  setting  out  the  main  aspects  and  basic  choices  of  the  CFSP, 
including 
the  European 
Communities.  Furthermore,  according  to  the  agreement  reached  at  the  conciliation 
meeting  on  24 November  2003,  the  Council  Presidency  and  the  two  incoming 
Presidencies  will  keep  Parliament  informed  by  holding  joint  consultation  meetings  at 
least five times a year to be agreed at the latest at the conciliation meeting to be held 
before the Council 2nd reading. The Commission will be associated and participate at 
these meetings. 
Whenever it adopts a decision in the field of CFSP entailing expenditure, the Council 

the  general  budget  of 

implications 

financial 

the 

for 

The modification in § 1 is in line with the 
agreement  reached  at  the  conciliation 
meeting on 24 November 2003. 

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21 

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will  immediately  and  in  each  case  send  the  European  Parliament  an  estimate  of  the 
costs  envisaged  ('financial  statement'),  in  particular  those  regarding  time-frame,  staff 
employed,  use  of  premises  and  other  infrastructure,  transport  facilities,  training 
requirements and security arrangements. 
Once  a  quarter  the  Commission  will  inform  the  budgetary  authority  about  the 
implementation of CFSP actions and the financial forecasts for the remaining period of 
the year. 

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ANNEX I 

FINANCIAL FRAMEWORK 2007-2013 

EN 

23 

   EN 

 
Million € at 2004 prices

COMMITMENT APPROPRIATIONS

1. Sustainable growth 

2006 (a) 

2007 

2008 

2009 

2010

2011

2012

2013

46.621

58.735

61.875

64.895

67.350

69.795

72.865

75.950

   1a. Competitiveness for growth and employment

8.791

12.105

14.390

16.680

18.965

21.250

23.540

25.825

   1b. Cohesion for growth an employment

37.830

46.630

47.485

48.215

48.385

48.545

49.325

50.125

2. Preservation and management of natural resources

56.015

57.180

57.900

58.115

57.980

57.850

57.825

57.805

of which : Agriculture - Market related expenditure and direct payments

43.735

43.500

43.673

43.354

43.034

42.714

42.506

42.293

3. Citizenship, freedom, security and justice

2.342

2.570

2.935

3.235

3.530

3.835

4.145

4.455

4. The EU as a global partner (c)

11.232

11.280

12.115

12.885

13.720

14.495

15.115

15.740

5.  Administration (d)

Compensations (e)

3.436

3.675

3.815

3.950

4.090

4.225

4.365

4.500

1.041

120

60

60

Total  appropriations for committments

120.688

133.560

138.700

143.140

146.670

150.200

154.315

158.450

Total appropriations  for payments (b)(c)

114.740

124.600

136.500

127.700

126.000

132.400

138.400

143.100

Average

Appropriations for payments as a percentage of GNI 

1,09%

1,15%

1,23%

1,12%

1,08%

1,11%

1,14%

1,15%

Margin available

0,15%

0,09%

0,01%

0,12%

0,16%

0,13%

0,10%

0,09%

Own resources ceiling as a percentage of GNI

1,24%

1,24%

1,24%

1,24%

1,24%

1,24%

1,24%

1,24%

1,14%

0,10%

1,24%

(a)  2006 expenditure under the current financial perspective has been broken down according to the proposed new nomenclature for reference and to facilitate comparisons. Expenditure in headings 
3 and 4 includes amounts corresponding to the Solidarity Instrument (€ 961 at 2004 prices) and EDF (estimated at € 3 billion), respectively.

(b) Includes expenditure for the Solidarity Instrument (€ 1 billion in 2004 at current prices) as from 2006. However, corresponding payments are calculated only as from 2007.

(c)  The integration of EDF in the EU budget is assumed to take effect in 2008.  Commitments for 2006 and 2007 are included only for comparison purposes. Payments on commitments before 2008 
are not taken into account in the payment figures. 

(d) Includes administrative expenditure for institutions other than the Commission, pensions and European schools. Commission administrative expenditure is integrated in the first four expenditure 
headings.

(e) Amounts foreseen in the agreed European Union common position for the Accession Conference with Bulgaria (CONF-BG 27/04)

EN 

24 

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ANNEX II 

INTERINSTITUTIONAL COLLABORATION IN THE BUDGETARY SECTOR 

Comments 

A. After the technical adjustment of the financial framework 
for  the  forthcoming  financial  year,  taking  into  account  the 
Annual  Policy  Strategy  presented  by  the  Commission  and 
prior  to  its  decision  on  the  preliminary  draft  budget,  a 
meeting  of  the  trialogue  will  be  convened  to  discuss  the 
possible  priorities  for  the  budget  of  that  year.  Due  account 
will  be  taken  of  the  institutions'  powers  as  well  as  the 
foreseeable development of the needs for the financial year 
to come and for the following years covered by the financial 
framework. Account will also be taken of the new elements 
since the establishment of the initial financial framework and 
likely to have a significant and lasting financial impact on the 
budget  of  the  European  Union.  If  the  institutions  conclude 
by  mutual  agreement  that  a  revision  of  the  financial 
perspective  is  needed,  the  Commission  may  submit  a 
proposal to that end. 
B. As regards compulsory expenditure, the Commission, in 
presenting its preliminary draft budget, will identify: 
(a)  appropriations  connected  with  new  or  planned 
legislation; 
(b)  appropriations  arising  from  the  application  of  legislation 
existing when the previous budget was adopted. 
The  Commission  will  make  a  careful  estimate  of  the 
financial  implications  of  the  Community's  obligations  based 
on  the  rules.  If  necessary  it  will  update  its  estimates  in  the 
course  of  the  budgetary  procedure.  It  will  supply  the 
budgetary authority with all the duly justified reasons it may 
require. 
If it considers it necessary, the Commission may present to 
the two arms of the budgetary authority an ad hoc letter of 
amendment to update the figures underlying the estimate of 
agricultural  expenditure  in  the  preliminary  draft  budget 
and/or 
the  most  recent 
information  available  concerning  fisheries  agreements  in 
force  on  1  January  of  the  financial  year  concerned,  the 
amounts  and  their  breakdown  between  the  appropriations 
entered  in  the  operational  items  for  international  fisheries 
agreements and those entered in reserve. 
This  letter  of  amendment  must  be  sent  to  the  budgetary 
authority before the end of October. 

to  correct,  on 

the  basis  of 

a 

the 

have 

Modifications and updating: 
-  §  A:  reference  is  made  to 
the Annual Political Strategy 
(APS)  communication  as 
part of the strategic planning 
and programming. 
-  §A:  to  render  the  revision 
procedure  its  original  role 
and  dedramatise  its  use,  it 
is  proposed  to  review  new 
needs  which 
budgetary 
lasting 
could 
financial impact. This review 
would  take  place  during  a 
budgetary 
trialogue  and 
could  lead  to  a  proposal  for 
financial 
revision  of 
framework. 
- § B: reordering of points. 
the 
in 
-  § B.5: 
experience, 
trialogue 
held  before  the  EP's  first 
reading 
sometimes 
is 
unnecessary. 
-  § D  (new)  replaces  points 
37 
the 
38 
Interinstitutional Agreement. 
New 
pilot 
schemes  and  preparatory 
actions 
been 
have 
calculated  on  the  basis  of 
current  IIA  figures,  which 
have been adjusted to 2004 
prices  and 
to  a  10  % 
increase  to  cater  for  the 
effect  of  enlargement.  The 
total  of 
the 
figure 
preparatory  actions  has 
been  calculated  on 
the 
basis of 2.5 times the figure 
for new preparatory actions 

light  of 
the 

figures 

and 

for 

for 

of 

EN 

25 

   EN 

 
 
If it is presented to the Council less than a month before the 
European  Parliament's  first  reading,  the  Council  will,  as  a 
rule,  consider  the  ad  hoc  letter  of  amendment  when  giving 
the draft budget its second reading. 
As  a  consequence,  before  the  Council's  second  reading  of 
the  budget,  the  two  arms  of  the budgetary  authority  will  try 
to  meet 
letter  of 
amendment  to  be  adopted  on  a  single  reading  by  each  of 
the institutions concerned. 
C. 1. A conciliation procedure is set up for all expenditure. 

the  conditions  necessary 

the 

for 

2. The purpose of the conciliation procedure is to: 

(a) continue discussions on the general trend of expenditure 
and, in this framework, on the broad lines of the budget for 
the coming year in the light of the Commission's preliminary 
draft budget; 
(b)  secure  agreement  between  the  two  arms  of  the 
budgetary authority on: 
–  the  appropriations  referred  to  in  point  2(a)  and  (b), 
including those proposed in the ad hoc letter of amendment 
referred to at point 2, 
–  the  amounts  to  be  entered  in  the  budget  for  non-
compulsory expenditure, in accordance with point 39 of this 
Agreement, 
–  and,  particularly,  matters  for  which  reference  to  this 
procedure is made in this Agreement. 
4.  The  procedure  will  begin  with  a  trialogue  meeting 
convened  in  time  to  allow  the  institutions  to  seek  an 
agreement  by  no  later  than  the  date  set  by  the  Council  for 
establishing its draft budget. 
There  will  be  conciliation  on  the  results  of  this  trialogue 
between the Council and a European Parliament delegation, 
with the Commission also taking part. 
Unless  decided  otherwise  during 
the 
conciliation  meeting  will  be  held  at  the  traditional  meeting 
between  the  same  participants  on  the  date  set  by  the 
Council for establishing the draft budget. 
5.  If  necessary,  a  new  trialogue  meeting  could  be  held 
before  the  European  Parliament's  first  reading  on  written 
proposal by the Commission or written request by either the 
chairman of the European Parliament's Budgets Committee 
or  the  President  of  the  Council  (Budgets).  The  decision 
whether  to  hold  this  trialogue  will  be  agreed  between  the 
institutions  after  the  adoption  of  the  Council  draft  budget 
and prior to the vote of the amendments on the first reading 
by the European Parliament Budgets Committee. 
6. The institutions will continue the conciliation after the first 

trialogue, 

the 

EN 

26 

   EN 

 
the  Member  of 

reading  of  the  budget  by  each  of  the  two  arms  of  the 
budgetary  authority  in  order  to  secure  agreement  on 
compulsory  and  noncompulsory  expenditure  and, 
in 
particular,  to  discuss  the  ad  hoc  letter  of  amendment 
referred to in point 2. 
A  trialogue  meeting  will  be  held  for  this  purpose  after  the 
European Parliament's first reading. 
The  results  of  the  trialogue  will  be  discussed  at  a  second 
conciliation meeting to be held the day the Council's second 
reading. 
If  necessary,  the  institutions  will  continue  their  discussions 
on  non-compulsory  expenditure  after  the  Council's  second 
reading. 
7.  At  these  trialogue  meetings,  the  institutions'  delegations 
will  be  led  by  the  President  of  the  Council  (Budgets),  the 
Chairman  of  the  European  Parliament's  Committee  on 
the  Commission  with 
Budgets  and 
responsibility for the budget. 
8.  Each  arm  of  the  budgetary  authority  will  take  whatever 
steps are required to ensure that the results which may be 
respected 
secured 
throughout the current budgetary procedure. 
D. In order for the Commission to be able to assess in due 
time the implementability of the amendments envisaged by 
the  budgetary  authority,  creating  new  Preparatory 
Actions/Pilot Projects or prolonging existing ones, both arms 
of  the  budgetary  authority  inform  the  Commission  by  mid 
June of their intentions in this field, so that a first discussion 
may  already  take  place  at  the  conciliation  meeting  of  the 
Council's  first  reading.  The  next  steps  of  the  conciliation 
procedure foreseen in this annex will also apply, as well as 
the provisions on the implementability mentioned in point 35 
of this agreement. 
Furthermore,  the  three  institutions  agree  to  limit  the  total 
amount of appropriations for pilot schemes to € 38 million in 
any budget year. They also agree to limit to € 36 million the 
total amount of appropriations for new preparatory actions in 
any  budget  year,  and  to  € 90  million  the  total  amount  of 
appropriations actually committed for preparatory actions. 

the  conciliation  process  are 

in 

EN 

27 

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ANNEX III 

CLASSIFICATION OF EXPENDITURE 

HEADING 1* Sustainable growth

1A Competitiveness for growth and employment

1B Cohesion for growth and employment

HEADING 2* Preservation and management of natural resources

Except:

Non-compulsory 
expenditure (NCE)

NCE

NCE

Expenditure of the common agricultural policy concerning 
market measures and direct aids, including market measures 
for fisheries and fisheries agreements

Compulsory 
expenditure (CE)

HEADING 3* Citizenship, freedom, security and justice

HEADING 4* The EU as a global partner

Except:

Expenditure resulting from international agreements which 
the European Union concluded with third parties

Contributions to international organisations or institutions

Contributions provisioning the loan guarantee fund

HEADING 5

Administration

Except pensions and severance grants

* The following Commission administrative expenditure is compulsory:
- legal expenses,
- damages,
- allowances and miscellaneous contributions on termination of service.

NCE

NCE

CE

CE

CE

NCE

CE

EN 

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ANNEX IV 

FINANCING OF EXPENDITURE DERIVING FROM FISHERIES AGREEMENTS 

A. Expenditure relating to fisheries agreements is financed by two 
items  belonging  to  the  'fisheries'  policy  area  (by  reference  to  the 
activity based budget nomenclature): 

Updating 

(a) international fisheries agreements (11 03 01); 
(b) contributions to international organisations (11 03 02). 

All the amounts relating to agreements and protocols which will be 
in force on 1 January of the year in question will be entered under 
heading  11  03  01.  Amounts  relating  to  all  new  or  renewable 
agreements which will come into force after 1 January of the year 
in  question  will  be  assigned 
to  heading  31  02  04  02  – 
Reserves/Differenciated appropriations (compulsory expenditure). 

B.  In  the  conciliation  procedure  provided  for  in  Annex  III,  the 
European  Parliament  and  the  Council  will  seek  to  agree  on  the 
amount to be entered in the budget headings and in the reserve on 
the basis of the proposal made by the Commission. 

C.  The  Commission  undertakes  to  keep  the  European  Parliament 
regularly  informed  about  the  preparation  and  conduct  of  the 
negotiations, including the budgetary implications. 

In  the  course  of  the  legislative  process  relating  to  fisheries 
agreements,  the  institutions  undertake  to  make  every  effort  to 
ensure that all procedures are carried out as quickly as possible. 

If  appropriations  relating  to  fisheries  agreements  (including  the 
reserve)  prove  insufficient,  the  Commission  will  provide  the 
budgetary authority with the necessary information for an exchange 
of  views  in  the  form  of  a  trialogue,  possibly  simplified,  on  the 
causes  of  the  situation,  and  on  the  measures  which  might  be 
adopted  under  established  procedures.  Where  necessary,  the 
Commission will propose appropriate measures. 

Each  quarter  the  Commission  will  present  to  the  budgetary 
implementation  of 
authority  detailed 
agreements in force and financial forecasts for the remainder of the 
year. 

information  about 

the 

EN 

29 

   EN 

 
 
 
DECLARATIONS 

Declaration on the adjustment of Structural Funds, Rural Development and the 
European Fund for Fisheries in the light of the circumstances of their 
implementation 

The institutions may decide, on a proposal of the Commission; that in the event of the 
adoption  of  the  new  rules  governing  the  Structural  Funds,  Rural  Development  and  the 
European  Fund  for  Fisheries  after  1  January  2007,  appropriations  not  used  in  the  first 
year of the financial framework could be transferred to the following years. 

EN 

30 

   EN