Interinstitutional Agreement between the European Parliament, the Council and the Commission on budgetary discipline and sound financial management - Declarations
Date: 2006-05-17
Institutions: Council of the European Union, European Commission, European Parliament
Subjects: European Globalisation Adjustment Fund, Structural Funds, budgetary discipline (EU), budgetary procedure, financial management, interinstitutional agreement

14.6.2006

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Official Journal of the European Union

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I

(Information)

EUROPEAN PARLIAMENT

COUNCIL

COMMISSION

INTERINSTITUTIONAL AGREEMENT

between the European Parliament, the Council and the Commission on budgetary discipline and
sound financial management

(2006/C 139/01)

THE EUROPEAN PARLIAMENT, THE COUNCIL OF THE EUROPEAN
UNION AND THE COMMISSION OF THE EUROPEAN COMMU-
NITIES,

5. Any amendment of this Agreement requires the consent
of all the institutions. Changes to the financial framework
must be made in accordance with the procedures laid
down for that purpose in this Agreement.

hereinafter referred to as the ‘institutions’,

6. This Agreement is in three parts:

HAVE AGREED AS FOLLOWS:

1. The purpose of this Agreement is to implement budgetary
discipline and to improve the functioning of the annual
budgetary procedure and cooperation between the institu-
tions on budgetary matters as well as to ensure sound
financial management.

2. Budgetary discipline under

this Agreement covers all
expenditure. It is binding on all the institutions for as long
as this Agreement is in force.

3. This Agreement does not alter the respective budgetary
powers of the institutions, as laid down in the Treaties.
Where reference is made to this Point, 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 (hereinafter referred to as the
‘EC Treaty’).

4. Should a Treaty revision with budgetary implications
occur during the multiannual financial framework 2007
to 2013 (hereinafter referred to as ‘the financial frame-
work’), the necessary adjustments will be made accord-
ingly.

— Part I contains a definition and implementing provi-
sions for the financial framework and applies for the
duration of that financial framework.

— Part

II relates to improvement of

interinstitutional

collaboration during the budgetary procedure.

— Part III contains provisions related to sound financial

management of EU funds.

7. The Commission will, whenever it considers it necessary
and in any event at the same time as it presents a proposal
for a new financial
to Point 30,
submit a report on the application of this Agreement,
accompanied where necessary by a proposal for amend-
ments.

framework pursuant

8. This Agreement enters into force on 1 January 2007 and

replaces:

— the Interinstitutional Agreement of 6 May 1999
between the European Parliament, the Council and the
Commission on budgetary discipline and improvement
of the budgetary procedure (1),

(1) OJ C 172, 18.6.1999, p. 1.

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— 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 procedure (1).

PART I — FINANCIAL FRAMEWORK

DEFINITION AND IMPLEMENTING PROVISIONS

A. Contents and scope of the financial framework

9. The financial framework is set out in Annex I. It consti-
interinstitutional

framework for

the

tutes
reference
budgetary discipline.

10. 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.

11. The financial framework establishes, for each of the years
2007 to 2013 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 commit-
ments and appropriations for payments.

All those amounts are expressed in 2004 prices.

The financial framework does not take account of budget
items financed by revenue earmarked within the meaning
of Article 18 of the Financial Regulation of 25 June 2002
applicable to the general budget of the European Commu-
nities (2), hereinafter referred to as the ‘Financial Regu-
lation’

Information relating to operations not included in the
general budget of the European Union and the foreseeable
development of the various categories of Community own
resources is set out, by way of indication,
in separate
tables. This information will be updated annually when
the technical adjustment is made to the financial frame-
work.

12. The institutions acknowledge that each of the absolute
amounts shown in the financial framework represents an
annual ceiling on expenditure under the general budget of
the European Union. Without prejudice to any changes in
those ceilings in accordance with the provisions of this
Agreement, the institutions undertake to use their respec-
tive powers in such a way as to comply with the various
annual expenditure ceilings during each budgetary proce-
dure and when implementing the budget for the year
concerned.

13. By concluding this Agreement,

the
budgetary authority agree to accept the rates of increase

the two arms of

(1) OJ C 283, 20.11.2002, p. 1.
(2) OJ L 248, 16.9.2002, p. 1.

for non-compulsory
from the
budgets established within the ceilings set by the financial
framework for its entire duration.

expenditure deriving

sound financial management,

Except
in sub-heading 1B ‘Cohesion for growth and
employment’ of the financial framework, for the purposes
of
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.

14. No act adopted under the codecision procedure by the
European Parliament and the Council nor any act adopted
by the Council which involves exceeding the appropria-
tions available in the budget or the allocations available in
the financial framework in accordance with Point 12 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.

15. For each of the years covered by the financial framework,
the total appropriations
required, after
annual adjustment and taking account of any other adjust-
ments or revisions, must not be such as to produce a call-
in rate for own resources that exceeds the own resources
ceiling.

for payments

If need be, the two arms of the budgetary authority will
decide, in accordance with Point 3, to lower the ceilings
set in the financial framework in order to ensure compli-
ance with the own resources ceiling.

B. Annual adjustments of the financial framework

Technical adjustments

16. Each year the Commission, acting ahead of the budgetary
procedure for year n+1, will make the following technical
adjustments to the financial framework:

(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 those technical adjustments
on the basis of a fixed deflator of 2 % a year.

The results of those technical adjustments and the under-
lying 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.

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17. In its technical adjustment for the year 2011, if it is estab-
lished that any Member State's cumulated GDP for the
years 2007-2009 has diverged by more than +/- 5 %
from the cumulated GDP estimated when drawing up this
Agreement, the Commission will adjust the amounts allo-
cated from funds supporting cohesion to the Member
State concerned for that period. The total net effect,
whether positive or negative, of those adjustments may
not exceed EUR 3 billion. If the net effect is positive, total
additional resources shall be limited to the level of under-
spending against the ceilings for sub-heading 1B for the
years 2007-2010. The required adjustments will be spread
in equal proportions over the years 2011-2013 and the
corresponding ceilings will be modified accordingly.

Adjustments connected with implementation

18. When notifying the two arms of the budgetary authority
of the technical adjustments to the financial framework,
the Commission will present any proposals for adjust-
ments to the total appropriations for payments which it
considers necessary,
in the light of implementation, to
ensure an orderly progression in relation to the appropria-
tions for commitments. The European Parliament and the
Council will take decisions on those proposals before 1
May of year n, in accordance with Point 3.

Updating of forecasts for payment appropriations after 2013

19. In 2010, the Commission will update the forecasts for
payment appropriations after 2013. That update will take
into account the real implementation of budget appropria-
tions 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

20. In the case of the lifting of a suspension of budgetary
commitments concerning the Cohesion Fund in the
context of an excessive government deficit procedure, the
Council, on a proposal
from the Commission and in
compliance with the relevant basic act, will decide on a
transfer of suspended commitments to the following
years. Suspended commitments of year n cannot be re-
budgeted beyond year n+2.

C. Revision of the financial framework

21. In addition to the regular

technical adjustments and
adjustments in line with the conditions of implementation,
in the event of unforeseen circumstances the financial
framework may, on a proposal from the Commission, be
revised in compliance with the own resources ceiling.

22. As a general rule, any proposal for revision under Point
21 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 European Union 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.

Any revision of the financial framework above 0,03 % of
the European Union GNI within the margin for unfore-
seen expenditure will be taken jointly by the two arms of
the budgetary authority, with the Council acting unani-
mously.

23. Without prejudice to Point 40,

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 percen-
tage of the new expenditure planned, should be within the
existing ceiling for the heading.

The institutions will examine the scope for offsetting any
raising of the ceiling for one heading by the lowering of
the ceiling for another.

Any revision of the compulsory expenditure in the finan-
lead to a reduction in the
cial
amount available for non-compulsory expenditure.

framework must not

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

24. If the European Parliament and the Council fail to agree
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

25. The Emergency Aid Reserve is intended to allow a rapid
response to the specific aid requirements of third countries
following events which could not be foreseen when the
budget was established, first and foremost for humani-
tarian operations, but also for civil crisis management and
protection where circumstances so require. The annual
amount of the Reserve is fixed at EUR 221 million for the
duration of the financial framework, in constant prices.

The Reserve is entered in the general budget of the Euro-
pean Union as a provision. The corresponding commit-
ment appropriations will be entered in the budget,
if
necessary, over and above the ceilings laid down in
Annex I.

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When the Commission considers that the Reserve needs
to be called on, it will present to the two arms of the
budgetary authority a proposal for a transfer from the
Reserve to the corresponding budgetary lines.

Any Commission proposal for a transfer to draw on the
Reserve must, however, be 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 trilogue procedure, if neces-
sary in a simplified form, to secure agreement of the two
arms of the budgetary authority on the need to use the
Reserve and on the amount required. The transfers will be
made in accordance with Article 26 of the Financial Regu-
lation.

agreement of the two arms of the budgetary authority on
the need to use the Fund and on the amount required.

G. Flexibility Instrument

27. The Flexibility Instrument with an annual ceiling of
EUR 200 million (current prices) 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.

The portion of the annual amount which is not used may
be carried over up to year n+2. If the Flexibility Instru-
ment is mobilised, any carryovers will be drawn on first,
in order of age. The portion of the annual amount from
year n which is not used in year n+2 will lapse.

F. European Union Solidarity Fund

26. The European Union Solidarity Fund 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 Fund of EUR 1 billion (current prices). 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. The portion of the annual amount not
entered in the budget may not be rolled over in the
following years.

In exceptional cases and if
the remaining financial
resources available in the Fund in the year of occurrence
of the disaster, as defined in the relevant basic act, are not
sufficient to cover the amount of assistance considered
necessary by the budgetary authority,
the Commission
may propose that the difference be financed through the
annual amounts available for the following year. The
annual amount of the Fund to be budgeted in each year
may not, under any circumstances, exceed EUR 1 billion.

When the conditions for mobilising the Fund as set out in
the relevant basic act are met, the Commission will make
a proposal to deploy it. Where there is scope for reallo-
cating appropriations under the heading requiring addi-
tional expenditure, the Commission shall take this into
account when making the necessary proposal, in accord-
the
ance with the Financial Regulation, by means of
appropriate budgetary instrument. The decision to deploy
the Fund will be taken jointly by the two arms of the
budgetary authority in accordance with Point 3.

The corresponding commitment appropriations will be
entered in the budget, if necessary, over and above the
ceilings of the relevant headings laid down in Annex I.

At the same time as it presents its proposal for a decision
to deploy the Fund, the Commission will initiate a trilogue
if necessary in a simplified form, to secure
procedure,

The Commission will make a proposal for the Flexibility
Instrument to be used after it has examined all possibilities
for
the heading
requiring additional expenditure.

appropriations under

re-allocating

The proposal will concern the principle of making use of
the Flexibility Instrument and will identify the needs to be
covered and the amount. It 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 instru-
ment.

The decision to deploy the Flexibility Instrument will be
taken jointly by the two arms of the budgetary authority
in accordance with Point 3. Agreement will be reached by
in
means of
Annex II, Part C.

the conciliation procedure provided for

H. European Globalisation Adjustment Fund

28. The European Globalisation Adjustment Fund is intended
to provide additional support for workers who suffer from
the consequences of major structural changes in world
trade patterns, to assist them with their reintegration into
the labour market.

The Fund may not exceed a maximum annual amount of
EUR 500 million (current prices) which can be drawn
from any margin existing under the global expenditure
ceiling of
from cancelled
commitment appropriations from the previous two years,
excluding those related to heading 1B of the financial
framework.

the previous year, and/or

The appropriations will be entered in the general budget
of the European Union as a provision through the normal
budgetary procedure as soon as the Commission has iden-
tified the sufficient margins and/or cancelled commit-
ments, in accordance with the second paragraph.

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When the conditions for mobilising the Fund, as set out
in the relevant basic act, are met, the Commission will
make a proposal to deploy it. The decision to deploy the
the
Fund will be taken jointly by the two arms of
budgetary authority in accordance with Point 3.

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

Transfers related to the Fund will be made in accordance
with Article 24(4) of the Financial Regulation.

The corresponding commitment appropriations will be
entered in the budget under the relevant heading, if neces-
sary over and above the ceilings laid down in Annex I.

I. Adjustment of the financial

framework to cater for

enlargement

29. If new Member States accede to the European Union
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.

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

30. Before 1 July 2011, the Commission will present propo-

sals 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
the ceilings for the last year
the institutions,
one of
covered by the existing financial
framework will be
adjusted in accordance with Point 16 so that the 2013
ceilings are maintained in constant prices. If new Member
States accede to the European Union after 2013, and if
deemed necessary, the extended financial framework will
be adjusted in order to take into account the results of
accession negotiations.

PART II

IMPROVEMENT OF INTERINSTITUTIONAL COLLABORATION
DURING THE BUDGETARY PROCEDURE

A. The interinstitutional collaboration procedure

31. The institutions agree to set up a procedure for interinsti-
tutional collaboration in budgetary matters. The details of
this collaboration are set out in Annex II.

B. Establishment of the budget

32. The Commission will present each year a preliminary
draft budget showing the Community's actual financing
requirements.

It will take into account:

(a) forecasts in relation to the Structural Funds provided

by the Member States,

(b) the capacity for utilising appropriations, endeavouring
to maintain a strict relationship between appropria-
tions
for
for
payments,

and appropriations

commitments

(c) the possibilities for starting up new policies through
pilot projects and/or new preparatory actions or conti-
nuing multiannual actions 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 (definition of a basic act,
necessity of a basic act for implementation and excep-
tions),

(d) 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 Article 27(3) and Article 33(2)(d) of the Financial
Regulation (objectives, indicators and evaluation informa-
tion).

33. The institutions will, as far as possible, avoid entering
items in the budget involving 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.

Before the Council's second reading, the Commission will
send a letter to the Chairman of the European Parliament's
Committee on Budgets, 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 at first reading.

The two arms of the budgetary authority will take those
comments into account in the context of the conciliation
procedure provided for in Annex II, Part C.

In the interest of sound financial management and owing
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 concilia-
tion procedure.

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C. Classification of expenditure

34. The institutions consider compulsory expenditure to be
expenditure necessarily resulting from the Treaties or
from acts adopted in accordance therewith.

35. The preliminary draft budget is to contain a proposal for
the classification of each new budget item and of each
budget 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 the classification of the budget item
concerned on the basis of Annex III. Agreement will be
sought by means of the conciliation procedure provided
for in Annex II, Part C.

D. Maximum rate of increase of non-compulsory expendi-

ture in the absence of a financial framework

36. Without prejudice to the first paragraph of Point 13, the

institutions agree on the following provisions:

(a) the European Parliament's autonomous margin for
manoeuvre for
the fourth sub-
the purposes of
paragraph of Article 272(9) of the EC Treaty — which
is to be half the maximum rate — applies as from the
establishment of the draft budget 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 amending budgets. Without
prejudice to the setting of a new rate, any portion of
the maximum rate which has not been utilised will
remain available for use and may be used when draft
amending budgets are considered;

(b) without prejudice to paragraph (a), if it appears in the
course of the budgetary procedure that completion of
the procedure might require agreement on the setting
of a new rate of increase for non-compulsory expendi-
ture to apply to appropriations for payments and/or a
new rate to apply to appropriations for commitments
(the latter rate may be at a level different from the
former),
to secure
the institutions will endeavour
agreement between the two arms of the budgetary
authority by means of
the conciliation procedure
provided for in Annex II, Part C.

E. Incorporation of financial provisions in legislative acts

37. Each legislative act concerning a multiannual programme
adopted under the codecision procedure will contain a
provision in which the legislative authority lays down the
financial envelope for the programme.

That amount will constitute the prime reference for the
budgetary authority during the annual budgetary proce-
dure.

depart by more than 5 % from that amount for the entire
duration of the programme concerned, unless new, objec-
tive, 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. Any increase
resulting from such variation must remain within the
existing ceiling for the heading concerned, without preju-
dice to the use of instruments mentioned in this Agree-
ment.

This Point does not apply to appropriations for cohesion
adopted under the codecision procedure and pre-allocated
by Member States which contain a financial envelope for
the entire duration of the programme.

38. Legislative acts concerning multiannual programmes not
subject to the codecision 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 EC Treaty. This provision will
be mentioned in all legislative acts which include such a
financial reference.

If the amount concerned has been the subject of an agree-
ment pursuant to the conciliation procedure provided for
in the Joint Declaration of the European Parliament, the
Council and the Commission of 4 March 1975 (1), it will
be considered a reference amount within the meaning of
Point 37 of this Agreement.

in financial

39. The financial statement provided for in Article 28 of the
Financial Regulation will reflect
terms the
objectives of the proposed programme and include a sche-
dule covering the duration of the programme. It will be
revised, where necessary, when the preliminary draft
budget is drawn up, taking account of the extent of imple-
mentation of the programme. The revised statement will
be forwarded to the budgetary authority when the preli-
minary draft budget is presented and after the budget is
adopted.

40. Within the maximum rates of increase for non-compul-
sory expenditure specified in the first paragraph of Point
13, the two arms of the budgetary authority undertake to
respect
the allocations of commitment appropriations
provided for in the relevant basic acts for structural opera-
tions, rural development and the European Fund for fish-
eries.

F. Expenditure relating to fisheries agreements

41. The institutions agree to finance expenditure on fisheries
agreements in accordance with the arrangements set out
in Annex IV.

The budgetary authority and the Commission, when it
draws up the preliminary draft budget, undertake not to

(1) OJ C 89, 22.4.1975, p. 1.

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G. Financing of the common foreign and security policy

(CFSP)

mentioned in the third indent may not exceed 20 % of the
overall amount of the CFSP budget chapter.

42. As regards CFSP expenditure which is charged to the
general budget of the European Communities in accord-
ance with Article 28 of the Treaty on European Union,
the institutions will endeavour, in the conciliation proce-
dure provided for in Annex II, Part C, and on the basis of
the preliminary draft budget established by the Commis-
sion, to secure agreement each year 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 paragraph of this Point. In the absence of agree-
ment, 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 distrib-
uted between the articles of that chapter as suggested in
the fourth paragraph of this Point. That amount is to
cover the real predictable needs, assessed in the framework
of the establishment of the preliminary draft budget, on
the basis of forecasts drawn up annually by the Council,
and a reasonable margin for unforeseen actions. No funds
will be entered in a reserve. Each article will cover instru-
ments already adopted,
instruments which are foreseen
but not yet adopted and all future — that is unforeseen —
instruments to be adopted by the Council during the
financial year concerned.

Since, under the Financial Regulation, the Commission has
the authority to transfer appropriations autonomously
between articles within the CFSP budget chapter, the flex-
ibility deemed necessary for speedy implementation of
CFSP actions will accordingly be assured. In the event of
the amount of the CFSP budget chapter during the finan-
cial year being insufficient
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 25.

to cover

Within the CFSP budget chapter, the articles into which
the CFSP actions are to be entered could read along the
following lines:

— crisis management operations, conflict prevention,
resolution and stabilisation, monitoring and imple-
mentation of peace and security processes,

— non-proliferation and disarmament,

— emergency measures,

— preparatory and follow-up measures,

— European Union Special Representatives.

The institutions agree that at least EUR 1 740 million will
be available for the CFSP over the period 2007-2013 and
that the amount for measures entered under the article

43. Each year, the Council Presidency will consult the Euro-
pean Parliament on a forward-looking Council document,
which will be transmitted by June 15 for the year in ques-
tion, setting out the main aspects and basic choices of the
CFSP, including the financial implications for the general
budget of the European Union and an evaluation of the
measures launched in the year n-1. Furthermore,
the
Council Presidency will keep the European Parliament
informed by holding joint consultation meetings at least
five times a year, in the framework of the regular political
dialogue on the CFSP, to be agreed at the latest at the
conciliation meeting to be held before the Council's
second reading. Participation in these meetings shall be as
follows:

— European Parliament: the bureaux of the two Commit-

tees concerned,

— Council: Ambassador (Chairman of the Political and

Security Committee),

— The Commission will be associated and participate at

these meetings.

Whenever it adopts a decision in the field of the CFSP
entailing expenditure, the Council will immediately, and in
any event no later than five working days following the
final decision, send the European Parliament an estimate
of the costs envisaged (‘financial statement’), in particular
employed, use of
those
premises and other
facilities,
transport
training requirements and security arrangements.

staff
infrastructure,

regarding time-frame,

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.

PART III

SOUND FINANCIAL MANAGEMENT OF EU FUNDS

A. Ensuring effective and integrated internal control of

Community funds

44. The institutions agree on the importance of strengthening
internal control without adding to the administrative
burden for which the simplification of
the underlying
legislation is a prerequisite. In this context, priority will be
given to sound financial management aiming at a positive
Statement of Assurance, for funds under shared manage-
ment. Provisions to this end could be laid down, as appro-
priate, in the basic legislative acts concerned. As part of
their enhanced responsibilities for structural funds and in
accordance with national constitutional requirements, the
relevant audit authorities in Member States will produce
an assessment concerning the compliance of management
and control systems with the regulations of the Com-
munity.

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Member States therefore undertake to produce an annual
summary at the appropriate national level of the available
audits and declarations.

(a) all new legislative acts adopted but not included in the
(with the corresponding

May-December document
amounts);

B. Financial Regulation

45. The institutions agree that this Agreement and the budget
will be implemented in a context of sound financial
management based on the principles of economy, effi-
interests,
ciency, effectiveness, protection of
proportionality of administrative costs, and user-friendly
procedures. The
appropriate
institutions will
measures,
in particular in the Financial Regulation, that
should be adopted in accordance with the conciliation
procedure established by the Joint Declaration of the Euro-
pean Parliament,
the Council and the Commission of
4 March 1975, in the spirit which enabled agreement in
2002.

financial

take

C. Financial Programming

46. The Commission will submit twice a year, the first time in
May/June (together with the documents accompanying the
preliminary draft budget)
in
December/January (after the adoption of the budget), a
complete financial programming for Headings 1A, 2 (for
environment and fisheries), 3A, 3B and 4 of the financial
framework. This document, structured by heading, policy
area and budget line, should identify:

second time

and the

(a) the legislation in force, with a distinction being drawn
between multiannual programmes and annual actions:

— for multiannual programmes

the Commission
should indicate the procedure under which they
were adopted (codecision and consultation), their
duration, the reference amounts, the share allo-
cated to administrative expenditure;

— for annual actions

(pilot projects, preparatory
actions, Agencies) and actions financed under the
prerogatives of the Commission, the Commission
should provide multiannual estimates and (for
pilot projects and preparatory actions) the margins
left under the authorised ceilings fixed in Annex II,
Part D;

(b) pending legislative proposals: ongoing Commission
level),
proposals referenced by budget
chapter and policy area. A mechanism should be
found to update the tables each time a new proposal
is adopted in order to evaluate the financial conse-
quences.

line (lower

The Commission should consider ways of cross-referen-
cing the
legislative
financial programming with its
programming to provide more precise and reliable fore-
the Commission
casts. For each legislative proposal,
should indicate whether or not it is included in the May-
December programme. The budgetary authority should in
particular be informed of:

(b) all pending legislative proposals presented but not
included in the May-December document (with the
corresponding amounts);

(c) legislation foreseen in the Commission's annual legisla-
tive work programme with an indication of actions
likely to have a financial impact (yes/no).

Whenever necessary, the Commission should indicate the
reprogramming entailed by new legislative proposals.

On the basis of the data supplied by the Commission,
stocktaking should be carried out at each trilogue as
provided for in this Agreement.

D. Agencies and European Schools

47. When drawing up its proposal for the creation of any new
agency, the Commission will assess the budgetary implica-
tions for the expenditure heading concerned. On the basis
of that information and without prejudice to the legislative
procedures governing the setting up of the agency, the
two arms of the budgetary authority commit themselves,
in the framework of budgetary cooperation, to arrive at a
timely agreement on the financing of the agency.

A similar procedure is to be applied when the creation of
a new European school is envisaged.

E. Adjustment of Structural Funds, Cohesion Fund, Rural
Development and the European Fund for Fisheries in
the light of the circumstances of their implementation

48. In the event of the adoption after 1 January 2007 of new
rules or programmes governing the Structural Funds, the
Cohesion Fund, Rural Development and the European
Fund for Fisheries,
the budgetary
authority undertake to authorise, on a proposal from the
Commission, the transfer to subsequent years, in excess of
the corresponding expenditure ceilings, of allocations not
used in 2007.

the two arms of

The European Parliament and the Council will take deci-
sions on Commission proposals concerning the transfer of
unused allocations for the year 2007 before 1 May 2008,
in accordance with Point 3.

F. New financial instruments

49. The institutions agree that the introduction of co-finan-
cing mechanisms is necessary to reinforce the leverage
effect of the European Union budget by increasing the
funding incentive.

They agree to encourage the development of appropriate
multiannual financial
instruments acting as catalysts for
public and private investors.

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When presenting the preliminary draft budget, the Commission will report to the budgetary authority on
the activities financed by the European Investment Bank, the European Investment Fund and the European
Bank for Reconstruction and Development to support investment in research and development, trans-
European networks and small and medium-sized enterprises.

Done at Strasbourg, 17 May 2006.

For the European Parliament

The President

J. BORRELL FONTELLES

For the Council

The President

W. SCHÜSSEL

For the Commission

D. GRYBAUSKAITĖ

Member of the Commission

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ANNEX I

Financial Framework 2007-2013

Commitment appropriations

2007

2008

2009

2010

2011

2012

2013

Total
2007-2013

(EUR million — 2004 prices)

1. Sustainable Growth

1a Competitiveness
Employment

for

Growth

and

8 404

9 097

9 754

51 267

52 415

53 616

54 294

10 434

55 368

11 295

56 876

12 153

58 303

12 961

382 139

74 098

1b Cohesion for Growth and Employment

42 863

43 318

43 862

43 860

44 073

44 723

45 342

308 041

2. Preservation and Management of Natural

54 985

54 322

53 666

53 035

52 400

51 775

51 161

371 344

Resources

of which: market related expenditure and
direct payments

43 120

42 697

42 279

41 864

41 453

41 047

40 645

293 105

3. Citizenship,

freedom,

security

and

1 199

1 258

1 380

1 503

1 645

1 797

1 988

10 770

justice

3a. Freedom, Security and Justice

3b. Citizenship

600

599

690

568

790

590

910

593

1 050

595

1 200

597

1 390

598

6 630

4 140

4. EU as a global player

6 199

6 469

6 739

7 009

7 339

7 679

8 029

49 463

5. Administration (1)

6. Compensations

6 633

6 818

6 973

7 111

7 255

7 400

7 610

49 800

419

191

190

800

Total commitment appropriations

120 702

121 473

122 564

122 952

124 007

125 527

127 091

864 316

as a percentage of GNI

1,10 %

1,08 %

1,07 %

1,04 %

1,03 %

1,02 %

1,01 %

1,048 %

Total payment appropriations

116 650

119 620

111 990

118 280

115 860

119 410

118 970

820 780

as a percentage of GNI

1,06 %

1,06 %

0,97 %

1,00 %

0,96 %

0,97 %

0,94 %

1,00 %

Own Resources Ceiling as a percentage of GNI

Margin available

0,18 %

1,24 %

0,18 %

1,24 %

0,27 %

1,24 %

0,24 %

1,24 %

0,28 %

1,24 %

0,27 %

1,24 %

0,30 %

1,24 %

0,24 %

1,24 %

(1) The expenditure on pensions included under the ceiling for this heading is calculated net of the staff contributions to the relevant scheme, within the limit of EUR 500

million at 2004 prices for the period 2007-2013.

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ANNEX II

Interinstitutional collaboration in the budgetary sector

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 trilogue 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 new elements
which have arisen since the establishment of the initial financial framework and which are likely to have a significant
and lasting financial impact on the budget of the European Union.

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 to correct, on the basis of 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.

That letter of amendment must be sent to the budgetary authority before the end of October.

If it is presented to the Council less than one 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 the conditions necessary for the 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.

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 Points (a) and (b) of Part B, including those proposed in the ad hoc letter

of amendment referred to that Part,

— the amounts to be entered in the budget for non-compulsory expenditure, in accordance with Point 40 of

this Agreement, and

— in particular, matters for which reference to this procedure is made in this Agreement.

3. The procedure will begin with a trilogue 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 trilogue between the Council and a European Parliament delega-
tion, with the Commission also taking part.

Unless decided otherwise during the trilogue, 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.

4. If necessary, a new trilogue meeting could be held before the European Parliament's first reading on a written
proposal by the Commission or a written request by either the chairman of the European Parliament's Committee
on Budgets or the President of the Council (Budgets). The decision whether to hold this trilogue will be agreed
between the institutions after the adoption of the Council draft budget and prior to the vote on the amendments
at first reading by the European Parliament's Committee on Budgets.

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5. The institutions will continue the conciliation after the first reading of the budget by each of the two arms of the
budgetary authority in order to secure agreement on compulsory and non-compulsory expenditure and, in par-
ticular, to discuss the ad hoc letter of amendment referred to in Part B.

A trilogue meeting will be held for this purpose after the European Parliament's first reading.

The results of the trilogue will be discussed at a second conciliation meeting to be held on the day of the Council's
second reading.

If necessary, the institutions will continue their discussions on non-compulsory expenditure after the Council's
second reading.

6. At those trilogue meetings, the institutions' delegations will be led by the President of the Council (Budgets), the
Chairman of the European Parliament Committee's on Budgets and the Member of the Commission responsible
for the budget.

7. Each arm of the budgetary authority will take whatever steps are required to ensure that the results which may be

secured in the conciliation process are respected throughout the budgetary procedure.

D. In order for the Commission to be able to assess in due time the implementability of amendments envisaged by the
budgetary authority which create new preparatory actions/pilot projects or prolong existing ones, both arms of the
budgetary authority will inform the Commission by mid-June of their intentions in this regard, so that a first discus-
sion may already take place at the conciliation meeting of the Council's first reading. The next steps of the concilia-
tion procedure provided for in Part C will also apply, as well as the provisions on implementability mentioned in
Point 36 of this Agreement.

Furthermore, the institutions agree to limit the total amount of appropriations for pilot schemes to EUR 40 million
in any budget year. They also agree to limit to EUR 50 million the total amount of appropriations for new prepara-
tory actions in any budget year, and to EUR 100 million the total amount of appropriations actually committed for
preparatory actions.

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ANNEX III

Classification of expenditure

HEADING 1

Sustainable growth

Competitiveness for growth and employment

Non-compulsory expendi-
ture (NCE)

1A

1B

Cohesion for growth and employment

HEADING 2

Preservation and management of natural resources

Except:

NCE

NCE

— Expenditure of

the common agricultural policy concerning
market measures and direct aids, including market measures for
fisheries and fisheries agreements concluded with third parties

Compulsory expenditure
(CE)

HEADING 3

Citizenship, freedom, security and justice

3A

3B

Freedom, Security and Justice

Citizenship

HEADING 4

EU as a global player

Except:

NCE

NCE

NCE

NCE

— Expenditure resulting from international agreements which the

CE

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

CE

CE

NCE

CE

— Allowances and miscellaneous contributions on termination of

CE

service

— Legal expenses

— Damages

HEADING 6

Compensations

CE

CE

CE

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Official Journal of the European Union

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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 refer-

ence to the activity based budget nomenclature):

(a) international fisheries agreements (11 03 01);

(b) contributions to international organisations (11 03 02).

All the amounts relating to agreements and protocols which are 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 come into force after
1 January of the year in question will be assigned to heading 40 02 41 02 — Reserves/Differentiated appropriations
(compulsory expenditure).

B. In the conciliation procedure provided for in Annex II, Part C, 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 trilogue,
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 authority detailed information about the implementation
of agreements in force and financial forecasts for the remainder of the year.

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DECLARATIONS

1. DECLARATION OF THE COMMISSION ON THE ASSESSMENT OF THE FUNCTIONING OF THE INTERINSTITU-

TIONAL AGREEMENT

In relation to Point 7 of the Interinstitutional Agreement, the Commission will prepare a report on the
functioning of the Interinstitutional Agreement by the end of 2009 accompanied, if necessary, by rele-
vant proposals.

2. DECLARATION ON POINT 27 OF THE INTERINSTITUTIONAL AGREEMENT

Within the framework of the annual budgetary procedure, the Commission will inform the budgetary
authority of the amount available for the Flexibility Instrument referred to in Point 27 of the Interinsti-
tutional Agreement.

Any decision to mobilise the Flexibility Instrument for an amount exceeding EUR 200 million will
imply a carry-forward decision.

3. DECLARATION ON THE REVIEW OF THE FINANCIAL FRAMEWORK

1. In accordance with the conclusions of the European Council, the Commission has been invited to
undertake a full, wide-ranging review covering all aspects of EU spending, including the Common
Agricultural Policy, and of resources,
including the United Kingdom rebate, and to report in
2008/2009. That review should be accompanied by an assessment of the functioning of the Interin-
stitutional Agreement. The European Parliament will be associated with the review at all stages of
the procedure on the basis of the following provisions:

— during the examination phase following the presentation of the review by the Commission, it
will be ensured that appropriate discussions take place with the European Parliament on the
basis of the normal political dialogue between the institutions and that the positions of the
European Parliament are duly taken into account,

— in accordance with its conclusions of December 2005, the European Council ‘can take decisions
on all the subjects covered by the review’. The European Parliament will be part of any formal
follow-up steps, in accordance with the relevant procedures and in full respect of its established
rights.

2. The Commission undertakes, as part of the process of consultation and reflection leading up to the
establishment of the review, to draw on the in-depth exchange of views it will conduct with Euro-
pean Parliament when analysing the situation. The Commission also takes note of the European
Parliament's intention to call for a conference involving the European Parliament and the national
parliaments to review the own-resources system. It will consider the outcome of any such confer-
ence as a contribution in the framework of that consultation process. It is understood that the
Commission's proposals will be put forward entirely under its own responsibility.

4. DECLARATION ON DEMOCRATIC SCRUTINY AND COHERENCE OF EXTERNAL ACTIONS

The European Parliament, the Council and the Commission acknowledge the need for rationalisation
of the various instruments for external actions. They agree that such rationalisation of instruments,
while enhancing the coherence and the responsiveness of European Union action, should not affect
the powers of either the legislative authority –notably in its political control of strategic choices — or
the budgetary authority. The text of the relevant regulations should reflect those principles and include
where appropriate the necessary policy content and an indicative breakdown of resources and, where
necessary, a review clause aiming at evaluating the implementation of the regulation, after three years
at the latest.

Under the basic legislative acts adopted under the codecision procedure, the Commission will systema-
tically inform and consult the European Parliament and the Council by sending draft country, regional
and thematic strategy papers.

Where the Council decides on the transition of potential candidates to pre-accession status during the
period covered by the Interinstitutional Agreement, the Commission will revise and communicate to
the European Parliament and the Council an indicative multi-annual framework according to Article 4
of the Regulation establishing an Instrument for Pre-Accession Assistance (IPA) to take account of the
expenditure requirements resulting from such a transition.

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The Commission will provide in the preliminary draft budget a nomenclature which ensures the prero-
gatives of the budgetary authority for external actions.

5. DECLARATION OF THE COMMISSION ON THE DEMOCRATIC SCRUTINY AND COHERENCE OF EXTERNAL

ACTIONS

The Commission undertakes to enter into a regular dialogue with the European Parliament on the
content of the draft country, regional and thematic strategy papers and to take due account of the
position of the European Parliament when implementing the strategies.

That dialogue will include a discussion on the transition of potential candidates to pre-accession status
during the period covered by the Interinstitutional Agreement.

6. DECLARATION ON THE REVISION OF THE FINANCIAL REGULATION

Within the framework of the revision of the Financial Regulation the institutions commit themselves
to improve implementation of the budget and increase the visibility and the benefit of Community
funding towards the citizens without calling in question the progress achieved in the 2002 recasting
of the Financial Regulation. They will also seek, as far as possible, during the final stage of the negotia-
tions on the revision of the Financial Regulation and its Implementing Rules, the right balance
between the protection of financial interests, the principle of proportionality of administrative costs,
and user-friendly procedures.

The revision of the Financial Regulation will be carried out on the basis of a modified proposal from
the Commission in accordance with the conciliation procedure established by the Joint Declaration of
the European Parliament, the Council and the Commission of 4 March 1975, in the spirit which
enabled agreement in 2002. The institutions will also seek close and constructive interinstitutional
cooperation for the swift adoption of the Implementing Rules in order to simplify procedures for
funding whilst ensuring a high level of protection of the Community's financial interests.

The European Parliament and the Council are firmly committed to concluding the negotiations on the
Financial Regulation so as to allow its entry into force, if possible, on 1 January 2007.

7. DECLARATION OF THE COMMISSION ON THE REVISION OF THE FINANCIAL REGULATION

Within the framework of revision of the Financial Regulation, the Commission commits itself:

— to inform the European Parliament and the Council if, in a proposal for a legal act, it considers it
necessary to depart from the provisions of the Financial Regulation, and to state the specific
reasons for it;

— to ensure that regular legislative impact assessments, having due regard to the principles of subsi-
diarity and proportionality, are conducted on important legislative proposals and any substantive
amendments thereof.

8. DECLARATION ON NEW FINANCIAL INSTRUMENTS

The European Parliament and the Council invite the Commission and the European Investment Bank
(EIB), in their respective spheres of competence, to make proposals:

— in accordance with the conclusions of the European Council of December 2005, to increase the
EIB's capacity for research and development loans and guarantees up to EUR 10 billion in the
period 2007-2013, with an EIB contribution of up to EUR 1 billion from reserves for risk-sharing
financing;

— to reinforce the instruments in favour of Trans-European Networks (TENs) and Small and Medium-
sized Enterprises up to an approximate amount of loans and guarantees of EUR 20 billion and
EUR 30 billion, respectively, with an EIB contribution of up to EUR 0,5 billion from reserves
(TENs) and up to EUR 1 billion (Competitiveness and Innovation) respectively.

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9. DECLARATION OF THE EUROPEAN PARLIAMENT ON VOLUNTARY MODULATION

The European Parliament takes note of the conclusions of the European Council of December 2005
the
concerning voluntary modulation from market-related expenditure and direct payments of
Common Agricultural Policy to rural development up to a maximum of 20 % and the reductions for
market-related expenditure. When the modalities of this modulation are laid down in the relevant legal
acts, the European Parliament will evaluate the feasibility of these provisions in respect of EU princi-
ples, such as competition rules and others; the European Parliament currently reserves its position on
the outcome of the procedure. It considers it would be useful to assess the issue of co-financing of
agriculture in the context of the 2008-09 review.

10. DECLARATION OF THE COMMISSION ON VOLUNTARY MODULATION

The Commission takes note of Point 62 of the conclusions of the European Council of December
2005 whereby Member States may transfer additional sums from market-related expenditure and
direct payments of the Common Agricultural Policy to Rural Development up to a maximum of 20 %
of the amounts that accrue to them from market-related expenditure and direct payments.

When laying down the modalities of this modulation in the relevant legal acts, the Commission will
endeavour to make voluntary modulation possible whilst making all efforts to ensure that such a
mechanism reflects as closely as possible the basic rules governing the rural development policy.

11. DECLARATION OF THE EUROPEAN PARLIAMENT ON NATURA 2000

The European Parliament expresses its concern about the conclusions of the European Council of
December 2005 relating to the reduction of the market-related expenditure and direct payments of the
Common Agricultural Policy and its consequences on Community co-financing of Natura 2000. It
invites the Commission to evaluate the consequences of these provisions before making new propo-
sals. It considers that appropriate priority should be given to the integration of Natura 2000 in Struc-
tural Funds and Rural Development. As part of the legislative authority, it currently reserves it position
on the outcome of the procedure.

12. DECLARATION OF THE EUROPEAN PARLIAMENT ON PRIVATE CO-FINANCING AND VAT FOR COHESION

FOR GROWTH AND EMPLOYMENT

The European Parliament takes note of the conclusion of the European Council of December 2005 on
the application of the N+3 automatic decommitment rule on a transitional basis; the European Parlia-
ment invites the Commission, when the latter lays down in the relevant legal acts the modalities for
the application of this rule, to ensure common rules for private co-financing and VAT for cohesion for
growth and employment.

13. DECLARATION OF THE EUROPEAN PARLIAMENT ON FINANCING THE AREA OF FREEDOM, SECURITY AND

JUSTICE

The European Parliament considers that when presenting the preliminary draft budget the Commission
should give a careful estimate of planned activities for Freedom, Security and Justice, and that the
financing of these activities should be discussed in the framework of the procedures provided for in
Annex II to the Interinstitutional Agreement.