Annual accounts of the European Communities — Financial year 2007 — Volume I — Consolidated financial statements and consolidated reports on implementation of the budget
Date: 2008-11-10
Institutions: European Commission
Subjects: Community budget, balance sheet, financial management, financial year

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IV

(Notices)

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

COMMISSION

ANNUAL ACCOUNTS OF THE EUROPEAN COMMUNITIES

FINANCIAL YEAR 2007

Volume I

CONSOLIDATED FINANCIAL

STATEMENTS AND CONSOLIDATED REPORTS ON

IMPLEMENTATION OF THE BUDGET

(2008/C 287/01)

CONTENTS

Note accompanying the consolidated accounts . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .

Principal events and key points . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .

Implementing and accounting for the EU Budget. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .

PART I: Consolidated financial statements of the European Communities and explanatory

notes. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .

A. Balance Sheet . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .

B. Economic Outturn Account . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .

C. Cashflow Table . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .

D. Statement of changes in Net Assets . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

E. Notes to the financial statements . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .

PART II: Consolidated reports on implementation of the budget of the European

Communities and explanatory notes . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .

A. Consolidated reports on implementation of the budget . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .

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2

3

4

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12

13

14

15

84

85

B. Explanatory notes to the consolidated reports on implementation of the budget . . . . . . . . . . . . . . . . . .. . . . . . . . .

101

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NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS

The consolidated annual accounts of the European Communities for the year 2007 have been prepared on
the basis of the information presented by the other institutions and bodies under Article 129.2 of the Finan-
cial Regulation. I hereby declare that they were prepared in accordance with Title VII of the Financial Regu-
lation of the EC and with the accounting principles, rules and methods set out in annex to the financial
statements.

I have obtained from the accounting officers of these institutions and bodies, who certified its reliability, all
the information necessary for the production of the accounts that show the European Communities' assets
and liabilities and the budgetary implementation.

I hereby certify that based on this information, and on such checks as I deemed necessary to sign off the
accounts of the European Commission, I have a reasonable assurance that the accounts present a true and
fair view of the financial position of the European Communities in all material aspects.

Brian GRAY
Accounting Officer of the European Commission

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PRINCIPAL EVENTS AND KEY POINTS

The 2007 annual accounts of the European Communities are the third set of accounts to be prepared under
the accrual-accounting based rules brought in by the European Communities in 2005. 2007 also saw the
updating of the Financial Regulation applicable to the general budget of the European Communities and the
new version came into force on 1 May 2007.

As with any set of accounts, the Commission has been working to improve on what was previously
published, aiming in particular to provide more understandable and relevant information to the reader.

With regard to the presentation of the 2007 accounts the following changes are highlighted:

— A new section explaining how the EU budget is implemented and accounted for has been introduced.
This section gives explanation on how the Communities are funded and how the money is spent,
controlled and accounted for.

— A section has also been added to better explain the recovery of undue payments, including details of the

amounts involved (see Section E.6).

— Budgetary implementation tables are now presented in millions of euro. A summary table has also been

added to give a better overview of budget revenue and expenditure.

— A reconciliation of the economic outturn to the budget outturn has also been provided, for the first

time, in the notes.

Finally it should be noted that the scope of consolidation has been increased since 2006 — there are now
three joint ventures compared to one in 2006, and there are now 26 agencies consolidated compared
with 24 in 2006.

MAIN POINTS OF NOTE IN THE 2007 ANNUAL ACCOUNTS

— The budget surplus has continued to decrease, from EUR 1 848 million to EUR 1 529 million.

— The economic outturn for the year has increased from a surplus of EUR 197 million in 2006 to a

surplus of EUR 7 462 million in 2007.

— Total assets increased from EUR 67 332 million in 2006 to EUR 75 386 million, with total liabilities
increasing from EUR 131 550 million to EUR 134 006 million. The difference between assets and
liabilities will be financed in the short-term from budgetary funds already voted, or guaranteed by the
Member States in the longer-term.

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IMPLEMENTING AND ACCOUNTING FOR THE EU BUDGET

1. ANNUAL BUDGET PREPARATION

The EU Budget finances a wide range of policies and programmes throughout the Union. In accordance
with the priorities set by the Member States, the Commission carries out specific programmes, activities and
projects in the field. These could range from supporting education projects for the mobility of students and
teachers, to projects aimed at supporting better work environment for workers in the EU, to enhance the
control of the external borders.

Nearly 95 % of the EU budget goes to funding such EU policies and activities, which have been agreed by all
the Member States. The direct link between the annual budget and the EU policies is ensured through
activity-based budgeting (ABB). The activity-based budget nomenclature, first introduced in the 2004 budget,
allows for clear identification of the policy areas of the European Union and the total amount of resources
allocated to each of these areas.

The 32 policy areas are subdivided into some 200 activities of which over 110 include operating budget
headings and are thus reflected in the budget nomenclature as budget chapters. These policy areas are predo-
minantly operational, since their core activities are aimed at benefiting a third-party beneficiary, each within
their respective domains of activity. Other policy areas, however, are horizontal and assure the proper func-
tioning of the Commission, such as ‘Coordination and legal advice’ and ‘Budget’. The activity structure
provides the common conceptual framework for priority setting, planning, budgeting, monitoring and
reporting, with the principal aim of enhancing the efficient, economic and effective use of resources.

The internal procedure for the adoption of the draft budget starts with its preparation by the Commission
before it is passed to the Council who can make amendments if they feel them necessary. The updated
budget then goes to the European Parliament, who can themselves propose amendments or accept or reject
the current draft. Once all amendments and updates are agreed (including, if necessary, an entirely new draft
proposed by the Commission) the budget is adopted in mid-December by the Parliament. The President of
Parliament declares the budget adopted and it can then be implemented.

2. HOW IS THE EC FUNDED?

The EC has two main categories of funding: Own resources revenues and sundry revenues.

2.1. Own resource revenues and receivables

Own resource revenue accrues automatically to the EU to enable it to finance its budget without the need
for a subsequent decision by national authorities (in 2007 it is 93 % of total revenue). The overall amount
of own resources needed to finance the budget is determined by total expenditure less other revenue. The
total amount of own resources cannot exceed 1,24 % of the gross national income (GNI) of the EU. Own
resources can be divided into the following categories:

1. Traditional own resources (TOR) consist of customs duties, agricultural duties and sugar levies. These
own resources are levied on economic operators and collected by Member States on behalf of the EU.
However, Member States keep 25 % as a compensation for their collection costs. Customs duties and
agricultural duties are levied on imports of products coming from third countries, at rates based on the
Common Customs Tariff. Sugar levies are paid by sugar producers to finance the export refunds for
sugar. TOR usually account for around 15 % of total own resource revenue.

2. The own resource based on value added tax (VAT) is levied on Member States' VAT bases, which are
harmonised for this purpose in accordance with Community rules. The same percentage is levied on the
harmonised base of each Member State. However, the VAT base to take into account is capped at 50 %
of each Member State's GNI. The VAT-based resource usually accounts for around 15 % of own resource
revenue.

3. The resource based on gross national income (GNI) is used to balance budget revenue and expenditure,
i.e. to finance the part of the budget not covered by any other sources of revenue. The same percentage
rate is levied on each Member States' GNI, which is established in accordance with Community rules. The
GNI-based resource usually accounts for around 70 % of own resource revenue.

With regard to payment of these amounts, separate accounts contain traditional own resources which, under
Article 6(3)(b) of Regulation (EC, Euratom) No 1150/2000, have been established by the Member States but
not made available to the Communities as they have not yet been recovered or guaranteed or because they
have been challenged. Each Member State sends the Commission a quarterly statement of these accounts,
with the following particulars for each type of resource:

— the previous quarter's outstanding balance,

— the amounts recovered during the quarter in question,

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— rectifications of the base (corrections/cancellations) during the quarter in question,

— amounts written off,

— the balance to be recovered at the end of the quarter in question.

When the traditional own resources from the separate account are recovered, they must be made available
to the Commission at the latest on the first working day following the 19th day of the second month
following the month during which the entitlement was recovered.

A write-down of the entitlements in the separate account must be made to reflect the situations when actual
recovery is unlikely. This write-down is based on estimations made by Member States themselves in accord-
ance with Article 6(4)(b) of Council Regulation (EC, Euratom) No 1150/2000 which states ‘Together with
the final quarterly statement for a given year, Member States shall forward an estimate of the total amount
of entitlements contained in the separate account at 31 December of that year for which recovery has
become unlikely’.

Based on the estimations sent by Member States, a write-down is deducted from the item for receivables
from Member States on the asset side of the balance sheet. However, this does not mean that the Commis-
sion is waiving recovery of the amounts covered by this value adjustment. Even where recovery looks very
unlikely, if not virtually impossible, this does not necessarily mean that the amounts in question are lost to
the Community budget as traditional own resources. This is because non-recovered entitlements are lost
only if the Member State has exhausted all the avenues it is required to pursue in order to secure recovery.
Where the Member State fails to do this, it is held financially liable and required to pay the amount into the
Community budget in accordance with Article 17(2) of Regulation (EC, Euratom) No 1150/2000.

2.2. Sundry revenues

Sundry revenues arising from the activities of the European Communities are approximately 7 % of total
revenue. These are, for instance, competition fines and recovery orders to private and public debtors with
regard to the management of Community projects (as in the example above). Penalty payments imposed by
the Court of Justice on Member States that fail to comply with a given judgment also fall into this category.
The Commission manages hundreds of thousands of projects each year and needs to establish about
12 000 recovery orders per year. Any debt not paid at the due date is subject to default interest. Where
debts of Community third parties other than Member States remain unpaid, Commission (and Council) deci-
sions imposing the obligation to pay are directly enforceable in accordance with the rules of civil procedure
in force in the territory where enforcement is to be carried out. Remaining debtors are chased up by the
Legal Service with the help of external law firms.

3. HOW THE COMMUNITY BUDGET IS MANAGED AND SPENT

3.1. Primary operating expenditure

The European Communities' operating expenditure covers the various headings of the financial perspective
and takes different forms, depending on how the money is paid out and managed. In accordance with the
Financial Regulation, the Communities implement the general budget using the following methods:

Direct centralised management: this is where the implementation of the budget is done directly by the
responsible Communities' Institution or body.

Indirect centralised management: this refers to cases where the Communities entrust the task of managing
a portion of the budget to a Communities or Member State body.

Decentralised management: these are the cases where the Communities delegate certain tasks for imple-
mentation of the budget to third countries.

Shared management: similarly under this method of management the Communities delegate certain tasks
for implementation of the budget to Member States.

Joint management: under this method, the Communities entrust certain implementation tasks to an inter-
national organisation.

The majority of the expenditure, this year EUR 90 billion (2006: EUR 91 billion), falls under the heading
‘Shared Management’ involving the delegation of tasks to Member States, covering such areas as agricultural
spending and Structural Actions.

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3.2. The different financial actors

The College of Commissioners assumes collective political responsibility but has virtually no budget imple-
mentation powers. It delegates these tasks each year to individual civil servants accountable to the College
and subject to the Staff Regulations. The staff concerned — generally Directors-General and Heads of
Service — are known as ‘Authorising Officers by delegation’. They in turn may further delegate budget
implementation tasks to ‘Authorising Officers by sub-delegation’.

The responsibility of the Authorising Officers covers the entire management process, from determining
what needs to be done to achieve the policy objectives set by the institution to managing the activities
launched from both an operational and budgetary standpoint, including signing legal commitments, moni-
toring performance, making payments and even recovering funds, if necessary. Authorising officers must
also arrange for evaluations to be carried out to analyse the viability of their proposals (ex ante evaluation)
and to gauge the success and cost-effectiveness of programmes already underway (interim and ex post
evaluations). The results of these evaluations are used to help improve the decision-making process and
increase the transparency, accountability and cost-effectiveness of Community intervention.

Sound financial management and proper accountability are assured within each DG by the separation of
management control (in the hands of the authorising officers) from internal audit and compliance control
with clear internal control standards (inspired by COSO international standards), exante and ex post
controls, independent internal auditing on the basis of risk assessments, and regular reporting on activities
to the individual Commissioners.

The Accounting Officer executes payment and recovery orders drawn up by authorising officers and is
responsible for managing the treasury; laying down accounting rules and methods, validating accounting
systems, keeping the accounts and drawing up the institution's annual accounts and consolidating them
with those of the other consolidated entities. Furthermore, the Accounting Officer is required to sign the
accounts declaring that they provide a true and fair view of the financial position.

The Internal Auditor, who is not a financial actor in the strict sense of the term, is appointed by an institu-
tion to verify the proper operation of budgetary implementation systems and procedures and to advise the
institution on risk management issues. The Internal Auditor issues independent opinions on the quality of
management and control systems and provides recommendations on how to improve operational proce-
dures and promote sound financial management.

3.3. Committing to spend the EU budget

Once the budget is approved, DG Budget makes funding available, via the Commission's accounting system,
to the different Commission departments and the Institutions and other bodies in accordance with
their policy responsibilities under a system called activity based budgeting. For example, the responsibility
for managing budget lines to do with the environment would be delegated by the Commission to the head
— or Director-General — of DG Environment (who in this context becomes known as the Authorising
Officer by Delegation for the budget lines in question).

Before a legal commitment (for example a contract or grant agreement) can be entered into with a third
party, there must be a budget line authorising the activity in question in the annual budget. There must also
be sufficient funds on the budget-line in question to cover the expenditure. If these conditions are met, the
funds required must be reserved in the budget by means of a budgetary commitment made in the
accounting system.

Once the budgetary commitment is launched by the person responsible for the project, known as the ‘initi-
ating agent’, it must follow a pre-set procedure — or ‘financial circuit’ — which is a paper and electronic
trail involving a minimum of two people (the so-called ‘four eyes principle’), the initiator and the verifier.
The financial circuits in place provide for financial and operational checks before the commitment is
approved by the Authorising Officer responsible.

No money can be spent from the Community budget unless and until the Commission or another EC body
and the possible recipient of Community money have entered into a written legal commitment. Under
centralised direct management, this legal commitment takes the form of either a contract with a contractor
or a grant agreement with a beneficiary.

Once approved, the budgetary commitment is recorded in the budgetary accounting system and the appro-
priations are consumed accordingly. This, however, has no effect on the general accounts (or general ledger)
since no charge has yet been incurred. This is because the accounting system of the European Communities
comprises two separate but linked elements:

(a) budget accounts, which provide a detailed record of budget implementation; and

(b) general accounts, used to prepare the balance sheet and economic outturn.

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The budget accounts chart the commitments and payments made on the 1 150 or so budget lines day by
day. They are based on the modified cash accounting principle, whereby an item of expense or income is
only recorded in the accounts when cash is committed, paid out or received. This type of accounting is
typical of the public sector whose focus has, historically, tended to be on the budget and its implementation.
The European Parliament, i.e. the institution to which the executive, the Commission, is accountable, is natu-
rally keen to verify that the wishes it expressed in adopting the budget are being fulfilled by the executive.
Each month the Commission publishes figures detailing the current state of budget
implementation
(spending) on the Europa website. The figures are given by financial perspective heading and by policy area.

The general accounts (or general ledger) use the double-entry method of bookkeeping to show all expendi-
ture and revenue over the financial year (and thus the economic outturn) and to establish the financial posi-
tion of the EC in the form of a balance sheet of assets and liabilities at 31 December of a given year.

3.4. Making a payment

3.4.1. General rules

No payment can be made unless a budgetary commitment has already been approved by the Authorising
Officer dealing with the operation in question. When a payment needs to be made a compulsory workflow
similar to that for a budgetary commitment has to be followed. This is done in the accounting system and
with a parallel paper/electronic trail. Again the process is launched by the initiating agent and ultimately
approved by the authorising officer by sub-delegation. Once the payment is approved, both the budgetary
and the general accounts are automatically updated.

Once a payment is approved in the accounting system, the next step is for the transfer to be made to the
beneficiary's account. The Commission, for example, through the treasury department of DG Budget, makes
almost all of its payments by bank transfer. It has bank accounts with Member State Treasuries, Central
Banks and commercial banks.

The Commission makes over one million payments a year. The Commission is a participant in SWIFT
least one payment run,
(Society for Worldwide Interbank Financial Telecommunication). Each day at
launched under the control of the treasury department of Directorate-General for Budget, translates the
approved payment orders into payment instructions that are sent automatically to the Commission banks,
in order to pay the designated beneficiaries.

3.4.2. Pre-financing

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be
split into a number of payments over a period defined in the particular pre-financing agreement. The float
or advance is either used for the purpose for which it was provided during the period defined in the agree-
ment or it is repaid — if the beneficiary does not incur eligible expenditures he has the obligation to return
the pre-financing advance to the European Communities. Thus pre-financing paid is not a definitive expense
until the relevant contractual conditions are met and so is recorded as an asset on the balance sheet when
the initial payment is made. The amount of the pre-financing asset is reduced (wholly or partially) by the
acceptance of eligible costs and amounts returned. When a pre-financing amount is fully or partially
accepted by the Communities, following analysis of the eligibility of a cost claim received (see below), then
the accepted amount of eligible expenditure is removed from the balance sheet and taken as an expense in
the economic outturn account. This may clear the pre-financing amount in whole or in part.

Pre-financing is valued at its estimated recoverable amount, taking into consideration the existence of a
related guarantee attached to the pre-financing. The expected irrecoverable pre-financing is recognised as a
charge in the economic outturn account and a decrease in the pre-financing carrying value in the balance
sheet. Interest is generally earned on pre-financing paid out (notable exceptions include amounts paid to
Member States or as pre-accession aid). The ownership of this interest designates the two categories of pre-fi-
nancing existing — European Communities and Third Party. The difference between the two categories is
that the interest generated by ‘European Communities’ pre-financing amounts remains the property of the
Communities and so must be returned to the Communities, while that earned on ‘Third Party’ pre-financing
is the property of the beneficiary.

3.4.3. Cost claims and eligibility of expenditure

Some time after the payment of the advance, or pre-financing, a cost claim will be received by the relevant
EC body so as to justify how that pre-financing amount was spent by the beneficiary in accordance with the
contract. The rhythm of these cost claims sent during the year is variable depending on the type of action
being funded and the contractual conditions, and they are not necessarily received at year-end.

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Cost statements received are registered immediately in the accounting system as a current payable with
‘Eligibility to be checked’ (a debit amount) the counterpart entry. This is known as a ‘Step 1 invoice’. An
expense is only recognised in the general accounts once the ‘generating event’ has occurred — namely when
the cost claim is validated. Thus at the ‘Step 1’ stage no expense is yet recognised. The member of staff
responsible is required to perform checks on the claim received and may request further justification where
necessary before verifying in the system and on paper that the claim is valid and that the payment can be
made. Once satisfied that the claim is valid, an accounting entry is made that transfers the eligible amounts
to the economic outturn account as an expense (‘Step 2 invoice’). The open pre-financing and creditor
balances are also reduced by the validated amount. There is no impact on the budgetary accounts since the
initial payment has already been recorded.

3.4.4. Payment of further amounts

If an amount in excess of the initial payment is claimed and verified or if a second or final payment is
required to be paid in accordance with the contract, then a new payment request is launched following the
same rules as before. It is the authorising officer by delegation who gives final approval before the payment
can be made. Eligibility criteria are defined in the basic act, in the calls for proposal, in other information
documents for grant beneficiaries and/or in the contractual clauses of the grant agreements. After analysis,
the eligible expenses are taken into charges and the beneficiary is informed about any non eligible amounts.
‘Eligibility to be checked’ amounts thus represent received cost claims for which the eligibility has not yet
been checked and therefore where the event giving rise to the expense being realised has not yet been
reached.

3.4.5. Accounting treatment at year-end (cut-off)

With regard to open pre-financing amounts at year-end, these are valued at the original amount(s) paid less:
amounts returned, eligible amounts cleared, estimated eligible amounts not yet cleared at year-end, and
value reductions. Guarantees received related to pre-financing amounts are disclosed in the off-balance sheet
as contingent assets.

Cost claims not yet received at year-end are taken into account in the year-end accounting cut-off proce-
dures. In particular an assessment has to be made concerning eligible expenses incurred by beneficiaries of
Community funds but not yet reported to the EC. Different methods are used depending on the type of
activities and information available so as to arrive at the best estimate of these amounts. Following these
cut-off entries, estimated eligible amounts are recorded as accrued charges, while the estimated non-eligible
parts remain open on the ‘eligibility to be checked’ accounts. These amounts are shown under current
liabilities so as not to overestimate assets and liabilities.

3.5. Recovering undue payments

The eligibility of expenditure charged to the budget is verified by the relevant EC services, or in the case of
shared management, by the Member States, on the basis of the supporting documents stipulated in the
applicable rules or in the conditions of each grant. With the aim of optimising the relationship between the
costs and the benefits of control systems, checks on the supporting documents for final claims tend to be
more intense than those on interim claims, and thus may detect errors in interim payments which are
corrected by adjustment of the final payment. Furthermore, the EC and/or the Member State has the right to
verify the probity of the supporting documents by making checks on the claimant's premises, during the
implementation of the action financed and/or afterwards (ex post). Errors found during the implementation
period may be corrected by adjustment of subsequent claims. Errors found ex post will be the subject of a
recovery order. See also Section E.6 for further information on this area.

4. YEAR-END REPORTING

4.1. Annual accounts

It is the Accounting Officer's responsibility to prepare the annual accounts and ensure that they present a
true and fair view of the financial position of the EU. The annual accounts comprise the financial statements
and the reports on implementation of the budget. They are adopted by the Commission and presented to
the Court of Auditors for audit and finally to the Council and Parliament for discharge.

4.2. Annual Activity reports

Each Authorising officer is required to prepare an Annual Activity Report (AAR) on the activities under his
responsibility. In this AAR, he reports on policy results and on the reasonable assurance he may have that
the resources assigned to the activities described in his report have been used for their intended purpose and
in accordance with the principles of sound financial management, and that the control procedures put in
place give the necessary guarantees concerning the legality and regularity of the underlying transactions.

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5. AUDIT AND DISCHARGE

5.1. Audit

The EU's annual accounts and resource management are overseen by its external auditor, the European
Court of Auditors, which draws up an annual report for the Council and the European Parliament. The
Court's main task is to conduct an external,
independent audit of the European Communities' annual
accounts. As part of its activities, the Court of Auditors produces:

1. an annual report on the activities financed from the general budget, detailing its observations on the

annual accounts and underlying transactions;

2. an opinion, based on its audits and given in the annual report in the form of a statement of assurance,
on (i) the reliability of the accounts and (ii) the legality and regularity of the underlying transactions
involving both revenue collected from taxable persons and payments to final beneficiaries;

3. special reports giving the findings of audits covering specific areas of management.

The Court of Auditors is entitled to access all documents required during the course of its audit. The Court
audits all areas of EC activities, right down to examining the legality and regularity of individual transactions
It also audits the annual accounts themselves, reviewing individual balance sheet and
and payments.
economic outturn accounts where necessary as well as the overall presentation of the financial statements.
Thus the Court can offer its opinion not only on the figures presented, but also on the system and controls
in place.

5.2. Discharge

The final control is the discharge of the budget for a given financial year. The European Parliament is the
discharge authority within the EC. This means that following the audit and finalisation of the annual
accounts it falls to the Council to recommend and then to the Parliament to decide whether to grant
discharge to the Commission and other EC bodies for executing the Communities' budget for the preceding
financial year. This decision is based on a review of the accounts and the annual report of the Court of
Auditors (which includes an official statement of assurance) and replies of the Commission, and also
following questions and further information requests to the Commission.

The discharge represents the political aspect of the external control of budget implementation and is the
decision by which the European Parliament, acting on a Council recommendation, ‘releases’ the Commission
from its responsibility for management of a given budget by marking the end of that budget's existence.
This discharge procedure may produce one of three outcomes: the granting, postponement or refusal of the
discharge. When granting discharge the Parliament may highlight observations they consider important,
often recommending actions that the Commission should take concerning these matters. The Commission
sets out the measures taken in a follow-up report and an action plan which it sends to both the Parliament
and the Council.

C 287/10

EN

Official Journal of the European Union

10.11.2008

CONSOLIDATED FINANCIAL STATEMENTS OF THE EUROPEAN COMMUNITIES AND
EXPLANATORY NOTES

CONTENTS

PART I

A.

B.

C.

D.

E.

Balance Sheet . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . .

Economic Outturn Account . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .

Cashflow Table. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . .

Statement of changes in Net Assets . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .

Notes to the financial statements . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .

1. Significant accounting policies. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

2. Notes to the Balance Sheet . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

3. Notes to the Economic Outturn Account. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .

4. Notes to the Cashflow table . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

5. Off-Balance Sheet disclosures . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

6. Recovery of undue payments. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . .

7. Financial risk management . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

8. Related party disclosures . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

9. Events after the balance sheet date. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .

10. Consolidated entities . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .

11. Non-consolidated entities . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

Page

11

12

13

14

15

16

27

46

57

57

65

70

79

80

81

82

10.11.2008

EN

Official Journal of the European Union

C 287/11

A. BALANCE SHEET

Note

31.12.2007

31.12.2006

EUR millions

NON-CURRENT ASSETS:

Intangible assets

Property, plant and equipment

Long-term investments

Loans

Long-term pre-financing

Long-term receivables

CURRENT ASSETS:

Inventories

Short-term investments

Short-term pre-financing

Short-term receivables

Cash and cash equivalents

NON-CURRENT LIABILITIES:

Employee benefits

Long-term provisions

Long-term financial liabilities

Other long-term liabilities

CURRENT LIABILITIES:

Short-term provisions

Short-term financial liabilities

Accounts payable

Total assets

Total liabilities

NET ASSETS

Reserves

Amounts to be called from Member States:

Employee benefits (1)

Other amounts (2)

NET ASSETS

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

2.10

2.11

2.12

2.13

2.14

2.15

2.16

2.17

2.18

2.19

2.20

44

4 523

1 973

1 806

14 015

127

22 488

88

1 420

20 583

12 051

18 756

52 898

75 386

(33 480)

(1 079)

(1 574)

(1 989)

(38 122)

(369)

(135)

(95 380)

(95 884)

(134 006)

(58 620)

2 806

(33 480)

(27 946)

(58 620)

37

4 586

2 157

2 023

22 425

328

31 556

115

1 426

8 055

9 796

16 384

35 776

67 332

(32 200)

(989)

(1 862)

(2 020)

(37 071)

(379)

(20)

(94 080)

(94 479)

(131 550)

(64 218)

2 855

(32 200)

(34 873)

(64 218)

(1) Under Article 83 of the Staff Regulations (Council Regulation (EEC) No 259/68 of 29 February 1968 as amended), the Member States

shall jointly guarantee the liability for pensions.

(2) The European Parliament has adopted a budget on 13 December 2007 which provides for the payment of the Communities'

short-term liabilities from own resources to be collected by, or called up from, the Member States in 2008.

C 287/12

EN

Official Journal of the European Union

10.11.2008

B. ECONOMIC OUTTURN ACCOUNT

Note

2007

2006

EUR millions

OPERATING REVENUE

Own resource and contributions revenue

Other operating revenue

OPERATING EXPENSES

Administrative expenses

Operating expenses

SURPLUS FROM OPERATING ACTIVITIES

Financial revenue

Financial expenses

Movement in employee benefits liability

Share of net surplus (deficit) of associates & joint ventures

ECONOMIC OUTTURN FOR THE YEAR

3.1

3.2

3.3

3.4

3.5

3.6

2.12

3.7

112 084

105 118

9 080

8 368

121 164

113 486

(7 120)

(6 619)

(104 682)

(106 803)

(111 802)

(113 422)

9 362

674

(354)

(2 207)

(13)

7 462

64

621

(331)

108

(265)

197

10.11.2008

EN

Official Journal of the European Union

C 287/13

C. CASHFLOW TABLE

Note

2007

2006

EUR millions

Economic outturn for the year

Operating activities

Amortisation

Depreciation

(Reversal of) impairment losses on investments

(Increase)/decrease in loans

(Increase)/decrease in long-term pre-financing

(Increase)/decrease in long-term receivables

(Increase)/decrease in inventories

(Increase)/decrease in short-term pre-financing

(Increase)/decrease in short-term receivables

Increase/(decrease) in long-term provisions

Increase/(decrease) in long-term financial liabilities

Increase/(decrease) in other long-term liabilities

Increase/(decrease) in short-term provisions

Increase/(decrease) in short-term financial liabilities

Increase/(decrease) in accounts payable

Prior year budgetary surplus taken as non cash revenue

Other non-cash movements

Increase/(decrease) in employee benefits liability

Investing activities

(Increase)/decrease in intangible assets and property, plant and
equipment

(Increase)/decrease in long-term investments

(Increase)/decrease in short-term investments

NET CASHFLOW

NET INCREASE IN CASH AND CASH EQUIVALENTS (1)

4.2

4.3

7 462

11

329

(3)

217

8 410

201

27

(12 528)

(2 255)

90

(288)

(31)

(10)

115

1 300

(1 848)

(15)

1 280

(284)

(5)

6

2 181

2 181

197

11

306

(3)

374

307

(84)

11

(1 422)

(2 558)

(108)

(58)

167

104

(2)

11 552

(2 410)

140

(956)

(772)

(156)

14

4 654

4 654

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
YEAR (1)

2.11

16 824

12 170

CASH AND CASH EQUIVALENTS AT YEAR-END (1)

2.11

19 005

16 824

(1)

Includes the cash of the Guarantee Fund (see note 2.11).

C 287/14

EN

Official Journal of the European Union

10.11.2008

D. STATEMENT OF CHANGES IN NET ASSETS

Reserves (A)

Amounts to be called from Member
States (B)

Fair value reserve

Other reserves

Accumulated
Surplus/(Deficit)

Economic outturn
of the year

EUR millions

Net Assets
= (A)+(B)

BALANCE AS AT 31 DECEMBER 2005

Movement in Guarantee Fund reserve

Fair value movements

Other

Allocation of the economic outturn 2005

Budget result 2005 credited to Member States

Economic outturn for the year

BALANCE AS AT 31 DECEMBER 2006

Movement in Guarantee Fund reserve

Fair value movements

Other

Allocation of the economic outturn 2006

Budget result 2006 credited to Member States

Economic outturn for the year

BALANCE AS AT 31 DECEMBER 2007

81

(77)

4

3

7

2 727

(57 141)

(7 812)

(62 145)

22

72

30

2 851

(135)

60

23

(22)

145

(7 842)

(2 410)

(67 270)

135

(26)

(53)

174

(1 848)

2 799

(68 888)

0

(77)

217

0

(2 410)

197

(64 218)

0

(23)

7

0

(1 848)

7 462

(58 620)

7 812

197

197

(197)

7 462

7 462

10.11.2008

EN

Official Journal of the European Union

C 287/15

E. NOTES TO THE FINANCIAL STATEMENTS

1.

2.

3.

4.

5.

6.

7.

8.

9.

Significant accounting policies . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . .

Notes to the Balance Sheet. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .

Notes to the Economic Outturn Account . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .

Notes to the Cashflow table . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .

Off-Balance Sheet disclosures . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . .

Recovery of undue payments . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . .

Financial risk management. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .

Related party disclosures. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .

Events after the balance sheet date . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . .

10. Consolidated entities. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .

11. Non-consolidated entities. . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .

Page

16

27

46

57

57

65

70

79

80

81

82

C 287/16

EN

Official Journal of the European Union

10.11.2008

1. SIGNIFICANT ACCOUNTING POLICIES

1.1. LEGAL PROVISIONS AND THE FINANCIAL REGULATION

The accounts are kept in accordance with Council Regulation (EC, Euratom) No 1605/2002 of 25 June
2002 (OJ L 248, 16.9.2002, p. 1, last amended by Council Regulation (EC, Euratom) No 1995/2006 of
13 December 2006, OJ L 390, 30.12.2006) on the Financial Regulation applicable to the general budget of
the European Communities and Commission Regulation (EC, Euratom) No 2342/2002 of 23 December
last modified on
2002 laying down detailed rules for the implementation of this Financial Regulation,
28 March 2007.

Article 133 of the Financial Regulation states that the Accounting Officer of the Commission adopts the
accounting rules and methods to be applied by all the institutions and bodies. Thus, he adopted the current
Communities' accounting rules on 28 December 2004. These accrual-based accounting policies are derived
from International Public Sector Accounting Standards (IPSAS) or by default,
International Financial
Reporting Standards (IFRS) as respectively issued by the International Public Sector Accounting Standard
Board (IPSASB) and the International Accounting Standard Board (IASB). These rules have been adopted by
the Accounting Officer of the Commission after receiving the opinion of an Advisory Expert Group for
Accounting Standards that provided professional guidance. The accounting rules are regularly reviewed and
updated when necessary.

The valuation and accounting rules adopted by the Accounting Officer of the Commission are applied in all
the European Institutions and bodies falling within the scope of consolidation in order to establish a
uniform set of rules for accounting, valuation and presentation of the accounts with a view to harmonising
the process for drawing up the financial statements and consolidation.

The Commission's Accounting Officer must submit the consolidated provisional accounts to the Court of
Auditors for audit by 31 March of the following year. The Commission must adopt the final consolidated
accounts by 31 July and they are then published in the Official Journal by 15 November together with the
Court of Auditors' statement of assurance. Both the provisional and final annual accounts are presented as
follows: Volume I contains the consolidated accounts and Volume II the Commission's accounts.

1.2. ACCOUNTING PRINCIPLES

The objective of the financial statements is to provide information about the financial position, performance
and cashflows of an entity that is useful to a wide range of users. For a public sector entity such as the
European Communities, the objectives are more specifically to provide information useful for decision
making, and to demonstrate the accountability of the entity for the resources entrusted to it.

If they are to present a true and fair view, financial statements must not only supply relevant information to
describe the nature and range of an Institution's and Agencies' activities, explain how it is financed and
supply definitive information on its operations, but do so in a clear and comprehensible manner which
allows comparisons between financial years. It is with these goals in mind that the present document has
been drawn up.

The accounting system of the European Institutions and Agencies comprises general accounts and budget
accounts. These accounts are kept in euro on the basis of the calendar year. The budget accounts give a
detailed picture of the implementation of the budget. They are based on the modified cash accounting prin-
ciple. The general accounts allow for the preparation of the financial statements as they show all charges
and income for the financial year based on accrual accounting rules and are designed to establish the finan-
cial position in the form of a balance sheet at 31 December.

Article 124 of the Financial Regulation sets out the accounting principles to be applied in drawing up the
financial statements:

— going concern basis,

— prudence,

— consistent accounting methods,

— comparability of information,

— materiality,

— no netting,

— reality over appearance,

— accrual-based accounting.

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Official Journal of the European Union

C 287/17

1.3. CONSOLIDATION

The scope of consolidation of the European Communities comprises 36 controlled entities, one associate
and three joint ventures. The complete list of consolidated entities can be found in note E.10. In comparison
with 2006, the scope of consolidation has been extended by two agencies and two joint ventures. The
impact of these additions on the consolidated financial statements was not material.

Controlled entities

Controlled entities are all entities over which the European Communities have the power to govern the
financial and operating policies so as to be able to benefit from these entities' activities. This power must be
presently exercisable. The most common indicator of control, majority of voting rights, is in most of the
cases not applicable for the European Communities as there are normally no capitalistic links between the
entities.

The European Institutions falling within the scope of consolidation have been created through their founding
treaties. They represent the basis of the organisational structure of the European Communities and contri-
bute incontestably to the European Communities' objectives. These Institutions can therefore be considered
as being under the exclusive control of the European Communities.

Under the same approach, the Communities Bodies and Executive Agencies created through a secondary act
of legislation are considered as under the exclusive control of the European Communities and therefore are
also included in the consolidation scope. It should be noted that the Office for Harmonisation in the Internal
Market (Alicante) and the Community Plant Variety Office (Angers) do not receive any subsidies from the
General Budget of the Communities. Also included in the scope of consolidation are two agencies of the
3rd pillar of the European Union that have received a subsidy from the General Budget of the European
Communities (see also section E.10). Furthermore the European Coal and Steel Communities in Liquidation
(ECSC) is also considered as a controlled entity.

Controlled entities are consolidated using the full consolidation method. All inter-company transactions and
balances between European Communities' controlled entities are eliminated. Unrealised gains and losses on
inter-entity transactions are not material and have therefore not been eliminated.

Associates

Associates are all entities over which the European Communities have significant influence but not control,
generally accompanying a shareholding of between 20 % and 50 % of the voting rights. Investments in
associates are accounted for by the equity method of accounting and are initially recognised at cost.

The European Communities' share of their associates' post-acquisition profits or losses is recognised in the
economic outturn account, and their share of post-acquisition movements in reserves is recognised in
reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the invest-
ment. Distributions received from an associate reduce the carrying amount of the investment.

Unrealised gains and losses on transactions between the European Communities and their associate are not
material and have therefore not been eliminated.

The accounting policies of associates may differ from those adopted by the European Communities for like
transactions and events in similar circumstances. For practicable reasons, no adjustments were made to the
associates' financial statements used in applying the equity method.

In cases where the European Communities hold 20 % or more of a venture capital fund, the Communities
do not seek to exert significant influence. Such funds are therefore treated as financial assets available for
sale and the equity method is not applied.

Joint ventures

A joint venture is a contractual arrangement whereby the European Communities and one or more parties
(the ‘venturers’) undertake an economic activity which is subject to joint control. Joint control is the contrac-
tually agreed sharing of control over an economic activity.
Interests in jointly controlled entities are
accounted for by the equity method of accounting and are initially recognised at cost.

The European Communities' interest of the profits or losses of their jointly controlled entities is recognised
in the economic outturn account, and their interest of movements in reserves is recognised in reserves. The
cumulative movements are adjusted against the carrying amount of the interest.

Unrealised gains and losses on transactions between the European Communities and their jointly controlled
entity are not material and have therefore not been eliminated.

The accounting policies of joint ventures may differ from those adopted by the European Communities for
like transactions and events in similar circumstances. For practicable reasons, no adjustments were made to
the joint ventures' financial statements used in applying the equity method.

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Official Journal of the European Union

10.11.2008

Non-consolidated entities

Not controlled by the European Communities and thus not consolidated in its accounts are the funds
managed by the Communities on behalf of both the Sickness Insurance Scheme for staff of the European
Communities, and the European Development Fund. At 31 December 2007 the total assets of both were
EUR 287 million and EUR 1 350 million respectively — see note E.11.

1.4. BASIS OF PREPARATION

1.4.1. Currency and basis for conversion

Functional and reporting currency

The financial statements are presented in millions of euro, the euro being the European Communities' func-
tional and reporting currency.

Transactions and balances

Foreign currency transactions are translated into euro using the exchange rates prevailing at the dates of the
transactions.

Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from
the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign curren-
cies are recognised in the economic outturn account.

Year-end balances of monetary assets and liabilities denominated in foreign currencies are converted into
euro on the basis of the exchange rates applying on 31 December:

EURO Exchange Rates

Currency

BGN

CYP

CZK

DKK

EEK

GBP

HUF

LVL

LTL

MTL

PLN

RON

SKK

SEK

JPY

USD

31.12.2007

1,9558

0,5853

26,6280

7,4583

15,6466

0,73335

253,7300

0,6964

3,4528

0,4293

3,5935

3,6077

33,5830

9,4415

164,9300

1,4721

31.12.2006

1,9558

0,5782

27,4850

7,4560

15,6466

0,6715

251,7700

0,6972

3,4528

0,4293

3,8310

3,3835

34,4350

9,0404

156,9300

1,3170

Different conversion methods apply to the following headings:

— property, plant and equipment and intangible assets, which retain their value in euro at the rate that

applied at the date when they were purchased, and

— pre-financing amounts paid under the European Agricultural Guarantee Fund, which are converted at
the exchange rates applying on the 10th day of the month following the month in which they are
granted.

Changes in the fair value of monetary securities denominated in a foreign currency and classified as avail-
able-for-sale that relate to a translation difference are recognised in the economic outturn account. Transla-
tion differences on non-monetary financial assets and liabilities held at fair value through profit or loss are
recognised in the economic outturn account. Translation differences on non-monetary financial assets classi-
fied as available-for-sale are included in the fair value reserve.

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Official Journal of the European Union

C 287/19

1.4.2. Use of estimates

In accordance with IPSAS and generally accepted accounting principles, the financial statements necessarily
include amounts based on estimates and assumptions by management based on the most reliable informa-
tion available. Significant estimates include, but are not limited to, amounts for employee benefit liabilities,
provisions, financial risk on inventories and accounts receivables, accrued income and charges, contingent
assets and liabilities, and degree of impairment of intangible assets and property, plant and equipment.
Actual results could differ from those estimates. Changes in estimates are reflected in the period in which
they become known.

1.5. BALANCE SHEET

1.5.1. Intangible assets

Acquired computer software licences are stated at cost less accumulated amortisation and impairment losses.
The assets are amortised on a straight-line basis over their estimated useful lives, being four years. Internally
produced intangible assets are currently expensed in the economic outturn account.

Costs associated with developing or maintaining computer software programmes are recognised as expenses
as incurred, as are scientific research and development costs.

1.5.2. Property, plant and equipment

All property, plant and equipment are stated at historical cost less accumulated depreciation and impairment
losses. Historical cost includes expenditure that is directly attributable to the acquisition of the asset.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appro-
priate, only when it is probable that future economic benefits associated with the item will flow to the
European Communities and its cost can be measured reliably. Repairs and maintenance are charged to the
economic outturn account during the financial period in which they are incurred. As the European Commu-
nities do not borrow money to fund the acquisition of property, plant and equipment, there are no
borrowing costs related to such purchases.

Land and works of art are not depreciated as they are deemed to have an infinite life. Assets under construc-
tion are not depreciated as these assets are not yet available for use. Depreciation on other assets is calcu-
lated using the straight-line method to allocate their cost to their residual values over their estimated useful
lives, as follows:

Depreciation rates

Type of asset

Straight line depreciation rate

Buildings

Plant, machinery and equipment

Furniture

Fixtures and fittings

Vehicles

Computer hardware

Other tangible assets

4 %

10 % to 25 %

10 % to 25 %

10 % to 33 %

25 %

25 %

10 % to 33 %

Gains and losses on disposals are determined by comparing proceeds less selling expenses with the carrying
amount of the disposed asset. These are included in the economic outturn account.

Leases

Leases of tangible assets, where the European Communities have substantially all the risks and rewards of
ownership, are classified as financial leases. Financial leases are capitalised at the inception of the lease at the
lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease
payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance
balance outstanding. The rental obligations, net of finance charges, are included in other liabilities (long and
short-term). The interest element of the finance cost is charged to the economic outturn account over the
lease period so as to produce a constant periodic interest rate on the remaining balance of the liability for
each period. The assets acquired under financial leases are depreciated over the shorter of the assets' useful
life and the lease term.

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Leases where the lessor retains a significant portion of the risks and rewards inherent to ownership are clas-
sified as operating leases. Payments made under operating leases are charged to the economic outturn
account on a straight-line basis over the period of the lease.

1.5.3. Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impair-
ment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised
for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset's fair value less costs to sell and its value in use.

Intangible assets and property, plant and equipment residual values and useful
lives are reviewed, and
adjusted if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately
to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

1.5.4. Investments

Investments in Associates and interests in Joint Ventures

Investments in associates and interests in joint ventures are accounted for by using the equity method.

Investments in Venture Capital Funds

Classification and measurement

Investments in Venture Capital Funds are classified as available-for-sale assets and accordingly, are carried at
fair value with gains and losses arising from changes in the fair value (including translation differences)
recognised in the fair value reserve.

Fair value considerations

Since they do not have a quoted market price in an active market and in the absence of any other reliable
valuation technique, investments in Venture Capital Funds are valued on a line-by-line basis at the lower of
cost or attributable net asset value (NAV) as reported by the fund manager up to the balance sheet date, thus
excluding any attributable unrealised gain that may be prevailing in the underlying investment portfolio.
Investments in Venture Capital Funds in existence for less than two years at balance sheet date are valued
based on the same principles, except in the case of unrealised losses due only to administrative expenses
where, in view of the early stage of the underlying investment portfolio, these unrealised losses are not
taken into account.

Under this method, the fair value of investments in Venture Capital Funds is achieved by applying the aggre-
gated NAV concept, which implicitly assumes that if the NAVs of the funds can be considered as compliant
with IAS 39, then the aggregation of the NAVs of all funds will itself be compliant with IAS 39.

In accordance with this method, the funds are classified into three categories:

— Category I — funds that have adopted the fair value requirements of IAS 39,

— Category II — funds that have adopted other valuation guidelines (i.e. AFIC, BVCA & EVCA valuation

guidelines) or standards that can be considered as in line with IAS 39,

— Category III — funds that have not adopted the fair value requirements of IAS 39 or any other valuation

guidelines in line with IAS 39.

For Categories I & II, unrealised gains resulting from the fair value measurement are recognised through
reserves and unrealised losses are assessed for impairment so as to determine whether they are recognised as
impairment losses in the economic outturn account or as changes in the fair value reserve.

The fair valued attributable NAV is determined through applying either the European Communities' percen-
tage ownership in the fund to the NAV reflected in the most recent report or, to the extent available, the
precise share value at the same date, submitted by the respective Fund Manager.

Investments belonging to category III are valued at cost less impairment losses (although no investments of
this type are currently held).

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Financial instruments

Classification

The European Communities classify their investments in the following categories: financial assets at fair
value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale finan-
cial assets. The classification of the investments is determined at initial recognition and re-evaluated at each
balance sheet date.

(i)

Financial assets at fair value through profi t or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value
through profit or loss at inception. A financial asset is classified in this category if acquired principally
for the purpose of selling in the short term or if so designated by the European Communities. Deriva-
tives are also categorised as held for trading unless they qualify for hedge accounting. Assets in this
category are classified as current assets if they are expected to be realised within 12 months of the
balance sheet date.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. They arise when the Communities provide money, goods or services
directly to a debtor with no intention of trading the receivable. They are included in non-current assets,
except for maturities within 12 months of the balance sheet date.

(iii) Held-to-matur ity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments
and fixed maturities that the European Communities has the positive intention and ability to hold to
maturity. During this financial year, the European Communities did not hold any investments in this
category.

(iv) Available-for-sale financi al assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not
classified in any of the other categories. They are included in non-current assets unless the Commu-
nities intend to dispose of the investment within 12 months of the balance sheet date.

Initial recognition and measurement

financial assets at

Purchases and sales of
loss, held-to-maturity and
available-for-sale are recognised on trade-date — the date on which the European Communities commit to
purchase or sell the asset. Loans are recognised when cash is advanced to the borrowers. Investments are
initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through
profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value
and transaction costs are expensed in the economic outturn account.

fair value through profit or

The fair value of a financial asset on initial recognition is normally the transaction price (i.e. the fair value of
the consideration received). However, when a long-term loan that carries no interest or an interest below
market conditions is granted, its fair value can be estimated as the present value of all future cash receipts
discounted using the prevailing market rate of interest for a similar instrument with a similar credit rating.

In the case of loans to officials granted by the ECSC in liquidation, the transaction price is used as fair value
at inception independently from any preferential interest rate granted, for practicable reasons and based on
materiality considerations.

Financial instruments are derecognised when the rights to receive cash flows from the investments have
expired or have been transferred and the European Communities have transferred substantially all risks and
rewards of ownership.

Subsequent measurement

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently
carried at fair value. Gains and losses arising from changes in the fair value of the ‘financial assets at fair
value through profit or loss’ category are included in the economic outturn account in the period in which
they arise.

Changes in the fair value of monetary financial assets denominated in a foreign currency and classified as
available-for-sale that relate to a translation difference are recognised in the economic outturn account.
Changes in the fair value of non-monetary financial assets classified as available-for-sale are recognised in
the fair value reserve. When financial assets classified as available-for-sale are sold or impaired, the cumula-
tive fair value adjustments previously recognised in the fair value reserve are recognised in the economic
outturn account.

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Interest on available-for-sale financial assets calculated using the effective interest method is recognised in
the economic outturn account. Dividends on available-for-sale equity instruments are recognised when the
European Communities right to receive payment is established.

The fair values of quoted investments in active markets are based on current bid prices. If the market for a
financial asset is not active (and for unlisted securities), the European Communities establish a fair value by
using valuation techniques. These include the use of recent arm's length transactions, reference to other
instruments that are substantially the same, discounted cash flow analysis, option pricing models and other
valuation techniques commonly used by market participants.

In cases where the fair value of investments in equity instruments that do not have quoted market price in
an active market cannot be reliably measured, these investments are valued at cost less impairment losses.

Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective
interest method. In the case of loans granted on borrowed funds, the effective interest method may not be
applied separately to loans and borrowings, based on materiality considerations. The transaction costs
incurred by the European Communities and then recharged to the beneficiary of the loan are directly recog-
nised in the economic outturn account.

Impairment of financial assets

The European Communities assess at each balance sheet date whether there is objective evidence that a
financial asset is impaired. A financial asset is impaired and impairment losses are incurred if, and only if,
there is objective evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset and that loss event (or events) has an impact on the estimated future cash flows of
the financial asset that can be reliably estimated.

(i) Assets car r ied at amor tised cost

If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity invest-
ments carried at amortised cost has been incurred, the amount of the loss is measured as the difference
between the asset's carrying amount and the present value of estimated future cash flows (excluding
future credit losses that have not been incurred) discounted at the financial asset's original effective
interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the
economic outturn account. If a loan or held-to-maturity investment has a variable interest rate, the
discount rate for measuring any impairment loss is the current effective interest rate determined under
the contract.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset
reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral,
whether or not foreclosure is probable.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, the previously recognised impair-
ment loss is reversed through the economic outturn account.

(ii) Assets car r ied at fair value

In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair
value of the security below its cost is considered in determining whether the securities are impaired. If
any such evidence exists for available-for-sale financial assets, the cumulative loss — measured as the
difference between the acquisition cost and the current fair value, less any impairment loss on that finan-
cial asset previously recognised in the economic outturn account — is removed from reserves and recog-
nised in the economic outturn account. Impairment losses recognised in the economic outturn account
on equity instruments are not reversed through the economic outturn account. If,
in a subsequent
period, the fair value of a debt instrument classified as available-for-sale increases and the increase can
be objectively related to an event occurring after the impairment loss was recognised, the impairment
loss is reversed through the economic outturn account.

1.5.5. Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in,
first-out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct
labour, other direct costs and related production overheads (based on normal operating capacity). Net realis-
able value is the estimated selling price in the ordinary course of business, less the costs of completion and
selling expenses.

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When inventories are held for distribution at no charge or for a nominal charge, they are measured at the
lower of cost and current replacement cost. Current replacement cost is the cost the European Communities
would incur to acquire the asset on the reporting date.

1.5.6. Pre-financing amounts

Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be
split into a number of payments over a period defined in the particular pre-financing agreement. The float
or advance is repaid or used for the purpose for which it was provided during the period defined in the
agreement. If the beneficiary does not incur eligible expenditures, he has the obligation to return the
pre-financing advance to the European Communities. The amount of the pre-financing is reduced (wholly or
partially) by the acceptance of eligible costs and amounts returned.

At year-end, outstanding pre-financing amounts are valued at the original amount(s) paid less: amounts
returned, eligible amounts cleared, estimated eligible amounts not yet cleared at year-end, and value
reductions.

Interest on pre-financing is recognised as it is earned in accordance with the provisions of the relevant agree-
ment. An estimate of the accrued interest revenue, based on the most reliable information, is made at the
year-end and included in the balance sheet. Guarantees related to pre-financing amounts are disclosed in the
off-balance sheet as contingent assets.

1.5.7. Receivables

Receivables are carried at original amount less write-down for impairment. A write-down for impairment of
receivables is established when there is objective evidence that the European Communities will not be able
to collect all amounts due according to the original terms of receivables. The amount of the write-down is
the difference between the asset's carrying amount and the recoverable amount, being the present value of
expected future cash flows, discounted at the market rate of interest for similar borrowers. The amount of
the write-down is recognised in the economic outturn account. Also recognised is a general write-down in
value of 20 % per year for outstanding recovery orders not already subject to a specific write-down.

See also note 1.5.13 below concerning the treatment of accrued income recognised at year-end.

1.5.8. Cash and cash equivalents

Cash and cash equivalents are defined as short-term assets. They include cash at hand, deposits held at call
with banks, other short-term highly liquid investments with original maturities of three months or less, and
bank overdrafts. Bank overdrafts are shown within financial liabilities under current liabilities on the balance
sheet.

1.5.9. Employee benefits

Pension obligations

The European Communities operate defined benefit pension plans. A defined benefit plan is a pension plan
that generally defines an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation. Whilst staff contribute
from their salaries one third of the expected cost of these benefits, the liability is not funded.

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value
of the defined benefit obligation at the balance sheet date less the fair value of any plan assets. The defined
benefit obligation is calculated by independent actuaries using the projected unit credit method. The present
value of the defined benefit obligation is determined by discounting the estimated future cash outflows
using interest rates of high-quality corporate bonds that are denominated in the currency in which the bene-
fits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
recognised immediately in the economic outturn account. Past-service costs are recognised immediately in
economic outturn account, unless the changes to the pension plan are conditional on the employees
remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are
amortised on a straight-line basis over the vesting period.

Post-employment sickness benefits

The European Communities provide health benefits to its employees through the reimbursement of medical
expenses. A separate fund (RCAM) has been created for the day-to-day administration. Both current
employees, pensioners, widowers and their beneficiaries benefit from the system.

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The benefits granted to the ‘inactives’ (pensioners, orphans, etc.) are classified as ‘Post-Employment Employee
Benefits’. Given the nature of these benefits, an actuarial calculation is required. The liability in the balance
sheet is determined on a similar basis as that for the pension obligations (see above).

1.5.10. Provisions

Provisions are recognised when the European Communities have a present legal or constructive obligation
as a result of past events, it is more likely than not that an outflow of resources will be required to settle the
obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating
losses. The amount of the provision is the best estimate of the expenditures expected to be required to settle
the present obligation at the reporting date. Where the provision involves a large number of items, the obli-
gation is estimated by weighting all possible outcomes by their associated probabilities (expected value
method).

Where the effect of the time value of money is material, the amount of the provision is the present value of
the expenditures expected to be required to settle the obligation. The discount rate used is a rate that reflects
current market assessments of the time value of money and the risks specific to the liability but not the
risks for which future cash flows estimates have been adjusted.

1.5.11. Financial liabilities

Financial liabilities include borrowings and held for trading liabilities. Borrowings are composed of borrow-
ings from credit institutions and debts evidenced by certificates. They are recognised initially at fair value,
being their issue proceeds (fair value of consideration received) net of transaction costs incurred, then subse-
quently carried at amortised cost using the effective interest method; any difference between proceeds, net of
transaction costs, and the redemption value is recognised in the economic outturn account over the period
of the borrowings using the effective interest method. They are classified as non-current liabilities, except for
maturities less than 12 months after the balance sheet date. In the case of loans granted on borrowed funds,
the effective interest method may not be applied separately to loans and borrowings, based on materiality
considerations. The transaction costs incurred by the European Communities and then recharged to the
beneficiary of the loan are directly recognised in the economic outturn account.

Held for trading liabilities include derivatives that do not qualify for hedge accounting when their fair value
is negative. They follow the same accounting treatment as held for trading assets, see note 1.5.4.

1.5.12. Payables

A significant amount of the payables of the Communities are not related to the purchase of goods or
services — instead they are unpaid cost claims from beneficiaries of grants or other Communities funding.
They are recorded as payables for the requested amount when the cost claim is received and, after verifica-
tion, accepted as eligible by the relevant financial agents. At this stage they are valued at the accepted and
eligible amount.

Payables arising from the purchase of goods and services are recognised at invoice reception for the original
amount and corresponding expenses are entered in the accounts when the supplies or services are delivered
and accepted by the European Communities.

1.5.13. Accrued and deferred income and charges

A critical element in accrual accounting is the exercise of ensuring that transactions are recorded in the
accounting year to which they relate. This exercise is referred to as the cut-off exercise. In particular an
assessment has to be made concerning eligible expenses incurred by beneficiaries of Communities' funds but
not yet reported to the Communities (accrued charges). Different methods are used depending on the type
of activities and information available so as to arrive at the best estimate of these amounts. Conversely,
some payments made in current year relate to subsequent periods (deferred charges) and these have to be
identified and included in the subsequent period(s).

According to the European Communities accounting rules, transactions and events are recognised in the
financial statements in the period to which they relate. At the end of the accounting period, accrued
expenses are recognised based on an estimated amount of the transfer obligation of the period. The calcula-
tion of the accrued expenses is done in accordance with detailed operational and practical guidelines issued
by the Commission which aim at ensuring that the financial statements reflect a true and fair view.

Revenue is also accounted for in the period to which it relates. At year-end, if an invoice is not yet issued
but the service has been rendered, the supplies have been delivered by the Commission or a contractual
agreement exists (i.e. by reference to a treaty), an accrued income will be recognised in the financial
statements.

In addition, at year-end, if an invoice is issued but the services have not yet been rendered or the goods
supplied have not yet been delivered, the revenue will be deferred and recognised in the subsequent
accounting period.

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1.6. ECONOMIC OUTTURN ACCOUNT

1.6.1. Revenue

Non-exchange revenue

This makes up the vast majority of the Communities' revenue and includes mainly direct and indirect taxes
and own resource amounts. In addition to taxes the European Communities may also receive payments
from other parties, such as duties, fines and donations.

GNI based resources and VAT resources

Receivables and related revenues are recognised when the European Communities send out a call for funds
to the Member States claiming their contribution. They are measured at their ‘called amount’. As VAT and
GNI resources are based on estimates of the data for the budgetary year concerned, they may be revised as
changes occur until the final data are issued by the Member States. The effect of a change in estimate is
included when determining the net surplus or deficit for the period in which the change occurred.

Traditional own resources

Receivables and related revenues are recognised when the relevant monthly A statements (including duties
collected and amounts due that are guaranteed and not contested) are received from the Member States. At
the reporting date, revenue collected by the Member States for the period but not yet paid to the European
Communities is estimated and recognised as accrued revenue. The quarterly B statements (including duties
neither collected nor guaranteed, as well as guaranteed amounts that have been contested by the debtor)
received from the Member States are recognised as revenue less the collection costs to which they are
entitled (25 %). In addition, a value reduction is recognised for the amount of the estimated recovery gap in
the economic outturn account.

Fines

Receivables and related revenues are recognised when the Communities' decision imposing a fine has been
taken and it is officially notified to the addressee. If there are doubts about the undertaking's solvency, a
value reduction on the entitlement is recognised. After the decision to impose a fine, the debtors have two
months from the date of notification:

— either to accept the decision, in which case they must pay the fine within the time limit laid down and

the amount is definitively collected by the Communities,

— or not to accept the decision, in which case they lodge an appeal under Communities' law.

However, the principal of the fine must be paid within the time limit of three months laid down as the
appeal does not have suspensory effect (Article 242 of the EC Treaty). The debtors have two options; pay
the fine provisionally or present a bank guarantee for the amount.

If the undertaking appeals against the decision, and has already provisionally paid the fine, the amount is
disclosed as a contingent liability. However, since an appeal against a Communities' decision by the addressee
does not have suspensory effect, the cash received is used to clear the receivable. If a guarantee is received
instead of payment, the fine remains as a receivable, and the guarantee is disclosed as a contingent asset.

If it appears probable that the Court of First Instance may not rule in favour of the Communities, a provi-
sion is recognised to cover this risk. If a guarantee had been given instead, then the receivable outstanding is
written-down as required. The accumulated interest received by the European Communities on the bank
accounts where received payments are deposited is recognised as revenue, and any contingent liability is
increased accordingly.

Recovery of expenses

For operations giving rise to reimbursement of expenditures previously paid by the European budget to a
final beneficiary, third country or a Member State, recovery orders are established and accounted for as
follows:

— Recovery of expenses: For these types of recoveries the accounting rules require that if the recovery
order is issued in the same year of the original payment it should result in a receivable from the recipient
with a corresponding reduction in the expenses of that year. If, however, the recovery order is issued in
another year, it results in a receivable with the corresponding entry being income in the economic
outturn account (under the heading recovery of expenses) for that year, or

— Recovery of pre-financing amounts: in this case the amount is included under the pre-financing heading.

Exchange revenue

Revenue from the sale of goods is recognised when the significant risk and rewards of ownership of the
goods are transferred to the purchaser.

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Revenue associated with a transaction involving the provision of services is recognised by reference to the
stage of completion of the transaction at the reporting date.

Interest income and expense

Interest income and expense are recognised in the economic outturn account using the effective interest
method. This is a method of calculating the amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash payments or receipts through the expected life of the finan-
cial instrument (or, when appropriate, a shorter period) to the net carrying amount of the financial asset or
financial liability. When calculating the effective interest rate, the European Communities estimate cash flows
considering all contractual terms of the financial instrument (for example, prepayment options) but do not
consider future credit losses. The calculation includes all fees and points paid or received between parties to
the contract that are an integral part of the effective interest rate, transaction costs and all other premiums
or discounts.

In the case of loans granted on borrowed funds, the effective interest method may not be applied separately
to loans and borrowings, based on materiality considerations. The transaction costs incurred by the
European Communities and then recharged to the beneficiary of the loan are directly recognised in the
economic outturn account.

Once a financial asset or a group of similar financial assets has been written down as a result of an impair-
ment loss, interest income is recognised using the rate of interest used to discount the future cash flows for
the purpose of measuring the impairment loss.

Dividend income

Dividend income is recognised when the right to receive payment is established.

1.6.2. Expenditure

Exchange expenses arising from the purchase of goods and services are recognised when the supplies are
delivered and accepted by the European Communities. They are valued at original invoice cost.

Non-exchange expenses are specific to the European Communities and account for the majority of its expen-
diture. They relate to transfers to beneficiaries and can be of three types: entitlements, transfers under agree-
ment and discretionary grants, contributions and donations.

Transfers are recognised as expenses in the period during which the events giving rise to the transfer
occurred, as long as the nature of the transfer is allowed by regulation (Financial Regulation, Staff Regula-
tions, or other regulation) or a contract has been signed authorising the transfer; any eligibility criteria have
been met by the beneficiary; and a reasonable estimate of the amount can be made.

When any request for payment or cost claim is received and meets the recognition criteria, it is recognised
as an expense for the eligible amount. At year-end, incurred eligible expenses already due to the beneficiaries
but not yet reported are estimated and recorded as accrued expenses.

1.7. CONTINGENT ASSETS AND LIABILITIES

Contingent assets

A contingent asset is a possible asset that arises from past events and of which the existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly
within the control of the European Communities. A contingent asset is disclosed when an inflow of
economic benefits or service potential is probable.

Contingent assets are assessed at each balance sheet date to ensure that developments are appropriately
reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits or
service potential will arise and the asset's value can be measured reliably, the asset and the related revenue
are recognised in the financial statements of the period in which the change occurs.

Contingent liabilities

A contingent liability is a possible obligation that arises from past events and of which the existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly
within the control of the European Communities; or a present obligation that arises from past events but is
not recognised because: it is not probable that an outflow of resources embodying economic benefits or
service potential will be required to settle the obligation or, in the rare circumstances where the amount of
the obligation cannot be measured with sufficient reliability.

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A contingent liability is disclosed unless the possibility of an outflow of resources embodying economic
benefits or service potential is remote. While the EC is exposed to some risks due to the nature of its
day-to-day activities (e.g. implementing and enforcing EU laws and standards), and like many public entities
some of these risks are self-insured, no contingent liability is disclosed until a specific event has occurred,
since until then the possibility of an outflow of resources is remote.

Contingent liabilities are assessed at each balance sheet date to determine whether an outflow of resources
embodying economic benefits or service potential has become probable. If it becomes probable that an
outflow of resources embodying economic benefits or service potential will be required for an item dealt
with as contingent liability, a provision is recognised in the financial statements of the period in which the
change of probability occurs.

Commitments for future funding

A commitment for future funding represents a legal or constructive commitment, usually contractual, that
the European Communities have entered into and which may require a future outflow of resources.

Guarantees

Guarantees are possible assets or obligations that arise from past events and whose existence will be
confirmed by the occurrence or non-occurrence of the object of the guarantee. Guarantees thus qualify as
contingent assets or liabilities. A guarantee is settled when the object of the guarantee no longer exists. It is
crystallised when the conditions are fulfilled for calling a payment from the guarantor.

2. NOTES TO THE BALANCE SHEET

NON CURRENT ASSETS

2.1. INTANGIBLE ASSETS

Gross carrying amount at 31 December 2006

Additions

Disposals

Transfers between asset categories

Other changes

Gross carrying amount at 31 December 2007

Accumulated amortisation at 31 December 2006

Amortisation charge for the year

Disposals

Transfers between asset categories

Other changes

Accumulated amortisation at 31 December 2007

NET CARRYING AMOUNT AT 31 DECEMBER 2007

Net carrying amount at 31 December 2006

EUR millions

Amount

82

22

(2)

13

(10)

105

45

11

(2)

8

(1)

61

44

37

Intangible assets are identifiable non-monetary assets without physical substance. To qualify for recognition
as an asset, they must be controlled by the entity and generate future economic benefits for the European
Communities. The amounts relate primarily to computer software.

2.2. PROPERTY, PLANT AND EQUIPMENT

2.2.1. Land and buildings

In some countries the value of the land cannot be distinguished from the value of the building since both
were purchased as a whole. The value of the land, which is not subject to depreciation, will not be evaluated
separately unless it becomes necessary, i.e. for subsequent expenditure such as construction of a new prop-
erty or a partial sale.

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2.2.2. Assets under construction

On 1 February 2007, the Council signed the contract for the acquisition of the LEX building for a final
price of EUR 260 million. The related value at 31 December 2006 included under this heading of
EUR 224 million has been transferred to ‘Land and Buildings’ in 2007. In October 2004 the Parliament
signed a financial lease with a purchase option for a building complex in Brussels and the construction
began during 2004. In November 2004 the first advance payment of EUR 40 million was paid. Until the
signature of the provisional approval report the Parliament has the right to make additional advance
payments and at 31 December 2007 EUR 318 million has been paid, reflecting the work done up to this
date (at 31 December 2006 EUR 253 million had been paid).

PROPERTY, PLANT & EQUIPMENT

Land and
buildings

Plant and
equipment

Furniture
and
vehicles

Computer
hardware

Other
tangible
assets

Finance
leases

EUR millions

Total

Assets
under
construc-
tion

Gross carrying amount at 31 December 2006

3 580

331

181

Additions

Disposals

Transfers between asset categories

Other changes

Gross carrying amount at 31 December 2007

Accumulated depreciation at 31 December 2006

Depreciation charge for the year

Disposals

Transfers between asset categories

Other changes

54

(2)

227

1

3 860

1 354

154

(2)

34

(8)

(10)

3

350

265

28

(8)

(7)

3

10

(6)

3

6

194

130

14

(5)

2

1

Accumulated depreciation at 31 December 2007

1 506

281

142

NET CARRYING AMOUNT AT
31 DECEMBER 2007

Net carrying amount at
31 December 2006

2 354

2 226

69

66

52

51

427

64

(38)

(9)

2

446

314

61

(36)

(7)

1

333

113

113

110

15

(10)

3

(3)

1 926

483

7 038

16

0

0

1

76

(1)

(227)

1

269

(65)

(13)

11

115

1 943

332

7 240

77

9

(9)

4

0

81

34

33

312

63

0

0

(1)

374

2 452

329

(60)

(8)

4

2 717

1 569

332

4 523

1 614

483

4 586

Charges still to be paid in respect of finance leases and similar entitlements are shown in long-term and
short-term liabilities in the balance sheet (see also notes E.2.15 and E.2.18.1). They break down as follows:

FINANCE LEASES

Description

Cumulative
charges (A)

Future amounts to be paid

Total Value

< 1 year

> 1 year

> 5 years

Total Liabi-
lity (B)

A+B

Land and buildings

Other tangible assets

328

3

Total at 31.12.2007

331

Total at 31.12.2006

304

28

4

32

28

159

11

170

143

1 349

1 536

1 864

0

15

18

1 349

1 551

1 882

1 391

1 562

1 866

Subsequent
expendi-
ture on
assets

Asset
value

Deprecia-
tion

EUR millions

Net
carrying
amount

(C)

61

0

61

60

A+B+C

(E)

A+B+C+E

1 925

(372)

1 553

18

(2)

16

1 943

(374)

1 569

1 926

(312)

1 614

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2.3. LONG-TERM INVESTMENTS

Investment in Associates

Interest in Joint ventures

Guarantee Fund

Available-for-Sale assets

Held for trading assets

Total Investments

Note

2.3.1

2.3.2

2.3.3

2.3.4

2.3.4

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

246

32

1 149

533

13

1 973

208

62

1 371

495

21

2 157

This heading covers investments made with a view to establishing permanent links and support of the
activities of the European Communities. It also includes the net assets of the Guarantee Fund.

2.3.1. Investments in associates: EIF

Amount at 31 December 2006

Acquisitions

Share of net surplus/(deficit)

Other equity movements (dividend)

Amount at 31 December 2007

EUR millions

Amount

208

31

13

(6)

246

The European Investment Fund (EIF) is the European Union's financial institution specialising in providing
risk capital and guarantees to SMEs. Under the Council Decision of 6 June 1994 the European Communities,
represented by the Commission, subscribed for a total of ECU 600 million of the EIF's capital, being
600 shares or 30 % of the EIF's capital. As at 31 December 2006 the Commission had paid all the called-up
capital, which amounted to 20 % of the total capital then, whilst its share of the non-called up capital (80 %)
totalled EUR 480 million.

Council Decision 2007/247/EC of 19 April 2007 decided on the Communities participation in the capital
increase of the EIF. Thus following this decision, during 2007 the Commission subscribed for 91 shares out
of a total of 770 shares issued. The EC subscribed for a total nominal amount of EUR 91 million, of which
20 % of the nominal amount (EUR 18 million) and a total share premium of EUR 12 million were paid.
The share premium was set by determining the new share price based upon the Net Asset Value per share as
at 31 December 2006. As at 31 December 2007 the Commission had subscribed for a total amount of
EUR 691 million (out of EUR 2 770 million) of the share capital of the EIF. This represents 24,95 % of the
total EIF share capital. The Commission has paid in 20 %, the balance being uncalled corresponding to an
amount of EUR 553 million as at 31 December 2007.

Under an agreement between the Commission and the European Investment Bank (EIB) signed in 2005, the
Commission is entitled to sell its shares at any time to the EIB at the price corresponding to the EIF valua-
tion divided by the total number of issued shares. The value of the put option is close to nil since the
formula used for determining the sale price of the shares is similar to the one used to determine the net
equity of the EIF.

The equity method is used to value the Communities' share in the EIF, in accordance with the EC accounting
rules. The shareholding is thus valued at 24,95 % of the EIF's net assets, which at 31 December 2007
amounted to EUR 246 million (2006: EUR 208 million), of which EUR 13 million concerns the result
for 2007. A dividend of EUR 6 million relating to the financial year 2006 was received in 2007.

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2.3.2. Interests in joint ventures

Amount at 31 December 2006

Acquisitions

Disposals and withdrawals

Share of net surplus/(deficit)

Amount at 31 December 2007

Galileo

Galileo

SESAR

62

0

(53)

(9)

0

0

10

0

0

10

ITER

0

39

0

(17)

22

EUR millions

Total

62

49

(53)

(26)

32

For the implementation of the development phase of the Galileo programme, a joint undertaking, within
the meaning of Article 171 of the Treaty, was set-up by the Council Regulation (EC) No 876/2002 for a
period of 4 years (2002 to 2006). The aim of this legal entity is to ensure the unity of the administration
and the financial control of the Galileo programme for its development, and to this end to mobilise the
funds assigned to that programme. The founding members were the European Communities, represented by
the Commission, and the European Space Agency (ESA). The Commission, through grants given under the
trans-European networks (TEN) budget, made available to the Galileo Joint Undertaking (GJU) the requested
funds to co-finance the related activities of the development phase.

The European GNSS Supervisory Authority (GSA), a Community Agency created in 2004, officially took
over responsibility from the GJU on 1 January 2007, as the GJU was put into liquidation. While this new
body was originally intended to operate the public private partnership, following a decision of the Council
made in November 2007 the Galileo programme is now to be financed from the EU budget. At the end of
2007, despite the signature of agreements between the interested parties (GJU, European Space Agency,
GSA), ownership of the projects' assets from the ESA to the EC had not been completely transferred. As
there is some uncertainty and delay in the transfer of assets, for reasons of prudence the EC has not recog-
nised the assets of the programme on its balance sheet. Once these transfer issues have been resolved it is
intended that the assets will then be recognised.

The net assets of the GJU in liquidation at year-end amounted to EUR 0 million. Galileo is accounted for
using the equity method. For 2007, the Commission's share of the loss of the joint undertaking was
EUR 9 million. The value of the investment at 31 December 2007 was EUR 0 million, being the investment
of EUR 585 million less the accumulated share of losses, EUR 585 million. EUR 53 million of the paid in
capital was reimbursed to the European Communities in 2007.

SESAR

The aim of this Joint Undertaking is to ensure the modernisation of the European air traffic management
system by coordinating and concentrating all relevant research and development efforts in the EU. The
SESAR Joint Undertaking has been established as from the day of publication of this Regulation in the
Official Journal of the European Union and shall cease to exist eight years after an endorsement by the Council
of the European Air Traffic Master Plan.

The founding members of the SESAR Joint Undertaking are:

— the European Communities, represented by the European Commission,

— the European Organisation for the Safety of Air Navigation (Eurocontrol), represented by its Agency.

The members shall have votes in accordance with their respective contributions. Both founding members
have the same budgeted contributions and thus intend to have the same number of votes, precluding
control by one party.

The programme started at the end of 2007 and as at 31 December 2007, the Commission has made an
initial investment of EUR 10 million. In the absence of available financial statements for 2007, the invest-
ment has been measured at cost.

ITER

The ITER International Fusion Energy Organisation (ITER) involves the European Communities and other
venturers from China, India, Russia, Korea, Japan and USA. ITER was created to:

(a) construct, operate, exploit and de-activate the ITER facilities in accordance with the technical objectives

and the general design presented in the final report of the ITER Engineering Design Activities;

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(b) encourage the exploitation of the ITER facilities by the laboratories, other institutions and personnel in

the fusion energy research and development programmes of the members;

(c) promote public understanding and acceptance of fusion energy; and

(d) undertake,

in accordance with the Venturer's Agreement, any other activities that are necessary to

achieve its purpose.

is the principal organ of ITER and is composed of representatives of the members. Each
The Council
member shall appoint up to four representatives to the Council. The main strategic decisions will be taken
by unanimous vote. The respective weights of the votes of the Members reflects their contributions to ITER.
The Communities have directly invested EUR 39 million in ITER as at 31 December 2007.

2.3.3. Guarantee Fund

NET ASSETS OF THE GUARANTEE FUND (1)

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Short-term investments: Available-for-sale assets

Cash and cash equivalents

Current assets

Current liabilities

(1) After elimination of MFA amounts.

Net assets

901

249

1 150

(1)

1 149

932

440

1 372

(1)

1 371

The Guarantee Fund for external actions covers loans guaranteed by the Communities as a result of a
Council Decision, in particular European Investment Bank (EIB) lending operations outside the European
Union and loans under macro-financial assistance (MFA loans) and Euratom loans outside the European
Union. The Fund is endowed by payments from the Communities' general budget equivalent to 9 % of the
capital value of the operations, the proceeds from interest on investments made from the Fund's assets, and
sums recovered from defaulting debtors for whom the Fund has had to activate its guarantee. Any yearly
surplus arising shall be paid back to a special heading in the statement of revenue in the general budget of
the European Communities.

The European Communities are required to include a guarantee reserve to cover loans to third countries.
This reserve is intended to cover the requirements of the Guarantee Fund and, where necessary, activated
guarantees exceeding the amount available in the Fund, so that these amounts may be charged to the
budget.

This reserve of EUR 1 118 million corresponds to the target amount of 9 % of the loans outstanding at
31 December 2007. The net assets of the Fund at 31 December 2007 total EUR 1 152 million (before
elimination of the MFA debt certificate). The difference between the net assets and the amount of the
reserve corresponds to the surplus to be repaid to the budget, i.e. EUR 34 million.

The Guarantee Fund holds one floating rate note issued by the European Communities (MFA) for an amount
of EUR 3 million, and so both the assets (GF) and liabilities (MFA) have to be eliminated in the Commu-
nities' accounts. Fair-value changes of the AFS debt security portfolio have been recognised in equity in 2007
totalling EUR (19) million (2006: EUR (32) million).

The financial risk management policies of the Guarantee Fund are described in section E.7.

2.3.4. Other investments

2.3.4.1. Available-for-sale assets

This heading includes investments and participations purchased to help beneficiaries develop their business
activities.

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Long-term Available-for-sale assets

Amounts at 31.12.2006

Acquisitions

Disposals/withdrawals

Revaluation surplus/(deficit)
equity

t/f

to

Impairment loss

EBRD

157

0

0

0

0

Amounts at 31.12.2007

157

RCO

ETF Start up

EFSE

Other

211

27

(16)

(2)

(2)

218

74

38

(13)

12

(13)

98

49

3

0

3

0

55

4

1

0

0

0

5

EUR millions

Total

495

69

(29)

13

(15)

533

European Bank for Reconstruction and Development (EBRD) investment

The Commission has subscribed to 3 % of the EBRD's total capital of EUR 20 billion. At balance sheet date,
the called up amount was EUR 157 million, of which EUR 154 million has been paid. Payments outstanding
on called up capital (EUR 3 million) are recorded under long-term liabilities and accounted for at amortised
cost. Payments outstanding on non-called up capital amount to EUR 443 million and are included as contin-
gent liabilities in the off-balance sheet. As the EBRD is not quoted on any stock exchange and in view of the
contractual restrictions included in the EBRD's articles of incorporation relating, amongst others, to the sale
of participating interests, capped at acquisition cost and only authorised to existing shareholders, the
Commission's shareholding is valued at cost less any write-down for impairment.

Risk Capital Operations (RCO)

Under risk capital operations amounts are granted to financial intermediaries to finance equity investments.
Although some of these contracts have the characteristics of loans, since the vast majority of these finance
contracts do not have the basic and constituent characteristics of a loan (as there is no fixed reimbursement
schedule or interest rate agreed for the principal consideration), the entire portfolio is treated as indirect
equity investments. They are held at historic cost less any provisions for impairment, as there are no quoted
market prices available in an active market and their fair value cannot currently be reliably measured.

Other investments

The most significant amounts concern the Growth & Employment programme and the MAP programme,
under the trusteeship of the EIF, supporting the creation and financing of start-up SMEs by investing in
suitable specialised venture capital funds (EUR 98 million). Also included is EUR 55 million relating to the
European Fund for South East Europe, an investment company with variable share capital (SICAV). The
overall objective of EFSE is to foster economic development and prosperity in South East Europe through
the sustainable provision of additional development finance via local financial intermediaries. The current
voting rights of the Communities amount to 16 %.

2.3.4.2. Held for trading assets

The ECSC in liquidation (ECSC) entered into an interest rate swap agreement and combination of both
interest rate swap and cross-currency interest rate swap agreement. The fair value of these interest rate
swaps was obtained by discounting the net fixed cash flows using zero-coupon swap rates on the balance
sheet date. This fair value (including accrued interests) of these swaps with final maturity of more than one
year after the balance sheet date is EUR 13 million (2006: EUR 21 million).

2.4. LOANS

This heading covers loan amounts owed to the European Communities maturing in over one year.

2.4.1. Loans granted from the European Communities budget and the ECSC in liquidation

Total at 31.12.2006

Repayments

Changes in carrying amount

Total at 31.12.2007

Loans with special
conditions

ECSC in Liquidation

161

(18)

12

155

39

(8)

3

34

EUR millions

Total

200

(26)

15

189

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Loans with Special Conditions

Loans with special conditions are loans granted at preferential rates as part of co-operation with
non-member countries. The effective interest rates on these loans vary between 7,39 % and 12,36 %.

Housing loans of the ECSC in liquidation (ECSC)

Housing loans are loans granted by the ECSC from its own funds in accordance with Articles 54 and 54.2
of the ECSC Treaty. These loans are granted at a fixed rate of 1 % and consequently, considered as loans at
preferential rates. The effective interest rates on these loans are 2,806 %-22,643 %.

2.4.2. Loans granted from borrowed funds

Total at 31.12.2006

New loans

Repayments

Exchange differences

Changes in carrying amount

Total at 31.12.2007

Amount due < 1 year

Amount due > 1 year

Macro Financial Assistance (MFA) loans

Macro Financial
Assistance (MFA)

Euratom loans

ECSC in
liquidation

977

0

(183)

0

1

795

63

732

442

39

(1)

0

2

482

0

482

499

88

(71)

(34)

(4)

478

75

403

EUR millions

Total

1 918

127

(255)

(34)

(1)

1 755

138

1 617

MFA is a policy-based financial instrument of untied and undesignated balance-of-payment and/or budget
support to partner third-countries geographically close to the EU territory. It takes the form of medium/
long-term loans or grants or an appropriate combination of both and generally complements financing
provided in the context of an IMF-supported adjustment and reform programme.

Based on materiality considerations, the effective interest rate method is not applied separately to loans and
borrowings. The transaction costs are directly expensed in the economic outturn account.

Euratom loans

Euratom is a separate legal entity of the European Union represented by the European Commission. The
objective of this entity is to grant loans to Member States and non-Member States as follows:

— Euratom loans to Member States are granted for the purpose of financing investment projects in the
Member States relating to the industrial production of electricity in nuclear power stations and to indus-
trial fuel cycle installations,

— Euratom loans to non-Member States are granted to improving the level of safety and efficiency of
nuclear power stations and installations in the nuclear fuel cycle which are in service or under construc-
tion.

Based on materiality considerations, the effective interest rate method is not applied separately to loans and
borrowings. The transaction costs are directly expensed in the economic outturn account.

ECSC in liquidation loans

This item mainly includes loans granted by the ECSC in liquidation on borrowed funds in accordance with
Articles 54 and 56 of the ECSC Treaty as well as two unquoted debt securities issued by the European
Investment Bank (EIB) as substitute of a defaulted debtor. These debt securities will be held till their final
maturity (2017 and 2019) in order to cover the service of related borrowings. The changes in carrying
amount correspond to the change in accrued interests plus the amortisation of the year of premiums paid
and transaction cost incurred at inception, calculated according to the effective interest rate method.

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The effective interest rates (expressed as a range of interest rates) were as follows:

Borrowings

31.12.2007

31.12.2006

Macro Financial Assistance (MFA)

Euratom

ECSC in liquidation

3,82 % — 4,822 %

3,222 % — 4,54 %

4,446 % — 5,76 %

3,372 % — 5,76 %

4,375 % — 12,077 % (1)

3,064 % — 12,077 % (1)

(1) Higher bound value relates to the fixed rate loan covered by the interest rate swap (see point 2.3.4.2).

2.5. LONG-TERM PRE-FINANCING

Management type

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Pre-financing European Communities:

Direct centralised management

Indirect centralised management

Decentralised management

Other

Total

Pre-financing Third parties:

Direct centralised management

Indirect centralised management

Decentralised management

Shared management

Joint management

Total

Total long-term Pre-financing

382

315

31

11

739

41

3

33

12 875

324

13 276

14 015

300

549

50

21

920

57

30

224

20 744

450

21 505

22 425

The most significant long-term pre-financing amounts relate to Structural Fund actions. As many of these
projects are long-term in nature, it is necessary that the related advances are available for more than one
year. Thus these pre-financing amounts are shown as long-term assets. The significant reduction in the
shared management pre-financing amount comes from the Structural Funds, where the transactions relating
to the 2000-2006 programmes have now been reclassified under short term pre-financing (see note E.2.9).
This is because these programmes concern measures to be carried out up until the end of 2008. The corre-
sponding pre-financing amounts will therefore either be cleared in the course of 2008, or as part of the
year-end accounting closure exercise.

2.6. LONG-TERM RECEIVABLES

Due from Member States

ECSC staff loans

Other

Guarantees and deposits

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

93

15

13

6

127

Total

272

17

34

5

328

Amounts to be received from Member States refer to amounts due to the ECSC in liquidation from
former accession countries. The total contribution amounts to EUR 212 million (including Bulgaria and
Romania) and is to be paid in four instalments up to 2012. The net present value of these contributions
was EUR 144 million at year-end (2006: EUR 138 million), being split up between long-term receivables,
EUR 51 million
EUR 93 million
(2006: EUR 34 million). At 31 December 2006 there was also an amount of EUR 168 million due from
Member States related to a Commission decision of 2005 reducing the assistance granted from the ERDF to
one Member State. This amount is now included as a short-term receivable as it falls due in 2008.

short-term receivables,

EUR 104 million)

(2006:

and

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CURRENT ASSETS

2.7. INVENTORIES

Description

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Scientific Equipment:

Scientific material

Fissile material & heavy water

Scientific material for re-sale

Vaccinations

Production materials

Publications & goods for re-sale

Total

9

19

45

8

7

0

88

11

30

60

7

7

0

115

The stock of publications held and/or managed by the Publications Office is valued at the lower of cost and
net realisable value, which is approximately zero. Additionally, publications distributed for free have been
fully written down as their net realisable value is zero. These write downs total EUR 18 million and result in
the zero carrying amount for publications shown above.

2.8. SHORT-TERM INVESTMENTS

Short-term investments consist of available-for-sale securities, which are purchased for their investment
return or yield, or held to establish a particular asset structure or a secondary source of liquidity and may
therefore be sold in response to needs for liquidity or changes in interest rates.

2.8.1. Short-term available-for-sale assets

ECSC in Liquidation

Other

Amounts at 31.12.2006

Acquisitions

Disposals and withdrawals

Adjustment to amortised cost

Change in carrying amount

Revaluation surplus/(deficit) t/f to equity

1 401

593

(542)

(18)

3

(20)

Amounts at 31.12.2007

1 417

25

0

(22)

0

0

0

3

EUR millions

Total

1 426

593

(564)

(18)

3

(20)

1 420

ECSC in liquidation

All investments are debt securities denominated in EUR and quoted in an active market. Details of the
investment portfolio by issuer type and by rating are described in section E.7. At 31 December 2007 debt
to
securities (expressed at
EUR 146 million (2006: EUR 135 million).

their fair value) reaching final maturity in the course of 2008 amount

2.9. SHORT-TERM PRE-FINANCING

The split of amounts outstanding between management types reflects the pre-financing payments made
since 2005. The unallocated pre-financing amounts are those first included in the opening balance sheet of
2005 and are shown separately on a single line since no information on the split by budget management
type is available before 31 December 2004.

Accrued charges represent the amount of eligible costs that were estimated to have been incurred by the
beneficiaries of the outstanding pre-financing amounts at year-end, but not yet reported to the Commu-
nities. These amounts are taken as expenses in the economic outturn account.

The significant increase compared to 2006 is primarily due to the transfer of Structural Funds amounts
from long-term to short-term (see note E.2.5 above). Although these amounts concern shared management,
they are presented on the ‘unallocated amounts’
line as these are pre-financing payments made before
31 December 2004 (see above).

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SHORT-TERM PRE-FINANCING AMOUNTS

Management type

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Pre-financing European Communities gross amounts:

Direct centralised management

Action grants

Indirect centralised management

National agencies

Functioning grants

Financial activities

Other

Decentralised management

Other

Pre-financing implemented by Institutions and Agencies

Unallocated pre-financing balances

Total gross pre-financing amounts

Less accrued charges:

Direct centralised management

Indirect centralised management

Decentralised management

Other

Total Pre-financing European Communities

Pre-financing Third parties:

Direct centralised management

Indirect centralised management

Decentralised management

Shared management

Joint management

Procurement

Operational

Pre-financing implemented by Institutions and Agencies

Unallocated pre-financing balances

Total gross pre-financing amounts

Less accrued charges:

Direct centralised management

Decentralised management

Shared management

Joint management

Other

Total Pre-financing Third parties:

Total short-term pre-financing

2.10. SHORT-TERM RECEIVABLES

9 715

142

1 736

3

497

545

615

189

2 126

15 568

(9 234)

(1 973)

(595)

(336)

3 430

638

457

29

735

3 229

1 135

15

19 278

25 516

(1 235)

(699)

(5 579)

(798)

(52)

17 153

20 583

8 850

167

778

12

6

381

686

8

3 577

14 465

(8 189)

(1 135)

(232)

(75)

4 834

545

470

3

599

937

578

177

2 930

6 239

(1 532)

(468)

(906)

(79)

(33)

3 221

8 055

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Current portion of long-term receivables

Current receivables

Sundry receivables

Accrued income and deferred charges

160

5 441

27

6 423

Total

12 051

119

4 193

26

5 458

9 796

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2.10.1. Current portion of long-term receivables

These amounts concern primarily loans with remaining final maturities less than 12 months after the
balance sheet date (EUR 138 million, see note 2.4 above for more details).

2.10.2. Current receivables

Account Group

At 31.12.2007

At 31.12.2006

Gross amount

Write down

Net Value

Gross amount

Write down

Net Value

Customers

Member States

Others

3 897

2 873

111

6 881

Total

(171)

(1 256)

(13)

(1 440)

3 726

1 617

98

5 441

2 865

2 724

42

5 631

(169)

(1 257)

(12)

(1 438)

2 696

1 467

30

4 193

EUR millions

2.10.2.1. Customers

These are recovery orders entered in the accounts at 31 December 2007 as established entitlements to be
recovered and not already included under other headings on the assets side of the balance sheet. The largest
issued by the Commission, being a gross amount of
portion of
EUR 3 650 million. These receivables are significantly higher
than in 2006, when they totalled
EUR 2 687 million.

this balance relates

to fines

2.10.2.2. Receivables from Member States

EAGF receivables

EAGF receivables

Written down

Total

VAT paid and recoverable from Member States

Own resources

Established in the A account, pending recovery

Established in the separate account, pending recovery

Written down

Other

Total

Other receivables from Member States

EUR millions

Balance at
31.12.2007

Balance at
31.12.2006

902

(483)

419

24

75

1 333

(773)

38

673

501

1 009

(477)

532

22

79

1 347

(779)

0

647

266

Total

1 617

1 467

EAGF Guarantee receivables

This item covers the amounts owed by beneficiaries of EAGF at 31 December 2007, as declared and certified
by the Member States at 15 October 2007, and less 20 % of the amount, which the Member States are
allowed to retain to cover administrative costs. An estimation has had to be made for the receivables arising
after this declaration and up to 31 December 2007. The Commission also estimates a write-down for the
amounts owed by beneficiaries that are unlikely to be recovered. The fact that this adjustment is entered in
the accounts does not mean that the Commission is waiving future recovery of these amounts.

Own resources

It should be noted that Member States are entitled to withhold 25 % of traditional own resources as collec-
tion costs, thus the above figures are shown net of this deduction. Based on the estimations sent by Member
States, a write-down of EUR 773 million has been deducted from receivables from Member States. However,
this does not mean that the Commission is waiving recovery of the amounts covered by this value adjust-
ment.

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Other receivables from Member States

Other receivables from Member States include EUR 19 million of recovery of expenses and EAGF advances
of EUR 227 million. This heading also includes EUR 168 million relating to a Commission decision of
2005 reducing the assistance granted from the ERDF to one Member State.

2.10.3. Accrued income and deferred charges

The main amount under this heading is accrued income of EUR 6 129 million. The most significant
accrued income amounts concern traditional own resources (agricultural duties, sugar levies and custom
duties). At 31 December 2007 these amounted to EUR 2,7 billion. Other significant amounts are
EUR 1,3 billion of agricultural assigned revenues for November and December 2007, EUR 1,5 billion from
the temporary restructuring of the sugar sector, EUR 350 million relating to non-executed EAGF conformity
correction decisions and EUR 82 million relating to foreseeable recoveries of expenses from the fisheries
Structural Fund programme 1994-1999. Other amounts included as accrued income are late interest
income, accrued bank interest and accrued interest on pre-financing amounts.

Also included are deferred charges totalling EUR 243 million of which the main amounts are anticipated
payments of EUR 49 million for office rental and EUR 24 million for office transformation and
EUR 57 million paid for bilateral fisheries agreements with third countries.

2.11. CASH AND CASH EQUIVALENTS

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Unrestricted cash:

Accounts with Treasuries & Central Banks

11 313

11 467

Current accounts

Imprest accounts

Transfers (cash in transit)

Short-term deposits and other cash equivalents

Total

Restricted cash

956

81

2

1 367

13 719

5 037

18 756

Total

933

82

3

975

13 460

2 924

16 384

2.11.1. Unrestricted cash

Unrestricted cash covers all the funds which the Commission keeps in its accounts in each Member State
and EFTA country (treasury or central bank), as well as in current accounts, imprest accounts, short-term
bank deposits and petty cash.

The relatively high balance with Treasuries and Central Banks is due to the fact that following the rectifying
budget at year-end, EUR 5 889 million had to be repaid to Member States, which was done on the first
working day of 2008. The related liability is shown under current payables — see also note 2.18.2 below.

2.11.2. Restricted cash

Restricted cash refers to amounts received in connection with fines issued by the Commission for which the
case is still open. These are kept in specific deposit accounts that are not used for any other activities.

Cash & cash equivalents include the following for the purposes of the cash flow statement:

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Cash and cash equivalents

Cash and cash equivalents — Guarantee Fund (see
note 2.3.3)

18 756

249

Total

19 005

16 384

440

16 824

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NON CURRENT LIABILITIES

2.12. EMPLOYEE BENEFITS

Pensions — Staff

Pensions — Others

Amount at
31.12.2006

29 204

225

Joint Sickness Insurance Scheme

2 771

Total

32 200

Change in provision

Amounts Used

1 844

267

96

2 207

(836)

(11)

(80)

(927)

EUR millions

Amount at
31.12.2007

30 212

481

2 787

33 480

2.12.1. Pensions — Staff

At 31 December 2007, the rules concerning the PSEO (Pension Scheme of European Officials) are defined
by the latest version of the Staff Regulations of Officials of the European Communities (in force since 1 May
2004). The rules regarding the staff pensions are directly applicable in all Member States. The arrangement
covers the various types of pensions and allowances (seniority, invalidity, survival).

In accordance with Article 83 of the Staff Regulations, the payment of the benefits provided for in the
pension scheme constitutes a charge on the Communities' budget. The provision for this charge is not
funded, but the Member States guarantee the payment of these benefits collectively according to the scale
fixed for the financing of this expenditure. In addition, officials contribute one third to the long-term finan-
cing of this scheme via a compulsory contribution.

The liabilities of the PSEO were evaluated on the basis of the population at 31 December 2007 and the
applicable rules in the statute at this date. This valuation covered the benefits connected with seniority, inva-
lidity and survival (different types of pensions as well as invalidity allowance). It was carried out in accord-
ance with the methodology of IAS 19. This accounting standard requires the employer to determine his
actuarial commitment on an ongoing basis, taking into account both the promised benefits during the
active lifetime of employees, and foreseeable increases in salaries.

The actuarial valuation method used to calculate this liability is known as the projected unit credit method.
The main actuarial assumptions available at the valuation date and used on the valuation were as follows:

1. The nominal discount rate was based on government bonds in the Euro zone in December 2007 for a
duration close to that of the scheme (19 years), as an estimation of the zero coupon Euro yield curve in
December 2007 for the same duration, being 4,7 %. According to IAS 19, the inflation rate must be an
expected inflation rate over the duration of the scheme: it must then be determined prospectively and
was based on prospective values as expressed by index-linked bonds on the European financial markets.
The expected long-term inflation rate was 2,3 %, so the real discount rate was 2,4 %.

2. The Life table is the same as used in liability valuations from 2004 (‘EU-2004 Life table’).

3. The general salary growth (GSG), being equal to the general pension revaluation, was based on a 12 years
moving average of revaluation statistics of salaries and pensions of the period 1996 to 2007, being equal
to 0,4 %; The individual salary progression (ISP) beyond the rate of the GSG was updated to take account
of 2007 promotions. This table details the ISP rate by grade and step and the expected retirement year
from 2008 till 2052.

4. The matrimonial coefficients for active officials at the time of their departure on retirement were based
on statistics of the population of officials and are equal to 90 % for men and 60 % for women — the
actual marriage situation was taken for former officials (pensioners and invalids).

5. The departure on retirement is supposed to occur at the time when the official benefits from his full
rights, taking into account the reduction for early retirement and the Barcelona Incentive for late retire-
ment, at the latest at 65 years old.

Liabilities cover the rights previously defined for the following persons:

1. Staff in active employment at 31 December 2007 in all the Institutions and Agencies included in the

PSEO;

2. Staff in a deferred situation, i.e. who have temporally or definitively left the Institutions but leaving their

pension rights in the PSEO (exclusively those having cumulated at least 10 years of service);

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3. Former officials and other servants benefiting from a retirement pension;

4. Former officials and other servants benefiting from a invalidity pension;

5. Former officials and other servants benefiting from an invalidity allowance;

6. The recipients of a survivor pension (widows or widowers, orphans, dependants).

The population of the PSEO at 31 December 2007 was extracted from the Commission database. The
results obtained within the framework of this study were compared with the estimates based on the previous
actuarial valuation on 31 December 2006.

The principal points to note are:

— The gross actuarial liability was valued at EUR 34 567 million at 31 December 2007.

— The real discount rate changed from 1,9 % in 2006 to 2,4 % in 2007; considering also the general
salary growth effect (0,5 % in 2006 and 0,4 % in 2007), the net discount rate changed from 1,4 %
in 2006 to 2,0 % in 2007. This is one of the main reasons for the decrease in the overall liability.

— The service cost for 2007 was valued at EUR 1 300 million and the interest cost EUR 1 313 million.

— The estimated actuarial gains for the year were EUR 1 943 million.

— The population of members of the staff pension scheme increased by 3 317 individuals.

— The calculations of gross pensions and family allowances are based on the Staff Regulations.

— Taxes payable by beneficiaries are deducted from the gross liability to arrive at the net liability included
on the balance sheet with regards to these future payments (since tax is deducted on the payment of
pensions and credited to the Communities' revenue in the year of payment).

2.12.2. Pensions — Others

This refers to the liability relating to the pension obligations towards members and former members of the
Commission, the Court of Justice (and Court of First Instance) and the Court of Auditors, the Secretaries
General of the Council, the Ombudsman, the European Data Protection Supervisor, and the European Union
Civil Service Tribunal. Also included under this heading, for the first time,
is a liability relating to the
pensions of certain Members of Parliament.

2.12.3. Joint Sickness Insurance Scheme

A valuation is also made for the estimated liability that the Communities have regarding its contributions to
the Joint Sickness Insurance Scheme in relation to its retired staff.

2.13. LONG-TERM PROVISIONS

Amount at
31.12.2006

Additional
provisions

Legal cases

Nuclear site dismantlement

Financial

Emergency Vet Fund

Other

75

806

105

0

3

Total

989

226

0

0

21

1

248

Unused
amounts
reversed

(3)

0

(50)

0

(53)

Amounts used

Transfer to
short-term

Present value
discounting

Amount at
31.12.2007

EUR millions

(1)

0

0

0

(1)

(2)

0

(42)

(44)

0

0

(86)

0

(20)

3

0

0

297

744

14

21

3

(17)

1 079

Legal cases

This is the estimate of amounts that will probably have to be paid out after 2008 in relation to a number of
ongoing legal cases. The largest portion, EUR 277 million, concerns court cases pending at 31 December
2007 in relation to financial corrections for EAGF Guarantee expenditure and other court cases concerning
agricultural expenditure.

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Nuclear site dismantlement

In 2002 a consortium of independent experts conducted a study into the estimated costs of the decommis-
sioning of the JRC nuclear facilities and waste management programme. Their estimate of EUR 1 145 million
(including EUR 76 million as an estimate of the cost required for the ‘green field’ option, i.e. total destruc-
tion of all the buildings) is taken as the basis for the provision to be included in the financial statements. In
accordance with the Communities' accounting rules, this provision is indexed for inflation (at a rate of
2,5 %) and then discounted to its net present value (using the Euro zero-coupon swap curve). At
31 December 2007, this resulted in a provision of EUR 960 million, less the costs incurred to date of
EUR 138 million, giving EUR 822 million split between amounts expected to be paid in 2008
(EUR 78 million) and afterwards (EUR 744 million).

In view of the estimated duration of this programme (around 30 years), it should be pointed out that there
is some uncertainty about this estimate, and the final cost could be different from the amounts currently
entered.

Financial provisions

Under the SME Guarantee Facility 1998 and the SME Guarantee Facility 2001, the European Investment
Fund (EIF) is empowered to issue guarantees in its own name but on behalf of and at the risk of the
Commission. The financial risk linked to the drawn and undrawn guarantees is, however, capped. As at the
balance sheet date, financial provisions correspond for both facilities to the payment obligations towards
financial intermediaries minus the net payment demands made up to that date. Long-term financial provi-
sions are discounted to their net present value (using the Euro zero-coupon swap curve).

Emergency Veterinary Fund provision

This provision concerns the estimates of the Communities' contributions to various Member States under
the Emergency Veterinary Fund for certain animal disease outbreaks,
totalling EUR 42 million
(2006: EUR 35 million) split between amounts expected to be settled in 2008 (EUR 21 million) and after-
wards (EUR 21 million). Amounts of EUR 9 million already agreed to be paid are included as a payable to
Member States.

2.14. LONG-TERM FINANCIAL LIABILITIES

2.14.1. Borrowings

Name

Balance at
31.12.2006

New borrowings

Repayments

Exchange differences

Change in carrying
amount

Balance at
31.12.2007

MFA

Euratom

ECSC in liquidation

969

442

463

Total

1 874

0

39

0

39

(177)

(1)

(2)

(180)

0

0

(37)

(37)

0

2

0

2

792

482

424

1 698

EUR millions

Split of borrowings between long-term & short-term

Borrowings

Maturity < 1 year

Maturity > 1 year

Total at 31.12.2007

EUR millions

MFA

Euratom

ECSC in liquidation

Total

60

0

71

131

732

482

353

1 567

792

482

424

1 698

This heading includes borrowings due by the European Communities maturing in over one year (note that
all figures are net of amounts held by the Guarantee Fund). Borrowings include debts evidenced by certifi-
cates amounting (after elimination) to EUR 1 344 million (2006: EUR 1 502 million). The changes in
carrying amount correspond to the change in accrued interests plus, in the case of ECSC in liquidation's
borrowings, the amortisation of the year of any material transaction costs incurred at inception, calculated
according to the effective interest rate method. The effective interest rates (expressed as a range of interest
rates) were as follows:

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Borrowings

31.12.2007

31.12.2006

Macro Financial Assistance (MFA)

3,816 % — 4,822 %

3,222 % — 4,54 %

Euratom

ECSC in liquidation

4,366 % — 5,6775 %

3,292 % — 5,6775 %

4,375 % — 11,875 % (1)

3,0 % — 11,875 % (1)

(1) Higher bound value relates to the fixed rate borrowing covered by the interest rate swap (see note 2.3.4.2).

2.14.2. Held for trading liabilities

ECSC in liquidation held swaps

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Long-term

Short-term

7

4

11

Total

8

0

8

See held for trading assets, note 2.3.4.2 above, for more details.

2.15. OTHER LONG-TERM LIABILITIES

Finance Leasing debts

Buildings paid for in instalments

Other

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

1 519

427

43

1 989

Total

1 534

425

61

2 020

This item covers primarily leasing liabilities due in more than one year (see note 2.2 above) and amounts
relating to certain buildings that the Commission bought, where the purchase price will be paid off in instal-
ments. It is not a leasing contract since title passed to the Commission immediately.

CURRENT LIABILITIES

2.16. SHORT-TERM PROVISIONS

Amount at
31.12.2006

Additional
provisions

Unused
amounts
reversed

Amounts used

Transfers
to/from other
headings

Present value
discounting

Amount at
31.12.2007

EUR millions

Legal cases

Nuclear site dismantlement

Emergency Veterinary Fund

Financial provisions

Other

Total

72

64

35

173

35

379

19

0

1

57

0

77

(16)

0

(8)

(2)

(4)

(30)

(47)

(30)

(7)

(41)

0

(125)

0

42

0

44

(22)

64

0

2

0

2

0

4

28

78

21

233

9

369

This heading includes the portion of provisions which fall due for payment in less than one year's time.

2.17. SHORT-TERM FINANCIAL LIABILITIES

This heading includes borrowings of EUR 131 million that mature during the 12 months following the
balance sheet date (note 2.14.1) and EUR 4 million relating to held for trading liabilities (note 2.14.2).

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2.18. ACCOUNTS PAYABLE

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Current portion of long-term liabilities

Current payables

Sundry payables

Accrued charges and deferred income

65

13 939

189

81 187

95 380

Total

60

24 723

220

69 077

94 080

2.18.1. Current portion of long-term liabilities

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

32

33

65

Total

28

32

60

Finance leasing liabilities

Other

2.18.2. Current payables

Type

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

Member States

Suppliers and other

Eligibility to be checked

12 328

2 244

(633)

13 939

Total

22 943

2 888

(1 108)

24 723

Current payables concern mainly cost statements received by the Commission under the framework of the
grant activities. They are credited for the amount being claimed from the moment the demand is received. If
the counterpart is a Member State, they are classified as such. It is the same procedure for invoices and
credit notes received under procurement activities.

The cost claims concerned have been taken into account for the year-end cut off procedures (see note 2.18.3
below). Following these cut off entries, estimated eligible amounts have therefore been recorded as accrued
charges, while the non-eligible parts remain open on the ‘eligibility to be checked’ accounts. In order not to
overestimate assets and liabilities,
it has been decided to present the net amount to be paid under the
current liabilities.

The large decrease seen under this heading is primarily due to a movement of amounts between the current
payables and accrued charges headings. This arose due to an earlier closing of the accounting system at
year-end, which resulted in less amounts being captured as payables in comparison with the prior year. It
also meant that accrued charges were higher than in 2006, since amounts previously recorded as payables
had to be recorded as accrued charges.

Member States

The primary amounts here related to EUR 6 287 million in unpaid cost claims for structural fund actions
and also EUR 5 889 million due back to Member States following a rectifying budget made at the end
of 2007 (2006: EUR 7 415 million).

Suppliers and other

As well as amounts relating to grant activities, also included under this heading are amounts owed following
procurement activities. This heading also covers amounts payable to several public bodies (universities, insti-
tutes, chambers of commerce, United Nations, EIB, etc.) and non-consolidated entities, including the EDF.

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Eligibility to be checked

Payables are reduced by EUR 633 million, being that part of the requests for reimbursement received, but
not yet checked, that was considered to be ineligible. The most important amounts concern DG REGIO
(EUR 229 million), DG EMPL (EUR 194 million), DG AGRI (EUR 109 million), DG ENV (EUR 20 million)
and DG FISH (EUR 21 million).

A balance of EUR 18 million remains open as ‘invoices to be checked’ mainly in the framework of procure-
ment activities. It concerns invoices received and requests for reimbursement for which the invoice has still
to be checked with the delivered goods and services and requests for pre-financing.

2.18.3. Accrued charges and deferred income

Accrued charges

Deferred income

Other

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

80 937

47

203

Total

81 187

68 937

26

114

69 077

The most significant accrued charges amounts represent accrued charges relating to EAGF expenditure. At
31 December 2007 these amounted to EUR 45,5 billion compared to EUR 45,2 billion the previous year.
The main amounts concerned were: EUR 28,6 billion (EUR 26,6 billion in 2006) cover expenses incurred
between 16 October and 31 December 2007 which are declared by Member States and paid in January and
February 2008, EUR 13,8 billion (EUR 16,7 billion in 2006) covering direct aid (this consists of entitle-
ments incurred in 2007 with financial consequences in 2008), EUR 3,1 billion regarding the temporary
restructuring of the sugar sector.

Another significant element was accrued charges concerning structural funds (this consists of eligible expen-
diture incurred by operators or the payment authorities up to 31 December 2007, for which no payment
request was yet sent to the Commission). The main amounts were: EUR 6,7 billion concerning EARDF,
EUR 16,9 billion for ERDF 2000-2006, ISPA, innovative actions (EUR 12,2 billion in 2006), EUR 7,8 billion
for ESF (EUR 5,6 billion in 2006). The remaining accrued charges of EUR 3,9 billion cover other policies,
the most significant of which is the research area with approximately EUR 1,2 billion accrued.

As mentioned in note 2.18.2 above, the increase in these amounts in comparison with 2006 is due to the
earlier closing of the accounting system at year-end.

NET ASSETS

2.19. RESERVES

Fair value reserve

Other reserves:

Guarantee Fund

Revaluation reserve

Borrowing and lending activities

Other

Total

2.19.1. Fair value reserve

Balance at 31.12.2007

Balance at 31.12.2006

EUR millions

7

1 118

57

1 525

99

2 799

2 806

Total

4

1 253

57

1 459

82

2 851

2 855

In accordance with the accounting rules, the adjustment to fair value of available-for-sale assets is accounted
for through the fair value reserve.

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2.19.2. Other reserves

Guarantee Fund

See also note 2.3.3 concerning the operation of the Guarantee Fund. This reserve reflects the 9 % target
amount of the outstanding amounts guaranteed by the Fund that is required to be kept as assets. As stated
earlier, any surplus of the assets of the Fund above this 9 % target amount is repaid to the budget.

Revaluation reserve

The revaluation reserve comprises the revaluations of property, plant and equipment. The balance at the
year-end of EUR 57 million relates to a revaluation of Commission land and buildings, which had already
occurred before the transition to the new accounting rules.

Borrowing and lending activities reserve

These amounts comprise the reserves relating to the Communities' borrowing and lending activities. The
main amount relates primarily to the ECSC in liquidation reserves, the largest of these being the reserve for
the assets of the Research Fund for Coal and Steel. This reserve was created in the context of the winding-up
of the ECSC, and totalled EUR 1 169 million at 31 December 2007.

2.20. AMOUNTS TO BE CALLED FROM MEMBER STATES

Amounts to be called from Member States at 31 December 2006

Return of 2006 budget surplus to Member States

Movement in Guarantee Fund reserve

Other reserve movements

ECSC in liquidation: allocation of 2006 result

Economic outturn (surplus) for the year

Total amounts to be called from Members States at 31 December 2007

EUR millions

Amount

67 073

1 848

(135)

79

23

(7 462)

61 426

This amount represents that part of the expenses already incurred by the Communities up to 31 December
2007 that must be funded by future budgets. Many expenses are recognised under accrual accounting rules
in the year N although they may be actually paid in year N+1 and funded by using the budget of year N+1.
The inclusion in the accounts of these liabilities coupled with the fact that the corresponding amounts are
financed from future budgets, results in liabilities greatly exceeding assets at the year-end. The most signifi-
cant amounts to be highlighted are the EAGF activities. The amount of payments due to the Member States
for the period 16 October to 31 December 2007 was EUR 28,6 billion. The majority of the amounts to be
called are in fact paid by the Member States in less than 12 months after the end of the financial year in
question as part of the budget of the following year.

It is essentially only the employee benefits obligations of the Communities towards its staff which are paid
out over a longer period, noting that the funding of the pension payments by the annual budgets is guaran-
teed by the Member States. For information purposes only, an estimate of the split of future employee
benefit payments is given below:

Short-term: amounts to be paid in 2008

Long-term: amounts to be paid after 2008

Total employee benefits liability at 31.12.2007

EUR millions

Amount

981

32 499

33 480

It should also be noted that the above has no effect on the budget outturn — budget revenue should always
equal or exceed budget expenditure and any excess of revenue is returned to Member States.

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3. NOTES TO THE ECONOMIC OUTTURN ACCOUNT

3.1. OWN RESOURCE AND CONTRIBUTIONS REVENUE

Own resource revenue:

GNI resources

VAT resources

Traditional own resources:

Agricultural duties

Custom duties

Sugar levies

EUR millions

2007

2006

Note

3.1.1

73 922

19 442

1 429

15 288

(36)

70 134

17 207

1 300

13 764

183

Total traditional own resources

16 681

15 247

Budgetary adjustments

3.1.2

1 892

2 395

Contributions of third countries (incl. EFTA countries)

147

135

Total

112 084

105 118

Own resources revenue is the primary element of the European Communities' operating revenue. Thus the
bulk of expenditure is financed by own resources as other revenue represents only a minor part of the total
financing.

3.1.1. Own resource revenue

There are three categories of own resources:
the VAT resource and the
GNI resource. Traditional own resources, in turn, comprise agricultural duties, sugar levies and customs
duties. A correction mechanism in respect of budgetary imbalances (UK Rebate) is also part of the own
resources system. Member States retain, by way of collection costs, 25 % of traditional own resources, and
the above amounts are shown net of this deduction.

traditional own resources,

VAT own resources derive from the application of a uniform rate, for all Member States, to the harmonised
VAT base, a base which is capped at 50 % of GNI for all Member States. The GNI resource is a variable
resource intended to supply the revenue required, in any given year, to cover expenditure exceeding the
amount collected from traditional own resources, VAT resources and miscellaneous revenue. The revenue
derives from the application of a uniform rate to the aggregate GNI of all the Member States.

The increase in these revenues can be directly linked to the increased budgeted revenue for 2007 compared
to 2006 (a EUR 6 billion increase). More specifically, for customs duties an increase in imports in value
terms, a growth in the average tariff and the accession of Bulgaria and Romania led to higher revenues. The
VAT revenue increased following an increase in the VAT bases, offset by a slight decrease in the uniform
rate. As the GNI resource covers the remaining revenue requirements, it too rose in line with the increased
budgetary expenditure.

3.1.2. Budgetary adjustments

The budgetary adjustments include the budget surplus from 2006 (EUR 1 848 million) which is indirectly
refunded to Member States by deduction of the amounts of own resources they have to transfer to the Com-
munity in the following year — thus it is a revenue for 2007. According to Council Decision 2000/597/EC,
Euratom on the system of the European Communities' own resources, the United Kingdom is granted a
correction in respect of budgetary imbalances. As this amount is financed by the other Member States there
should be no net effect on the budgetary or economic outturn. However, an amount of EUR 57 million was
registered under this heading being the differences in the Euro rates used for budgetary purposes (see
Article 10(3) of Regulation (EC, Euraton) No 1150/2000) and the rates in force at the time when those
Member States not part of the EMU actually made their payments.

10.11.2008

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Official Journal of the European Union

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3.2. OTHER OPERATING REVENUE

Fines

Agricultural levies

Recovery of expenses:

Direct centralised management

Indirect centralised management

Decentralised management

Shared management

Joint management

Total

Note

3.2.1

3.2.2

3.2.3

Revenue from administrative operations:

3.2.4

Staff

Property, plant and equipment
revenue

related

Other administrative revenue

Total

Miscellaneous operating revenue:

3.2.5

Adjustments/provisions

Exchange gains

Other

Total

3.2.1. Fines

Total

2007

3 339

2 634

93

10

133

577

1

814

908

26

181

1 115

23

276

879

1 178

9 080

EUR millions

2006

2 217

1 695

50

(22)

8

1 244

16

1 296

856

23

103

982

43

111

2 024

2 178

8 368

These revenues relate to fines imposed by the Commission for infringement of competition rules. Receiva-
bles and related revenues are recognised when the Commission decision imposing a fine has been taken and
it is officially notified to the addressee. Not included in the above is a fine of EUR 899 million notified by
the European Commission in February 2008 to a software company for continued anti-competitive beha-
viour. The same company, which had previously been fined EUR 280 million in 2006 and EUR 497 million
in March 2004, has appealed this current fine.

3.2.2. Agricultural levies

These amounts concern milk levies of EUR 232 million (2006: EUR 436 million) and sugar levies of
EUR 2 402 million (2006: EUR 1 259 million). Milk levies are in fact a market management tool aimed at
penalising the milk producers who exceed their reference quantities. As it is not linked to prior payments by
the Commission, it is in practice considered as revenue for a specific purpose. Sugar levies relate to the
sugar restructuring fund, whereby the reform of the sugar sector has lowered the internal price of sugar in
order to reduce the gap between the EU price and the international price. To encourage the less competitive
sugar producers to leave the market, a self-financing restructuring fund was created, financed by revenue
stemming from a temporary tax levied on sugar producers, which is treated as assigned revenue. The
scheme is due to last for four years. It is considered as revenue for a specific purpose.

3.2.3. Recovery of expenses

This heading represents the recovery orders issued by the Commission, and recorded in the Commission's
accounting system, to recover expenditures previously paid out from the general budget, based on controls,
closed audits or eligibility analysis, together with recovery orders issued by Member States to beneficiaries of
EAGF expenditure. It also includes the variation of accrued income estimations from the previous year-end
to the current. It does not, however, show the full extent of the recovery of EC expenditure, particularly for
the significant spending areas of Structural Actions where specific mechanisms are in place to ensure the
return of ineligible monies, most of which do not involve the issuance of a recovery order. Recovery of
pre-financing amounts are also not included as revenue, in accordance with the EC accounting rules. For
further information on recovery of undue payments see Section E.6.

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Official Journal of the European Union

10.11.2008

Recovery of expenses: Shared management

The total of EUR 577 million included under this sub-heading is made up of EUR 500 million concerning
the European Agricultural Guarantee Fund (EAGF) and EUR 77 million for Structural Actions.

(a) Agriculture, EAGF

In the framework of agriculture, amounts accounted for as revenue of the year under this heading are
EUR 500 million, made up as follows:

— conformity corrections decided during the year, EUR 532 million less a decrease in the accrued income

at the year end of EUR 172 million,

— reimbursements due to fraud and irregularities declared by Member States and recovered during the year

of EUR 247 million,

— the decrease in the outstanding amounts declared by Member States to be recovered at year-end
concerning fraud and irregularities, EUR 107 million (EUR 902 million at year-end 2007 compared to
EUR 1 009 million at year-end 2006) — see also note E.2.10.2.2.

At 31 December 2007 the amount of EAGF expenditure subject to future corrections following audits
which were not yet finalised totals EUR 1,5 billion. This amount is disclosed as a contingent asset in the
off-balance sheet (see note E.5.4.1).

(b) Structural Actions

The recovery of expenditure under the Structural actions included under this heading amounted to
EUR 77 million. Equivalent amounts for 2006 were EUR 483 million higher compared to the current year
— this is due principally to a Commission decision reducing the assistance granted from ERDF to one
Member State whereby EUR 418 million was accounted for as income in 2006.

This sub-heading includes recovery orders issued by the Commission to recover undue expenditure made in
previous years, EUR 113 million, a recovery order for EUR 6 million related to the Solidarity Fund and the
variation of the accrued income at year-end EUR (42) million. Recovery orders are issued only in the
following cases:

— formal financial correction decisions by the Commission following the detection of irregular expenditure

in the amounts claimed by Member States,

— adjustments at closure of a programme leading to a reduction in the EU contribution where a Member
State has not declared sufficient eligible expenditure to justify the total pre-financing and interim
payments already made; such operations may be without a formal Commission decision if accepted by
the Member State,

— repayment of amounts recovered after closure following the conclusion of legal proceedings which were

pending at the time of closure.

Recovery orders issued in 2007 for the recovery of expenses, totalling EUR 119 million, can be split as
follows: EUR 6 million for the Solidarity Fund, EUR 6 million for financial corrections decided in 2006,
EUR 18 million for financial corrections decided in 2007 and EUR 89 million for recovery orders not classi-
fied as financial corrections. Other recovery orders issued under Structural Actions concern the recovery of
pre-financing (EUR 35 million), of which EUR 20 million concern financial corrections decided in 2007.
These amounts are not shown as revenue, but credited to the pre-financing heading on the balance sheet.

An amount of EUR 2,9 billion relating to potential financial corrections in the process of being recovered
from Member States is disclosed as a contingent asset (see note E.5.4.1).

Recovery of expenses: Other management types

This sub-heading includes recovery orders issued by the Commission to recover undue payments made in
previous years, EUR 194 million, and the variation of the accrued income at the year-end (EUR 52 million).
recovery of pre-financing
Other
(EUR 162 million). These amounts are not shown as revenue, but credited to the pre-financing heading on
the balance sheet.

the other management

recoveries under

concern the

types

3.2.4. Revenue from administrative operations

This revenue arises from deductions from staff salaries and is made up primarily of two amounts —
pension contributions and taxes on income.

10.11.2008

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Official Journal of the European Union

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3.2.5. Miscellaneous operating revenue

An amount of EUR 296 million (2006: EUR 358 million) relates to amounts received from accession coun-
tries. One of the main reasons for the decrease in miscellaneous operating revenues compared with last year
is that the prior year included a revenue of EUR 397 million relating to the decrease in the value reduction
for EAGF receivables. Additionally the prior year also included an exceptional amount of EUR 778 million
relating to pre-financing amounts included on the balance sheet for the first time, the counter-party of
which appears under this heading — the largest amount, EUR 652 million, related to money paid out under
the Schengen Facility. In 2007 the corresponding figure is EUR 33 million.

Exchange gains, except on financial activities dealt with in note 3.5 below, are also included under this
heading. These arise from the everyday activities and related transactions made in currencies other than the
euro, as well as the year-end revaluation required to prepare the accounts. They contain both realised and
unrealised gains.

3.3. ADMINISTRATIVE EXPENSES

Staff expenses

Intangible and PPE related expenses

Other administrative expenses

2007

4 289

343

2 488

7 120

Total

EUR millions

2006

3 998

348

2 273

6 619

These are administrative expenses incurred as part of the activities of the Communities and include staff
costs and costs relating to intangible assets and property, plant and equipment (such as depreciation, mainte-
nance costs, etc).

3.4. OPERATING EXPENSES

Primary operating expenses:

Direct centralised management

Indirect centralised management

Decentralised management

Shared management

Joint management

Total

Other operating expenses:

Adjustments/provisions

Exchange losses

Other

Total

Note

3.4.1

3.4.2

EUR millions

2007

2006

9 504

1 185

1 978

89 778

949

12 273

677

1 809

90 828

34

103 394

105 621

260

399

629

116

126

940

1 288

1 182

Total

104 682

106 803

3.4.1. Primary operating expenses

The European Communities' operating expenditure covers the various headings of the financial perspective
and takes different forms, depending on how the money is paid out and managed. The majority of the
expenditure, 87 %, falls under the heading ‘Shared Management’
involving the delegation of tasks to
Member States, covering such areas as EAGF spending and Structural Actions.

C 287/50

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Official Journal of the European Union

10.11.2008

Much of the decrease in operating expenditure can be attributed to the fact that since 2006 some projects
being funded were in the process of winding down, while others were less advanced than foreseen in 2006.
For shared management there was a decrease of EUR 4,5 billion for structural actions, principally ERDF, due
mainly to the aforementioned reasons. This decrease was partially offset by an increase of EUR 3,3 billion in
agriculture expenditure due to the introduction of a new fund for rural development, EARDF.

The decrease of EUR 2,7 billion in direct centralised management expenditure is partially offset by an
increase of EUR 0,9 billion in joint management expenditure, caused by a better classification of these
projects. The remaining decrease can also be explained by the above mentioned reasons, i.e. the winding
down of some projects and some projects being less advanced than foreseen in 2006.

3.4.2. Other operating expenses

Exchange losses, except on financial activities dealt with in note 3.6 below, occur on the everyday activities
and related transactions made in currencies other than the euro, as well as the year-end revaluation required
to prepare the accounts — they are both realised and unrealised.

The ‘other’ sub-heading includes pre-financing corrections and amounts written down/lost on realisation
concerning Commission debtors. Also included is an amount of EUR 224 million in relation to a
consolidated agency — this concerns the implementation of the CARDS programme in Kosovo, Serbia and
Montenegro.

3.5. FINANCIAL REVENUE

Dividend income (from Venture Capital Funds)

Interest income:

On pre-financing

On late payments

On swaps

On available for sale assets

On loans

On cash & cash equivalents

Other

Total

Other financial income:

Realised gain on sale of financial assets

Reversal of impairment losses on financial assets

Other

Total

Present value adjustments

Exchange gains

2007

6

33

81

19

97

106

263

12

611

6

1

23

30

24

3

Total

674

EUR millions

2006

6

43

65

20

92

96

123

1

440

25

2

104

131

43

1

621

The Communities' financial income consists of interest income derived from loans, either granted from the
general budget or from borrowed funds, as well as from debt securities and derivative instruments. Interest
is also earned on amounts held in bank accounts and short-term bank deposits.

10.11.2008

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Official Journal of the European Union

C 287/51

3.6. FINANCIAL EXPENSES

Interest expenses:

Leasing

On swaps

On borrowings

Other

Total

Other financial expenses:

Adjustments to financial provisions

Financial charges on budgetary instruments

Realised loss on sale of financial assets

Impairment losses on financial assets

Other

Total

Present value adjustments

Exchange losses

Total

2007

2006

EUR millions

101

17

91

5

214

11

57

9

15

35

127

7

6

354

102

16

81

1

200

38

55

0

10

23

126

0

5

331

The main financial expense incurred by the European Communities consists of interest; primarily on finan-
cial lease contracts and on borrowings taken out to fund lending activities. In addition to losses on the sale
and the write down in the value of financial assets, other financial expenses also include the adjustments
made to financial provisions and the management fees paid to the fiduciaries.

3.7. SHARE OF NET SURPLUS/(DEFICIT) OF ASSOCIATES & JOINT VENTURES

accordance with

In
its
economic outturn account its share of the net surplus of its associate, EIF, and its joint ventures (see also
notes E.2.3.1 & E.2.3.2).

the Communities

equity method

accounting,

include

the

of

in

3.8. SEGMENT REPORTING

The segment report gives the split of the operating revenues and expenses by policy area, based on the
Activity Based Budget structure, within the Commission. These policy areas can be grouped under three
larger headings — Activities within the European Union, Activities outside the European Union and
Services & other.

‘Activities within the European Union’ is the largest of these headings as it covers the many policy areas
within the European Union. ‘Activities outside the European Union’ concerns the policies operated outside
the Union, such as trade and aid. ‘Services & other’ are the internal and horizontal activities necessary for
the functioning of the Communities' Institutions and bodies.

The consolidated agencies are integrated into the different policy areas. Other Institutions, aside from the
Commission are grouped in a specific policy area. The various policy areas represent gross figures before
consolidation eliminations and the consolidation eliminations are done globally in one column.

Note that own resources and contributions are not split amongst the various activities as these are calcu-
lated, collected and managed by central Commission services. They are shown here so as to allow for
comparison of the net result with the economic outturn account.

SEGMENT REPORTING — SUMMARY

Activities within the EU Activities outside the EU

Services & Other

ECSC in Liquidation

Other Institutions

Consolidation
eliminations

EUR millions

Total

Operating revenue:

Fines

Agricultural levies

Recovery of expenses

Revenue from admin operations

Other operating revenue

TOTAL OPERATING REVENUE

Administrative expenses:

Staff expenses

Intangible assets and PPE related expenses

Other administrative expenses

Operating expenses:

Direct centralised management

Indirect centralised management

Decentralised management

Shared management

Joint management

Other operating expenses

TOTAL OPERATING EXPENSES

NET OPERATING EXPENSES

Own resource and contributions revenue

Surplus from operating activities

Net financial income

Movement in employee benefits liability

Share of associates/joint venture results

Economic outturn for the year

3 339

2 634

611

78

1 419

8 081

(2 069)

(1 497)

(88)

(484)

(98 267)

(6 403)

(1 159)

(17)

(89 778)

(151)

(759)

(100 336)

(92 255)

0

0

211

26

319

556

(958)

(678)

(10)

(270)

(6 192)

(2 917)

(258)

(1 961)

0

(799)

(257)

(7 150)

(6 594)

0

0

1

749

264

1 014

(1 804)

(950)

(108)

(746)

(955)

(637)

(2)

0

0

0

(316)

(2 759)

(1 745)

0

0

0

0

1

1

0

0

0

0

(52)

0

0

0

0

0

(52)

(52)

(51)

0

0

0

360

1

361

(2 438)

(1 172)

(137)

(1 129)

0

0

0

0

0

0

0

(2 438)

(2 077)

0

0

(9)

(98)

(826)

(933)

149

8

0

141

784

453

234

0

0

1

96

933

0

3 339

2 634

814

1 115

1 178

9 080

(7 120)

(4 289)

(343)

(2 488)

(104 682)

(9 504)

(1 185)

(1 978)

(89 778)

(949)

(1 288)

(111 802)

(102 722)

112 084

9 362

320

(2 207)

(13)

7 462

C

2
8
7
/
5
2

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

1
0
1
1
2
0
0
8

.

SEGMENT REPORTING — ACTIVITIES WITHIN THE EU

Economic &
Financial affairs

Enterprise &
Industry

Competition

Employment

Agriculture

Transport &
Energy

Environment

Research

EUR millions

Information
Society

Operating revenue:

Fines

Agricultural levies

Recovery of expenses

Revenue from administrative operations

Other operating revenue

TOTAL OPERATING REVENUE

Administrative expenses:

Staff expenses

Intangible assets and PPE related expenses

Other administrative expenses

Operating expenses:

Centralised direct management

Centralised indirect management

Decentralised management

Shared management

Joint management

Other operating expenses

TOTAL OPERATING EXPENSES

NET OPERATING EXPENSES

0

0

0

0

0

0

(48)

(42)

0

(6)

(32)

(32)

0

0

0

0

0

(80)

(80)

0

0

0

9

152

161

(181)

(129)

(8)

(44)

(310)

(241)

0

0

0

0

(69)

(491)

3 339

0

0

0

0

3 339

(60)

(56)

0

(4)

0

0

91

0

36

127

(88)

(69)

(1)

(18)

0

2 634

504

0

41

3 179

(97)

(83)

0

(14)

(22)

(9 848)

(55 493)

(182)

0

0

(30)

0

(1)

(9 643)

(55 227)

0

(23)

0

(235)

0

0

0

0

0

(22)

(82)

0

0

3

2

207

212

(180)

(137)

(1)

(42)

(995)

(652)

(58)

(16)

0

(136)

(133)

0

0

0

1

36

37

(86)

(64)

(1)

(21)

(205)

(180)

(10)

0

0

0

0

0

4

0

339

343

(171)

(146)

0

(25)

(3 215)

(3 193)

(2)

0

0

0

0

0

8

9

19

36

(119)

(91)

0

(28)

(890)

(818)

(43)

0

0

0

(15)

(20)

(29)

(9 936)

(55 590)

(1 175)

(291)

(3 386)

(1 009)

(330)

3 257

(9 809)

(52 411)

(963)

(254)

(3 043)

(973)

.

1
0
1
1
2
0
0
8

.

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C

2
8
7
/
5
3

Operating revenue:

Fines

Agricultural levies

Recovery of expenses

Revenue from administrative operations

Other operating revenue

TOTAL OPERATING REVENUE

Administrative expenses:

Staff expenses

Intangible assets and PPE related expenses

Other administrative expenses

Operating expenses:

Centralised direct management

Centralised indirect management

Decentralised management

Shared management

Joint management

Other operating expenses

TOTAL OPERATING EXPENSES

NET OPERATING EXPENSES

Joint Research
Centre

Fisheries

Internal Market

Regional Policy

Taxation &
Customs

Education &
Culture

Health &
Consumer
protection

Justice, Freedom &
Security

Total Activities
within the EU

EUR millions

0

0

0

53

52

105

(355)

(224)

(67)

(64)

(107)

(90)

0

0

0

0

(17)

(462)

(357)

0

0

(46)

0

1

(45)

(32)

(27)

0

(5)

(792)

(274)

0

0

(516)

0

(2)

(824)

(869)

0

0

0

0

189

189

(138)

(93)

(3)

(42)

(51)

(7)

0

0

0

0

(44)

(189)

0

0

30

0

(1)

29

(63)

(51)

0

(12)

(24 239)

(20)

(31)

0

(24 173)

(15 )

0

(24 302)

0

(24 273)

0

0

0

0

0

0

(41)

(35)

(1)

(5)

(37)

(37)

0

0

0

0

0

(78)

(78)

0

0

11

4

181

196

(196)

(96)

(2)

(98)

(1 216)

(147)

(998)

0

0

0

(71)

(1 412)

(1 216)

0

0

5

0

85

90

(135)

(93)

(3)

(39)

(379)

(322)

(16)

0

0

0

(41)

(514)

(424)

0

0

1

0

82

83

(79)

(61)

(1)

(17)

(436)

(178)

(1)

0

(219)

0

(38)

(515)

(432)

3 339

2 634

611

78

1 419

8 081

(2 069)

(1 497)

(88)

(484)

(98 267)

(6 403)

(1 159)

(17)

(89 778)

(151)

(759)

(100 336)

(92 255 )

C

2
8
7
/
5
4

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

1
0
1
1
2
0
0
8

.

Operating revenue:

Recovery of expenses

Revenue from administrative operations

Other operating revenue

TOTAL OPERATING REVENUE

Administrative expenses:

Staff expenses

Intangible assets and PPE related expenses

Other administrative expenses

Operating expenses:

Direct centralised management

Indirect centralised management

Decentralised management

Joint management

Other operating expenses

TOTAL OPERATING EXPENSES

NET OPERATING EXPENSES

SEGMENT REPORTING — ACTIVITIES OUTSIDE THE EU

External Relations

Trade

Development

Enlargement

Humanitarian Aid

EUR millions

Total Activities outside
the EU

61

25

69

155

(684)

(451)

(8)

(225)

(2 943)

(1 540)

(32)

(711)

(644)

(16)

(3 627)

(3 472)

0

0

0

0

(46)

(41)

0

(5)

(9)

(8)

0

0

(1)

0

(55)

(55)

6

1

(2)

5

(133)

(119)

0

(14)

(853)

(508)

(1)

(348)

15

(11)

(986)

(981)

142

0

252

394

(74)

(53)

(2)

(19)

(1 709)

(389)

(225)

(902)

34

(227)

(1 783)

(1 389)

2

0

0

2

(21)

(14)

0

(7)

(678)

(472)

0

0

(203)

(3)

(699)

(697)

211

26

319

556

(958)

(678)

(10)

(270)

(6 192)

(2 917)

(258)

(1 961)

(799)

(257)

(7 150)

(6 594)

.

1
0
1
1
2
0
0
8

.

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C

2
8
7
/
5
5

Operating revenue:

Recovery of expenses

Revenue from administrative operations

Other operating revenue

TOTAL OPERATING REVENUE

Administrative expenses:

Staff expenses

Intangible assets and PPE related expenses

Other administrative expenses

Operating expenses:

Direct centralised management

Indirect centralised management

Other operating expenses

TOTAL OPERATING EXPENSES

NET OPERATING EXPENSES

SEGMENT REPORTING — SERVICES & OTHER

Press &
Communica-
tion

Anti-Fraud
Office

Co-ordination

Personnel &
Administra-
tion

Eurostat

Budget

Audit

Languages

Other

0

2

(2)

0

(93)

(59)

(2)

(32)

(82)

(79)

(2)

(1)

(175)

(175)

0

5

(1)

4

(45)

(31)

0

(14)

(11)

(11)

0

0

(56)

(52)

0

0

5

5

(146)

(120)

0

(26)

(2)

(1)

0

(1)

(148)

(143)

2

616

15

633

(1 152)

(414)

(106)

(632)

(44)

(39)

0

(5)

(1)

0

0

(1)

(62)

(57)

0

(5)

(56)

(56)

0

0

(1 196)

(563)

(118)

(119)

0

43

10

53

(45)

(36)

0

(9)

(473)

(470)

0

(3)

(518)

(465)

0

0

0

0

(8)

(7)

0

(1)

0

0

0

0

(8)

(8)

0

83

2

85

(316)

(252)

0

(64)

(1)

(1)

0

0

(317)

(232)

0

0

235

235

63

26

0

37

(286)

20

0

(306)

(223)

12

EUR millions

Total Services
& Other

1

749

264

1 014

(1 804)

(950)

(108)

(746)

(955)

(637)

(2)

(316)

(2 759)

(1 745)

C

2
8
7
/
5
6

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

1
0
1
1
2
0
0
8

.

10.11.2008

EN

Official Journal of the European Union

C 287/57

4. NOTES TO THE CASHFLOW TABLE

4.1. PURPOSE AND PREPARATION OF THE CASHFLOW TABLE

Cash flow information is used to provide a basis for assessing the ability of the Communities to generate
cash and cash equivalents, and its needs to utilise those cash flows.

The cashflow table is prepared using the indirect method. This means that the net surplus or deficit for the
financial year is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past
or future operating cash receipts or payments, and items of revenue or expense associated with investing
cash flows.

Cash flows arising from transactions in a foreign currency are recorded in the European Communities'
reporting currency (euro), by applying to the foreign currency amount the exchange rate between the euro
and the foreign currency at the date of the cash flow.

The cashflow table shown above reports cash flows during the period classified by operating and investing
activities (the Communities do not have financing activities).

4.2. OPERATING ACTIVITIES

Operating activities are the activities of the Communities that are not investing activities. These are the
majority of the activities performed. Loans granted to beneficiaries (and the related borrowings, when applic-
able) are not considered as investing (or financing) activities as they are part of the general objectives and
thus daily operations of the Communities. Operating activities also include investments such as EIF, EBRD
and venture capital funds. Indeed, the objective of these activities is to participate in the achievement of
policy targeted outcomes.

4.3. INVESTING ACTIVITIES

Investing activities are the acquisition and disposal of intangible assets and property, plant and equipment
and of other investments which are not included in cash equivalents. Investing activities do not include
loans granted to beneficiaries. The objective is to show the real investments made by the Communities.

It should be noted that EUR 5 037 million of cash and cash equivalent balances held by the Communities
are not available for use by the Communities. This is the cash received as payment of fines levied, where the
other party is appealing the imposition of the fine. These amounts are clearly disclosed as ‘restricted cash’
under note 2.11 above.

5. OFF-BALANCE SHEET DISCLOSURES

CONTINGENT ASSETS

Guarantees received:

Guarantees received in respect of pre-financing

Guarantees received in respect of fines' cases pending

Other guarantees received

Total

Borrowing agreements signed

Contingent assets relating to cases of fraud & irregularities
concerning structural actions

Other contingent assets

Total Contingent Assets

Note

5.1

5.1.1

5.1.2

5.1.3

5.2

5.3

5.4

EUR millions

31.12.2007

31.12.2006

1 147

2 563

784

4 494

0

1 182

1 783

954

3 919

0

1 701

1 477

4 455

10 650

1 274

6 670

C 287/58

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Official Journal of the European Union

10.11.2008

CONTINGENT LIABILITIES & COMMITMENTS FOR FUTURE FUNDING

Contingent Liabilities

Guarantees given:

Guarantees given for EIB loans

Other guarantees given

Total

Fines — appeals to the Court of Justice

EAGF — court judgements pending

Amounts relating to legal cases and other disputes

Other contingent liabilities

Note

5.5

5.5.1

5.5.2

5.6

5.7

5.8

5.9

EUR millions

31.12.2007

31.12.2006

15 787

76

15 863

8 682

1 095

2 043

19

14 792

0

14 792

5 611

1 255

2 429

7

Total Contingent Liabilities

27 702

24 094

Commitments for future funding

Undrawn commitments

Commitments against appropriations not yet consumed

Legal Commitments concerning multi-annual actions

Structural operations

Protocols with Mediterranean Countries

Fisheries agreements

Total

Contributions to related organisations

Uncalled Share capital EBRD

Uncalled Share capital EIF

Total

Operating lease commitments

Contractual commitments

Note

5.10

5.11

5.12

5.12.1

5.12.2

5.12.3

5.13

5.13.1

5.13.2

5.14

5.15

31.12.2007

31.12.2006

239

256

95 992

90 040

385 722

262

225

386 209

443

553

996

2 003

806

0

260

337

597

443

480

923

1 660

567

Total Commitments for future funding

486 245

94 043

All contingent liabilities and commitments would be financed, should they fall due, by the Communities' budget in the years to come. The
Communities' budget is financed by the Member States.

CONTINGENT ASSETS

5.1. GUARANTEES RECEIVED

5.1.1. Guarantees received in respect of pre-financing

These are guarantees that the European Communities request from beneficiaries when paying out advance
payments (pre-financing). There are two values to disclose for this type of guarantee, the ‘nominal’ and the
‘on-going’ values. For the ‘nominal’ value, the generating event is linked to the existence of the guarantee.
The nominal value is disclosed as contingent asset. For the ‘on-going’ value, the guarantee's generating event
is the pre-financing payment and/or subsequent clearings. The ‘on-going’ value is disclosed in the notes to
the financial statements.

At 31 December 2007 the ‘nominal’ value of guarantees received by the Commission in respect of pre-finan-
cing amounts EUR 1 007 million compared to EUR 772 million for the ‘on-going’ value. See also note E.2.5
and E.2.9 for further details concerning long and short-term pre-financing.

5.1.2. Guarantees received in respect of fines' cases pending

These are guarantees received from the recipient of a Communities' fine who wishes to appeal this fine. A
bank guarantee can be given for the amount of the fine (and interest) in question instead of making a provi-
sional payment.

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Official Journal of the European Union

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5.1.3. Other guarantees received

31.12.2007

31.12.2006

EUR millions

Euratom loans: guarantees by third countries

Performance guarantees

Guarantees received as part of tenders

Guarantees for payment delays

Other

474

217

4

6

83

784

Total

436

402

5

18

93

954

The Commission has received guarantees from third-party guarantors in respect of loans granted through
Euratom. The Commission has not received third-party guarantees for loans granted under the financial
assistance (MFA) scheme. However, these loans are guaranteed by the Guarantee Fund. Performance guaran-
tees are sometimes requested to ensure that beneficiaries of Communities funding meet the obligations of
their contracts with the Communities. Other guarantees include EUR 73 million at 31 December 2007
(2006: EUR 83 million) concerning guarantees received by the ECSC in liquidation for loans granted (as
specified in the related contracts).

5.2. BORROWING AGREEMENTS SIGNED

These are borrowing agreements entered into by the Communities but not yet drawn down before the
year-end — there were none at 31 December 2007 or 2006.

5.3. FRAUD AND IRREGULARITIES — STRUCTURAL ACTIONS

The table below presents the potential amount of recoveries which may be made by Member States
following the detection of irregular claims on structural funds. It is based on the formal reports submitted
by the Member States in accordance with Commission Regulation (EC) No 1681/94, with amounts broken
down by Member State.

The table below shows the amounts identified by Member States as still to be recovered.

CONTINGENT ASSETS: FRAUD & IRREGULARITIES CASES

Member State

31.12.2007

31.12.2006

EUR millions

Austria

Belgium

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Netherlands

Poland

15

16

1

10

1

3

12

592

69

1

1

434

1

12

11

15

15

0

12

0

3

13

580

65

0

2

412

0

12

1

C 287/60

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Official Journal of the European Union

10.11.2008

Member State

31.12.2007

31.12.2006

EUR millions

Portugal

Slovakia

Slovenia

Spain

Sweden

United Kingdom

83

1

0

249

2

178

73

0

1

157

1

115

Total

1 692

1 477

The figures given in this table represent a theoretical maximum rather than the amounts that will actually
be made available to the Communities' budget, for the following reasons:

— The Member States do not always report the results of their recovery operations,

— Although Member States must inform the Commission of the likelihood of recovery, it is impossible to
determine exactly what proportion of the amounts still to be recovered will actually be recovered.
National laws sometimes provide for a 30-year limitation period, which may well make the national
authorities delay formally writing off the debt even if the chances of recovery are only theoretical. For
structural operations, Member States must now send the Commission once a year a statement of the
amounts awaiting recovery (Article 8 of Commission Regulation (EC) No 438/2001) to give a better
picture of the actual situation,

— Even if the Member State concerned launches recovery proceedings in time, a positive outcome is not

guaranteed. This is particularly true where recovery orders are contested in the courts,

— Individual projects are co-financed as part of multi-annual programmes. As long as a multi-annual
programme has not been closed, it is impossible to put an exact figure on the amounts to be recovered
because the funding used for irregular expenditure may, in certain circumstances, be reallocated to other,
legitimate projects and because subsequent instalments, in particular final payments, can sometimes be
used as a means of adjusting for earlier irregular expenditure. The figures in these tables are provisional
figures based on the reports received and processed up to the end of February 2007. These figures may
be changed in line with further reports arriving late.

The prospects of recovery in individual cases cannot be assessed with sufficient accuracy from the
information forwarded by the Member States. The main movements since 2006 concern increases relating
to: European Social Fund cases (Italy: EUR 11 million); European Regional and Development Fund cases
(UK: EUR 40 million, Spain: EUR 109 million, Poland: EUR 10 million and Germany EUR 10 million);
European Agriculture Guarantee Guidance Fund (UK: EUR 23 million); and Cohesion Fund cases
(Spain: EUR 30 million). The amounts due from Spain concerning European Social Fund cases have
decreased by EUR 50 million compared to 2006.

Also included under this heading is EUR 9 million in relation to EAGGF Guidance amounts for the
period 1994-1999.

5.4. OTHER CONTINGENT ASSETS

Much of EC expenditure is by its very nature provisional since, for reasons of control and good financial
management, the Commission retains the right to audit/control/clear monies paid out before declaring them
final. Thus until a given amount/project/programme has been declared properly eligible in accordance with
the relevant contract and or regulation, there remains the possibility of recovering monies from beneficiaries,
or having future payments reduced. The Commission has the right to make checks after the final payment,
and if necessary recover amounts unduly paid.

5.4.1. Quantified amounts

For agriculture and rural development, the amounts declared by Member States remain provisional until the
annual accounts are cleared, in principle by 30 April N+1 on the basis of an annual certification and a
review by the Commission. The Commission can also make financial corrections under ‘conformity deci-
sions’ but only for a period limited to the 24 months before an audit is undertaken on a specific area of
expenditure declared by a specific Member State. Thus an amount of EUR 1 515 million is included here as
a contingent asset, being estimated amounts to be received under the agricultural conformity financial
corrections decisions for audits covering certain expenditure declared over the period 2001-2006. As the
amounts are not yet definitive, they are not recognised on the balance sheet.

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This year an amount of EUR 2,9 billion has also been included as a contingent asset in relation to potential
financial corrections to be recovered from Member States. The amount is based on audit findings of the
Commission and those of the European Court of Auditors, all of which are being followed up by the DGs.
This is the best estimate at the time of closure of the 2007 accounts, taking into account the state of play of
the follow up of the audits, implementation of remedial action plans and final position letters issued. This
amount is subject to change following the procedure for suspensions and financial corrections, under which
Member States are given the opportunity to present, in a hearing, further evidence to support their claims.

5.4.2. Non-quantified amounts

The Participants Guarantee Fund

The Participants Guarantee Fund (PGF) is a mutual benefit instrument set up under the Seventh Framework
Programme for research and technological development (FP7). Its primary aim is to cover the financial risks
incurred by the Communities and the participants during the implementation of the indirect actions of FP7,
its capital and interests constituting a performance security. All participants of indirect actions taking the
form of a grant contribute to its capital for the duration of the action. As such they are the owners of the
PGF, the Communities being represented by the Commission as their executive agent. At the end of an
indirect action, participants shall recover their contribution to the capital in full, except where the PGF
incurs losses due to defaulting beneficiaries — in this case participants shall recover, at a minimum, 80 % of
their contribution.

The Participants Guarantee Fund guarantees the financial interest of both the Communities and the partici-
pants. As such, the PGF can be viewed as a contingent asset of the Communities, however, the amount of
the contingent asset will depend on the occurrence or non-occurrence of a series of uncertain future events
and so it cannot be reliably estimated at present. Thus no amount is disclosed as a contingent asset. For
information, as at 31 December 2007 a total amount of EUR 38 million has been contributed to the PGF
by the participants.

CONTINGENT LIABILITIES

5.5. GUARANTEES GIVEN

5.5.1. On loans granted by the European Investment Bank (EIB) from its own resources

Risk Sharing
31.12.2007

Non-risk Sharing 31.12.2007

Public authority

Private company

Outstanding
31.12.2007
Total

65 % guarantee

70 % guarantee

75 % guarantee

100 % guarantee

1 756

191

0

0

7 063

2 799

1 116

886

1 319

10 138

235

129

293

3 225

1 245

1 179

EUR millions

Outstanding
31.12.2006

8 040

3 747

1 487

1 518

Total

1 947

11 864

1 976

15 787

14 792

The Communities' Budget guarantees loans signed and granted by the EIB from its own resources to third
countries at 31 December 2007 (including loans granted to Member States before accession). However, the
Communities' guarantee is limited to a percentage of the ceiling of the credit lines authorised: 65 %, 70 %,
75 % or 100 %. Where the ceiling is not reached, the Communities' guarantee covers the full amount. At
31 December 2007 the amount outstanding totalled EUR 15 787 million (2006: EUR 14 792 million) and
this, therefore, is the maximum exposure faced by the Communities.

For loans covered by the Communities' budget guarantee, the EIB also obtains guarantees from third parties
(States, public or private financial institutions); in these cases the Commission is a secondary guarantor. The
Communities' budget guarantee covers only the political risk of guarantees provided under the title of
‘risk-sharing’. The other risks are covered by the EIB should the primary guarantor not honour the undertak-
ings given. For guarantees provided under the title of ‘non-risk sharing’, all the risks are covered by the
Communities' budget should the primary guarantor not honour its undertakings given. If the primary guar-
antor is a public authority these risks are confined as a rule to the political risk, but when the guarantees are
provided by an institution or a private company, the Communities' budget might also have to cover the
commercial risk.

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5.5.2. Other guarantees given

Under Risk Sharing Finance Facility (RSFF), the Commission's contribution is used to provision financial risk
for loans and guarantees given by the EIB to eligible research projects. In total a Commission budget of up
to EUR 1 billion is foreseen for the period 2007 to 2013, of which up to EUR 800 million are from the
‘Cooperation’ and up to EUR 200 million from the ‘Capacities’ specific programmes. The EIB has committed
itself to provide the same amount.

An amount of EUR 34 million has been blocked by the Commission as a ‘Capital Allocation’. This Capital
Allocation covers unexpected losses on the loans and guarantees given by the EIB within the framework of
the RSFF. It is the maximum loss the Commission might suffer in case of defaults on loans or guarantees
given. It is the ceiling of the guarantee given by the Commission with respect to the RSFF and thus consid-
ered as a contingent liability by the EC.

As part of the MEDA programme, the Commission created a guarantee mechanism through a specific Fund,
which will benefit two Moroccan organisations, namely the Caisse Centrale de Garantie and the Fonds Dar
Ad-Damane. As at 31 December 2007 the total volume of credit facilities amounts to MAD 1 050 million,
of which MAD 465 million (EUR 41 million) falls under the Commission guarantee.

5.6. FINES

These amounts concern fines imposed by the Commission for infringement of competition rules that have
been provisionally paid and where either an appeal has been lodged or where it is unknown if an appeal
will be made. The contingent liability will be maintained until a decision by the Court of Justice on the case
is final. Interest earned on provisional payments (EUR 309 million) is included in the economic result for
the year and also as a contingent liability to reflect the uncertainty of the Commission's title to these
amounts.

5.7. EAGF — COURT JUDGEMENTS PENDING

These are contingent liabilities towards the Member States connected with the EAGF conformity decisions,
pending judgement of the Court of Justice. The determination of the final amount of the liability and the
year in which the effect of successful appeals will be charged to the budget will depend on the length of the
procedure before the Court. An estimate of the probable amounts to be paid (EUR 216 million) has been
included as a long-term provision on the balance sheet — see note E.2.13.

5.8. AMOUNTS RELATED TO LEGAL CASES AND OTHER DISPUTES

This heading relates to actions for damages currently being brought against the Communities, other legal
disputes and the estimated legal costs. The most significant amounts are summarised below:

— Action brought against it in June 2003 in relation to a ruling made by the Commission. The initial
claim was for GBP 518 million. The Commission submitted its rejoinder in February 2005. In May
2008, the claim was reduced to GBP 257 million. The judgment is expected later in 2008,

— Action for damages brought in October 2003, in relation to a ruling made by the Commission. The
claim was for an amount of EUR 1 664 million. The Court of First Instance (CFI) issued a judgement in
this case in July 2007 condemning the Commission to pay damages. However, these damages were not
quantified by the Court. An independent expert has yet to be appointed and no reliable estimate of the
damages is available. Furthermore, the Commission's appeal against the judgment of the CFI is still
pending. In view of these elements of uncertainty, the contingent liability is maintained at the value of
the original claim.

Other amounts are related to disputes involving suppliers, contractors and former staff. It should be noted
that in an action for damages under Article 288 EC the applicant must demonstrate a sufficiently serious
breach by the institution of a rule of law intended to confer rights on individuals, real harm suffered by the
applicant, and a direct causal link between the unlawful act and the harm.

5.9. OTHER CONTINGENT LIABILITIES

The main amount included under this heading is the possible liability, estimated at EUR 5 million,
concerning certain disease eradication costs that may have to be borne by the Commission's budget.

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COMMITMENTS FOR FUTURE FUNDING

5.10. UNDRAWN COMMITMENTS

These are lending and equity investment agreements entered into by the Commission and ECSC in liquida-
tion (not covered by the RAL) but not yet drawn down by the other party before the year-end.

5.11. COMMITMENTS AGAINST APPROPRIATIONS NOT YET CONSUMED

The budgetary RAL (‘Reste à Liquider’)
is an amount representing the open commitments for which
payments and/or de-commitments have not yet been made. At 31 December 2007 the budgetary RAL
totalled EUR 138 740 million. The amount disclosed as a future commitment to be funded is this budgetary
RAL less related amounts that have been included as expenses in the 2007 Economic Outturn Account
giving a total of EUR 95 992 million.

The budgetary RAL is the normal consequence of the existence of multi-annual programmes. In order to
have a more precise view of the composition of this amount, it was decided to identify separately the oldest
commitments or those for which no movements were noted. Thus the concept ‘Potentially Abnormal RAL’
(PAR) was defined. It is composed of the commitments which answer the one of the two following condi-
tions:

— a commitment of more than five years old,

— commitments for which no accounting transaction (payment or de-commitment) was noted during the

last two years.

As a result of the joint statements of November 2002 and 2003, the Commission, the European Parliament
and the Council stressed the need to eliminate gradually this potentially abnormal RAL. Thus at the begin-
ning of each financial year the commitments meeting this definition are identified and are the subject of an
individual examination. These commitments are classified in eight separate categories according to the iden-
tified hypothetical case. It is essential to note that the majority of commitments fulfilling the PAR criterion
are classified by the services as normal commitments or contracts still open (despite the fact that the due
date for the required invoice/supporting documentation is passed). The objective of the annual PAR exercise
is to minimise the share of unjustified RAL by examining each potentially abnormal commitment, updating
the classifications of the services and by monitoring that commitments related to contracts that can be
closed are actually eliminated.

5.12. LEGAL COMMITMENTS CONCERNING MULTI-ANNUAL ACTIONS

These commitments originated because the Commission decided to enter into long-term legal commitments
in respect of amounts that were not yet covered by commitment appropriations in the budget. Not all
multi-annual programmes contain commitments requiring inclusion under this heading since expenditure in
future years is conditional on the annual decisions by the budgetary authority or changes in the rules
concerned.

5.12.1. Structural Operations

The table below shows a comparison between the legal commitments for which budget commitments have
not yet been made and the maximum commitments in relation to the amounts foreseen in the financial
framework (perspective) 2007-2013:

Financial perspective
amounts 2007-2013
(A)

Legal commitments
concluded
(B)

Budget commitments
2007
(C)

Legal commitments less
budget commitments
(=B-C)

Maximum commitment
(=A-C)

EUR millions

Cohesion policy funds

Natural Resources

Instrument
cession Assistance

for Pre-Ac-

346 542

92 599

1 629

341 514

67 816

1 629

Total

440 770

410 959

44 822

9 941

285

55 048

296 692

57 875

1 344

301 720

82 658

1 344

355 911

385 722

Structural Operations represent aid planned for the period 2007-2013. A new Financial Framework period
started in 2007 and the format and objectives are different to those of the prior period. As it is the start of
a new period, the legal commitments are quite significant, particularly in comparison with 2006 where
there were no amounts to be disclosed since no commitments were outstanding at 31 December 2006.

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10.11.2008

5.12.2. Protocols with Mediterranean countries

The commitments made under financial protocols with Mediterranean non-member countries: the amount
included here is the difference between the total amount of the protocols signed and the amount of the
budget commitments entered in the accounts. These protocols are international treaties that cannot be
wound up without the agreement of both parties, although the process (of winding them up) is on-going.

5.12.3. Fisheries agreements

Fisheries agreements cover commitments entered into with third parties for other operations under external
and fisheries actions, over a fixed time period.

5.13. CONTRIBUTIONS TO RELATED ORGANISATIONS

This sum represents payments outstanding on non-called-up capital subscribed by the Commission.

5.13.1. Uncalled share capital: EBRD

EBRD

Total EBRD capital

Commission subscription

EUR millions

Capital

Paid-in

Uncalled

19 794

(5 198)

14 596

600

(157)

443

5.13.2. Uncalled share capital: EIF

EIF

Total EIF capital

Commission subscription

EUR millions

Capital

Paid-in

Uncalled

2 770

(554)

2 216

691

(138)

553

At the EIF Annual General Meeting of Shareholders held on 7 May 2007, it was decided to issue 1 000 new
shares identical to the 2 000 existing ones (nominal value of EUR 1 million each; paid in ratio of 20 %).
The shareholders of the Fund have the option to subscribe pro-rata, at their discretion, over a four year
period starting in 2007 and ending in 2010 to these new shares. The EIB will subscribe by 30 June 2010 to
all shares that the other shareholders have not yet subscribed to.

During 2007 a total of 770 shares with a nominal amount of EUR 1 million per share were subscribed for
by the shareholders of the EIF. The share premium per share was EUR 136 544,84. The Communities
subscribed for 91 shares, of which 20 % of the nominal amount and the premium were paid in 2007. The
participation of the Communities is limited to 900 shares (of EUR 900 million).

5.14. OPERATING LEASE COMMITMENTS

Description

Buildings

IT materials and other
equipment

Total

Future amounts to be paid

< 1 year

1-5 years

> 5 years

268

8

276

889

12

901

823

3

826

EUR millions

Total

1 980

23

2 003

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This heading covers buildings and other equipment rented under operating leasing contracts that do not
meet the conditions for entry on the assets side of the balance sheet. The amounts indicated correspond to
commitments still to be paid during the term of the contracts.

In 2007, EUR 275 million was recognised as an expense in the economic outturn account in respect of
operating leases.

5.15. CONTRACTUAL COMMITMENTS

This heading covers amounts that the European Communities are committed to pay in the future under
contracts existing at the balance sheet date. They cover primarily multi-annual contracts relating to the
provision of services such as security, cleaning, etc., but also contractual commitments concerning specific
projects such as building works. The amounts indicated correspond to amounts committed to be paid
during the term of the contracts.

Included here is the outstanding contractual obligation of EUR 22 million concerning building related
contracts of the Council, as well as EUR 367 million relating to building contracts of the Parliament. The
other significant amount included here is EUR 348 million, which concerns the extension of a Court of
Justice building in Luxembourg.

6. RECOVERY OF UNDUE PAYMENTS

6.1. INTRODUCTION

The recovery of undue payments is the last stage in the operation of control systems, and the evaluation of
these recoveries is essential in order to demonstrate sound financial management. The amounts recovered
usually relate to expenditure booked in earlier years, due to the time which elapses between the date of a
payment and that of an ex post audit, and to the time necessary for contradictory procedures and for estab-
lishing the amount finally due. In the field of agriculture, this time is further extended if the Member State
concerned requests a conciliation procedure.

When checking an EU-funded project, auditors seek to verify the correct application of the, sometimes
complicated, financial and contractual rules. Although errors, irregularities and fraud may occur at any stage
of an EU project or contract, they are most likely to be discovered at the final stage: i.e. when the beneficiary
sends in his final payment claim.

The objective of this chapter is to give an overview of the procedure in place for the recovery of undue
payments and to present a best estimate of the total amount. There are a variety of ways by which undue
payments are recovered by the European Commission when there is a clear case of a financial error or irre-
gularity, which are explained below. For Structural Actions, when advances made are higher than the final
costs of a project, unused pre-financing has to be recovered. Such recoveries are not considered as being
recovery of errors or irregularities, and are thus excluded from the analysis below.

6.2. RECOVERY OF UNDUE PAYMENTS MADE UNDER SHARED MANAGEMENT

Some 80 % of the budget is managed jointly by European Commission and the Member States. This shared
management expenditure includes principally expenditure on agriculture, structural actions and fisheries.

When the European Commission implements the budget under shared management, implementation tasks
and responsibilities, including the correction of ineligible expenditure, are delegated to Member States: thus
they are primarily responsible for correcting irregularities committed by beneficiaries. The European
Commission has an overall supervisory role: it checks the sufficiency of Member States' financial manage-
ment and imposes corrections if it finds that a Member State had not adequately protected the EC budget
from irregularities. Such corrections may also result from audits and controls carried out by European Court
of Auditors or from OLAF investigations.

The control chain would indeed not be complete without a mechanism which ensures that the Member
States carry out their work properly and which, if they fail to do so, imposes the necessary financial conse-
quences.

The Commission has the power to apply extrapolated or flat-rate corrections in certain cases where it is
not possible or practicable to quantify the amount of irregular expenditure precisely, or when it would be
disproportionate to cancel the expenditure in question entirely. Extrapolation is used when there are results
of a representative sample of files available in relation to a systemic irregularity. Flat rate corrections are
applied in the case of individual breaches or systemic irregularities where the financial impact is not precisely
quantifiable because it is subject to too many variables or diffuse in its effects.

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6.2.1. Recovery of expenditure charged to agriculture and rural development

Under EAGF and EARDF, which have replaced the EAGGF Guarantee section, the mechanism of recovery
consists of the clearance of accounts and the recovery of irregularities.

Clearance of accounts procedure

The clearance of accounts procedure is operated by the Commission and includes an annual financial clear-
ance of accounts of each paying agency and a multi-annual conformity clearance covering the conformity of
the expenditure declared by a Member State with EU rules. In the case of EAGF, all these amounts are
booked in the economic outturn account of the Commission as revenue. For EARDF, the amounts recovered
by the Member States themselves, as well as those resulting from the annual financial clearance of accounts,
are as a general rule reusable for the programme.

Financial clearance: the Commission adopts an annual clearance of accounts decision, by which it formally
accepts the paying agencies annual accounts on the basis of management declarations, and of the certificates
and reports from the certification bodies.

Conformity clearance is designed to exclude expenditure from EU financing which has not been paid in confor-
mity with EU rules, thus shielding the EU budget from expenditure that should not be charged to it. The
conformity clearance is, therefore, not a mechanism by which irregular payments are recovered directly from
the final beneficiaries. However, financial corrections are a strong incentive for the Member States to
improve their management and control systems and thus to prevent or detect and recover irregular
payments to final beneficiaries. Furthermore, a conformity correction does not relieve the Member State of
its responsibility to pursue identified irregularities, otherwise an infringement procedure may be launched.
Whereas the financial clearance is an annual exercise, conformity clearance does not follow an annual cycle.
It covers expenditure incurred in more than one financial year, with the exception of expenditure made
more than 24 months before the Commission officially notifies the Member State of its audit findings.

Financial clearance of payments executed without respect the regulatory dead-lines: for the most important support
regimes under the EAGF, the regulations foresee that Member States must make the payments to the benefi-
ciaries within certain deadlines. The respect of the fixed deadlines is systematically controlled three times a
year in accordance with Article 9 of Commission Regulation (EC) No 883/2006. In case of non respect of
the deadlines, the Commission effects reductions, subject to certain allowances for special cases and excep-
tional circumstances, as well as proportionality. The reductions are made in the context of the monthly
payments and in the annual financial clearance. The financial corrections for the non respect of payment
deadlines are treated as ‘negative payments’ and accounted for in the economic outturn account as a reduc-
tion of expenses.

Recovery of irregularities declared by Member States

Member States are obliged to recover sums lost as a result of irregularities following their national rules and
procedures. If they succeed in recovering from the beneficiaries, they credit the recovered sums to the
Commission and these are booked in the economic outturn account as revenue. However, it is not always
easy to recover the sums spent irregularly. If the Member State needs more than four years to recover, or
eight years in the case of national court proceedings against the beneficiary, the Commission charges 50 %
of the outstanding sum to the Member State concerned, thereby protecting the financial interests of the EU
(the so-called 50/50 rule). This is done via the financial clearance procedure described above. After this
accounting exercise, the Member State is still obliged to continue its recovery actions. 50 % of the sums thus
recovered are to be handed over to the EU budget. It should be noted that amounts recovered are permitted
to be transferred to the Commission after a reduction of 20 % by the Member States to cover their costs.
Under all circumstances, the Commission keeps an eye on the Member States' recovery actions. If a Member
State does not pursue the recovery or is not diligent in its actions, the Commission may decide to intervene
via the conformity clearance procedure and to impose a financial correction on the Member State
concerned.

6.2.2. Recovery of expenditure under Structural Actions

In this domain, the mechanism of recovery of errors,
corrections.

irregularity and fraud mainly consist of financial

Financial corrections: Expenditure not meeting the conditions of funding, because of irregularity, must be
excluded from co-financing by the EU budget. This exclusion is called a ‘financial correction’. The purpose
of such corrections is to restore a situation where 100 % of the expenditure declared for co-financing from
Structural Actions is in line with the applicable national and Community rules and regulations.

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Financial corrections can result from controls and audits at any level of the control system in the Member
States or from audits by the Commission or the European Court of Auditors or OLAF investigations.
Member States are primarily responsible for making financial corrections in relation to irregularities
committed by beneficiaries. Where the Member State agrees to make a correction as a result of its own or
EC control and audit activity, it may withdraw the irregular expenditure and re-use the EC funding released
for other expenditure under the programme concerned, but not related to the operation or operations that
were the subject of the correction. The European Commission may take a formal decision to apply financial
corrections to the Member State where the Member State has failed to make the required corrections or
where there are serious failings in the management and control systems which could lead to systemic irregu-
larities. A financial correction applied by Commission decision involves a reduction of the EC funding of
the programme concerned. The corrections effected by Member States following their own or EC audits are
not registered in the Commission's accounting system, and the information is reported by Member States
once a year. Only the financial corrections implemented by a recovery order or by a reduction in a final
payment are included in the EC accounts.

6.3. RECOVERY OF UNDUE PAYMENTS — OTHER MANAGEMENT TYPES

The mechanisms foreseen are recovery orders or reduction of the next payment. Many EU projects run over
several years and corrections are usually applied, by adjustment of subsequent claims and/or final payments,
following periodic checks or scrutiny of independent audit certificates. Information on all recoveries made
by deduction against subsequent payment, and thus where no recovery order is issued, is not yet easily iden-
tifiable in the Commission's accounting system as only the amount of the adjusted payment is recorded in
the accounts.

At or after the closure of a project, the European Commission may also apply further corrections on the
basis of its own or the Court of Auditors' audits on the spot. These corrections can be made in later years
and a recovery order will be issued.

6.4. ANALYSIS OF RECOVERY OF UNDUE PAYMENTS DECIDED IN 2007

The figures presented below are established where possible on an ‘accrual basis’ under which the recovery is
allocated to the year in which:

— the recovery order was issued, or a reduced payment was made,

— a correction was decided by the Commission or agreed by Member States, or

— under the EAGF and EARDF, the amount of irregularities is recovered & declared by Member States.

6.4.1. Shared Management

6.4.1.1. Recovery of expenditure charged to agriculture and rural development: EAGF and EARDF

During the calendar year 2007, the Commission decided, concerning EAGF, to recover from Member States
EUR 607 million following financial corrections. In addition, during the same year, Member States repaid to
the Commission EUR 247 million representing irregular expenditure which they had recovered from benefi-
ciaries. Concerning EARDF, it being the first year of this fund, there was no recovery of undue payments in
2007. All these recoveries are recorded in the Commission's accounting system and included in the
economic outturn account.

EUR millions

Financial corrections decided, being:

Conformity clearance

Financial clearance and non-respected payment deadlines

Total

Irregularities declared by Member States

Total

2007

532

75

607

247

854

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The Commission can make financial corrections under ‘conformity decisions’ only for expenditure declared
in a period limited to the 24 months before an audit is undertaken on a specific area of expenditure declared
by a specific Member State. The amount to be received under the agricultural conformity financial correc-
tions decisions still to be taken following the Commission's audits is estimated at EUR 1,5 billion. This
concerns certain expenditure declared over the period 2001-2007 and is disclosed as a contingent asset in
the notes to these financial statements.

6.4.1.2. Recovery of expenditure under Structural actions

The total financial corrections made to programmes, resulting from Commission audit work, audit work by
the Court of Auditors and the closure process for the two programme periods are given below:

TOTAL FINANCIAL CORRECTIONS CONCERNING 2000-2006 PROGRAMMES/PROJECTS

Total Financial Correc-
tions at 31.12.2006

Fin. Corrections 2007
without Commission
Decision

Fin. Corrections 2007
by Commission
Decision

Total Financial Correc-
tions at 31.12.2007

EUR millions

Cohesion Fund

ERDF

ESF

FIFG

EAGGF Guidance

99

1 382

438

0

1

Total

1 920

4

179

37

0

0

220

0

0

0

0

0

0

103

1 561

475

0

1

2 140

The figures given in the notes to the 2006 final accounts, point 3.1.4 (total EUR 1 915 million), for ERDF
the Cohesion Fund and the ESF included some estimated amounts which were established for ERDF and the
Cohesion Fund in initial letters to Member States launching financial correction procedures. These figures,
totalling EUR 20,7 million (EUR 18,7 million Cohesion Fund, EUR 1 million ERDF and EUR 1 million
for ESF), are excluded from the calculation of total financial corrections because of their provisional char-
acter. For ERDF and the Cohesion Fund a further EUR 25,7 million of financial corrections representing
formal Commission decisions adopted in or before 2006 (EUR 17,7 million Cohesion Fund and
EUR 8 million ERDF) not previously reported have been added.

TOTAL FINANCIAL CORRECTIONS CONCERNING 1994-1999 PROGRAMMES/PROJECTS

Total Financial Correc-
tions at 31.12.2006

Fin. Corrections 2007
without Commission
Decision

Fin. Corrections 2007
by Commission
Decision

Total Financial Correc-
tions at 31.12.2007

EUR millions

Cohesion Fund

ERDF

ESF

FIFG

EAGGF Guidance

202

818

340

15

30

Total

1 405

0

4

0

24

4

32

23

36

5

0

80

144

225

858

345

39

114

1 581

The figures given in the notes to the 2006 final accounts, point 3.1.4 (total EUR 1 677 million), for ERDF
and the Cohesion Fund included some estimated amounts established in initial letters to Member States
launching financial correction procedures. These figures, totalling EUR 300 million (EUR 58 million Cohe-
sion Fund and EUR 242 million ERDF), are excluded from the calculation of total financial corrections
because of their provisional character. A further EUR 16 million of financial corrections of ERDF and
EUR 10 million for ESF, representing formal Commission decisions adopted in or before 2006, and
EUR 2 million for FIFG not previously reported have been added.

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The total financial corrections for Structural Actions in 2007, which amount to EUR 396 million, can be
split as follows:

Financial Corrections 1994-1999 period:

With recovery order (1)

Reduction of payment

Sub-total 1994-1999 period

Financial Corrections 2000-2006:

Agreement to withdraw ineligible expenditures

Sub-total 2000-2006 period

Total financial corrections

ERDF

29

11

40

179

179

219

CF

3

20

23

4

4

27

ESF

FIFG

EAGGF_G

Total

EUR millions

3

2

5

37

37

42

2

22

24

0

0

24

15

69

84

0

0

84

52

124

176

220

220

396

(1) Recovery orders for an amount of EUR 15 million will be issued in 2008 (EUR 3 million for Cohesion fund, EUR 10 million for ERDF and EUR 2 million for EAGGF-G).
For financial corrections applied at the closure of the programme, the amount of the recovery order results from both the amount of the financial correction and the
balance of the final payment claim.

This table does not include the results of the Member States' own checks of Structural fund expenditure.
Moreover, an amount of EUR 2,9 billion concerns potential financial corrections to be recovered from
Member States. The amount is based on audit findings of the Commission and those of the European Court
of Auditors, all of which are being followed up by the DGs. This is the best estimate at the time of closure
of the 2007 accounts, taking into account the state of play of the follow up of the audits, implementation
of remedial action plans and final position letters issued.

Financial correction activity (withdrawals, recoveries and pending recoveries) by Member States for
Structural Actions for 2007

The Commission requests that Member States provide information, by 31 March each year, on withdrawals,
recoveries and pending recoveries of Structural actions for the year in question and cumulatively for the
whole of the programming period 2000-06, for all Structural Funds and Community Initiatives (ERDF, ESF,
EAGGF and FIFG). The provisional
figures for withdrawals and recoveries in 2007 (approximately
EUR 540 million) have been received by the Commission and will be adjusted after the Commission has
clarified certain matters with the Member States concerned. The revised figures will be presented in an
annex to the 19th Annual Report on the Implementation of the Structural Funds to be issued later in 2008.
In relation to financial corrections proposed by the Commission on the basis of its own or other EC bodies'
audit work but accepted and executed by Member States, there is a potential overlap with data on
withdrawals communicated by Member States.

It should also be noted that the Commission is currently verifying the information provided by a number of
Member States under Action 6.2 of the Action Plan to strengthen the Commission's supervisory role in
shared management of structural actions (COM(2008)97). The results of this work will allow definite
conclusions to be drawn on the completeness and reliability of the data as a basis for follow-up action to
bring about the necessary improvements in the reporting of financial corrections.

6.4.2. Recovery of expenditure under other management types

For other management types, the information regarding debts established by recovery orders is presented in
the following table. The recoveries made by deduction from a subsequent payment were not recorded in the
accounting records in 2007. Recovery orders issued during the year to recover previously paid amounts
totalled EUR 259 millions. Of this, EUR 138 million concerns recuperation of expenses and EUR 121 million
recuperation of pre-financing. For this last category, the accounting records do not allow the differentiation
between amounts concerning recovery of unused advances and amounts concerning the recovery of undue
expenditure claimed by the beneficiary. However, unlike for structural actions, materially all pre-financing
recovered, except that relating to the outturn of the Agencies, is considered as the recovery of wrongly
claimed amounts.

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Recovery orders for undue payments issued in 2007

External actions

Internal policies

Total

2007

178

81

259

EUR millions

6.5. SUMMARY OF THE RECOVERY OF UNDUE PAYMENTS 2007

The following table presents a best estimate of the total amount decided in 2007 to be recovered. As
explained above, they do not include the results of the Member States' own checks of Structural Actions
expenditure, nor do they include all recoveries made by deduction from a subsequent payment on external
actions and internal policies. The recovery orders established on pre-financing risks being overstated by
amounts concerning the repayment of unused advances (not related to irregular payments).

Summary of the recovery of undue payments

2007

2006

EUR millions

EAGGF:

— financial corrections

— irregularities declared by Member States

Structural and cohesion funds
programmes)

(1994-1999 and 2000-2006

Recovery orders for undue payments:

— external actions

— internal policies

607

247

396

178

81

Total

1 509

839

108

807

172

85

2 011

7. FINANCIAL RISK MANAGEMENT

EUROPEAN COMMISSION TREASURY OPERATIONS

The following disclosures relate to the treasury operations carried out by the European Commission in order
to implement its budget. The rules and principles for the management of the Commission treasury opera-
tions for the implementation of the budget are laid down in the Regulation (EC, Euratom) No 1150/2000
(as amended by Regulation (EC, Euratom) No 2028/2004) and in the Financial Regulation (Regulation
(EC, Euratom) No 1605/2002, amended by Regulation (EC, Euratom) No 1995/2006) and its Implementing
Rules (Regulation (EC, Euratom) No 2342/2002, amended by Regulation (EC, Euratom) No 478/2007).

As a result of the above regulations the following main principles apply:

— The own resources are paid by the Member States in accounts opened for this purpose in the name of
the Commission with the Treasury or the body appointed by each Member State. The Commission may
draw on the above accounts solely to cover its cash requirements,

— Own Resources are paid by Member States in their own national currencies, while the Commission's

payments are mostly denominated in EUR,

— Bank accounts opened in the name of the Commission may not be overdrawn,

— The balances of accounts held in other currencies than EUR are either used for payments in the same
currencies or periodically converted in EUR (within the respect of Regulation (EC, Euratom)
No 1150/2000, when this concerns funds held on the own resources accounts).

In addition to the own resources accounts, other bank accounts have been opened by the Commission, with
central banks and commercial banks, for the purpose of executing payments and receiving receipts other
than the Member State contributions to the budget. All these accounts (with the exception of the accounts
for receipts) are replenished daily on the basis of the payments to be executed from them. Minimum cash
balances are kept on all these accounts in order to allow for the execution of urgent payments should any
delay in their funding exceptionally occur. The balances of the receipts accounts are regularly transferred to
the own resources accounts or to other accounts, depending on the treasury needs.

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All commercial banks where the Commission holds bank accounts are selected by call for tenders. Imprest
accounts are opened in accordance with Article 63 of the Financial Regulation and bank accounts are
opened for their needs, with banks selected by simplified tendering procedure.

7.1. OPERATIONAL RISK

Treasury and payment operations are highly automated and rely on modern informatics systems. Specific
procedures are applied to guarantee system security and to ensure segregation of duties in line with the
Financial Regulation, the Commission's internal control standards, and audit principles. A written set of
guidelines and procedures regulate the management of the treasury and payment operations with the objec-
tive of limiting operational and financial risk and ensuring an adequate level of control. They cover the
different areas of operation and compliance with the guidelines and procedures is checked regularly. They
include in particular:

— Opening and closing of bank accounts,

— Parameterisation of financial systems,

— Treasury planning and forecasting,

— Payments execution and cash management,

— Foreign exchange operations,

— Selection of banks,

— Monitoring of transactions and bank reconciliation,

— Maintenance and control of the third party files.

7.2. FINANCIAL RISK

Currency risk:

Own resources paid by Member States in currencies other than EUR are kept on the own resources
accounts. They are converted into EUR when they are needed to cover the execution of payments in EUR or,
in a limited number of cases, they are directly used for payments to be executed in the same currencies.

A number of accounts in EU currencies other than EUR, and in USD, are held by the Commission with
commercial banks, for the purpose of executing payments denominated in these same currencies. These
accounts are replenished depending on the amount of payments to be executed; as a consequence their over-
night balances are kept very low and only represent a limited exposure to fluctuations in foreign currency
exchange rates.

When miscellaneous receipts (other than own resources) are received in currencies other than EUR, they are
either transferred to other accounts in the same currencies, if they are needed to cover the execution of
payments, or converted in EUR and transferred to other EUR accounts depending on the treasury needs.
Imprest accounts held in currencies other than EUR are replenished depending on the estimated short term
local payments needs in the same currencies. Balances on these accounts are kept within their respective ceil-
ings.

Credit risk:

the Commission's treasury resources are kept,

Most of
in accordance with Regulation (EC, Euratom)
No 1150/2000, in the accounts opened by Member States for the payment of their contributions (own
resources). All such accounts are held with Member States' treasuries or national central banks. These institu-
tions carry virtually no credit risk for the Commission.

A small part of the Commission's treasury resources are kept with commercial banks, in order to cover the
execution of payments, or other banking operations. It is normal practice to replenish commercial bank
accounts on a just-in-time basis. As a consequence the amounts kept overnight on these accounts are
constantly very low (between EUR 100 million and EUR 200 million on average, spread over more than
30 accounts) and thus the Commission exposure to credit risk is limited. In addition specific guidelines are
applied for the selection of commercial banks in order to further minimise credit risk.

All commercial banks are selected by call for tenders. The minimum short term credit rating required for
admission to the tendering procedures is Moody's P-1 or equivalent (S&P A-1 or Fitch F1). A lower level
may be required in specific circumstances. All contracts provide for the possibility of immediate termination
by the Commission in case the counterparty's rating is revised and falls below the minimum level required.

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Imprest accounts are held with local banks selected by a simplified tendering procedure. Rating requirements
depend on the local situation and may significantly differ from country to country. In order to limit credit
risk exposure, balances on these accounts are kept at the lowest possible levels (taking into accounts opera-
tional needs), they are regularly replenished, and the applied ceilings are reviewed on a yearly basis.

Interest rate risk:

Accounts opened with Member States Treasuries or National Central Banks in accordance with Article 9 of
Regulation (EC, Euratom) No 1150/2000, are non-interest bearing and free of charges. For all other accounts
held with National Central Banks remuneration depends on the specific conditions offered by each bank;
interest rates applied are variable and adjusted to market fluctuations.

For most accounts held with commercial banks interest is calculated on a variable basis, linked to the ECB
marginal rate for its main refinancing operations, and adjusted to reflect any fluctuations of this rate. As a
result no interest rate risk is taken on by the Commission.

7.3. MANAGEMENT OF PROVISIONALLY CASHED FINES

The following disclosures relate to the treasury operations carried out by the European Commission for the
administration of fines provisionally cashed (restricted cash).

Currency risk:

Since all fines are imposed and paid in EUR, the Commission is not exposed to any risk of fluctuations in
foreign currency exchange rates.

Credit risk:

Guidelines are applied for the selection of banks where funds are held, and exposure with any single coun-
terpart is limited. All funds are held on current accounts and can be drawn at any time, without previous
notice. Banks are selected by call for tenders. The minimum banks' deposit long-term rating required for
admission to the tendering procedures is Moody's Aa or equivalent (that is, S&P AA-or Fitch AA-).

Exposure with any single counterpart is limited to 5 % of its ‘Capital + reserves + subordinated loans’, as
resulting from its certified consolidated accounts. This limit is revised at least on a yearly basis. All contracts
provide for the possibility of immediate termination by the Commission in case the counterpart's rating is
revised and falls below the minimum level required.

Interest rate risk:

Interest for all accounts is calculated on a variable basis, which is linked to the ECB minimum rate for its
main refinancing operations, and adjusted to reflect any fluctuations of this rate. As a result no interest rate
risk is taken on by the Commission.

BORROWING & LENDING ACTIVITIES AND GUARANTEE FUND

The following disclosures relate to lending and borrowing activities carried out by the European Commission
through Macro Financial Assistance (MFA) and Euratom, as well as the Guarantee fund.

7.4. RISK MANAGEMENT POLICIES AND HEDGING ACTIVITIES

MFA & Euratom:

The lending and borrowing transactions, as well as related treasury management, are carried out by the
Communities according to the respective Euratom Council Decisions (1), if applicable, and internal guide-
lines. Written procedure manuals covering specific areas such as borrowings, loans and treasury manage-
ment have been developed and are used by the relevant operating units. Financial and operational risks are
identified and evaluated and compliance to internal guidelines and procedures is checked regularly.

As a general rule,
‘back-to-back’ operations and as there are no open currency positions existing.

there are no hedging activities carried-out as lending operations are financed by

(1) Council Decision 90/212/Euratom of 23 April 1990 amending Decision 77/271/Euratom on the implementation of
Decision 77/270/Euratom empowering the Commission to issue Euratom loans for the purpose of contributing to the
financing of nuclear power stations (OJ L 112, 3.5.1990, p. 26).
Council Decision 77/271/Euratom of 29 March 1977 on the implementation of Decision 77/270/Euratom empow-
ering the Commission to issue Euratom loans for the purpose of contributing to the financing of nuclear power
stations (OJ L 88, 6.4.1977, p. 11).
Council Decision 94/179/Euratom of 21 March 1994 amending Decision 77/270/Euratom, to authorize the Commission
to contract Euratom borrowings in order to contribute to the financing required for improving the degree of safety and effi-
ciency of nuclear power stations in certain non-member countries (OJ L 84, 29.3.1994, p. 41).

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Guarantee Fund:

The rules and principles for the asset management of the Guarantee Fund (see Section E.2.3.3) are laid out
in the Convention between the European Commission and the European Investment Bank (EIB) dated
25 November 1994 and the subsequent amendments dated 17/23 September 1996 and 8 May 2002.

The main principles, as extracted directly from the Convention, are as follows:

— The Guarantee Fund will operate in one single currency: EURO. It will exclusively invest in this currency

in order to avoid any exchange rate risk,

— Management of the assets will be based upon the traditional rules of prudence adhered to for financial
activities. It will have to pay particular attention to reducing the risks and to ensuring that the managed
assets have a sufficient degree of liquidity and transferability, taking into account the commitments to
which the Guarantee Fund will be confronted,

— The Guarantee Fund will be able to use all the hedging instruments against the market and interest risks,

already used by the Portfolio Division of the EIB,

— The portfolio management will be based on the optimal duration and on the best possible allocation
between short term and long-term, in order to draw a real advantage from the rates curve. In order to
be able to quickly modify the duration of the portfolio according to the forecast of the future conditions
of the market, the promoter will use, with the exclusive aim of hedging, the instruments available on the
market for which the EIB already has the necessary experience.

7.5. CURRENCY RISK

Since all financial assets and liabilities are denominated in euro, the Communities do not take on exposure
to effects of fluctuations in foreign currency exchange rates on its financial position and cash flows.

7.6. INTEREST RATE RISK

Due to the nature of its lending and borrowing activities, the Communities have significant interest-bearing
assets and liabilities.

MFA & Euratom:

the total volume of borrowings. However,

Borrowings issued at variable rates expose the Communities to cash flow interest rate risk. They represent
approximately 93 % of
the interest rate risks that arise
from borrowings are offset by equivalent loans in terms and conditions (‘back-to-back’ operations). At the
balance sheet date, the Communities have loans (expressed in nominal amounts) with variable rates of
EUR 1,18 billion (2006: EUR 1,32 billion), with a re-pricing taking place every 6 months. The Com-
munities also have loans (expressed in nominal amounts) with fixed rates for EUR 85 million in 2007
(2006: EUR 85 million), they have a final maturity date of more than five years.

Guarantee Fund:

Hedging instruments could be used to manage the interest rate (market) risk for the Guarantee Fund.
However as agreed between the Commission and the EIB, no significant risk is currently taken and therefore
hedging is not performed. As the transactions and operations are only denominated in euro, no other
hedging is required. The distribution of the Guarantee Fund's holdings at 31 December 2007 and 2006
(market value excluding accrued interest) is detailed in the table below:

EUR millions

Segments

Less than 3 months

3 months to 1 year

1 to 10 years

Fixed rate investments

Variable rate securities

Total

2007

2006

2007

2006

2007

2006

2007

2006

2007

2006

Current accounts

Short term deposits —
nominal

Available-for-sale assets

Total

1

247

25

273

1

437

57

495

0

0

84

84

Percentage

24 %

36 %

7 %

0

0

51

51

4 %

0

0

703

703

0

0

733

733

0

0

71

71

0

0

76

76

1

247

1

437

883

917

1 131

1 355

63 %

54 %

6 %

6 %

100 %

100 %

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At 31 December 2007, for the cash and cash equivalents (fixed term deposits), the effective interest rate
range is between 4,12 % and 4,83 %. For the Available-for-Sale (AFS) securities portfolio, the effective
interest rate range is between 2,94 % and 5,52 %.

7.7. CREDIT RISK

The Communities take on exposure to credit risk, which is the risk that a counterparty will be unable to pay
amounts in full when due. Exposure to credit risk is managed, firstly by obtaining country guarantees in the
case of Euratom, then through the Guarantee Fund. The Guarantee Fund for external actions (1) was set up
in 1994 to cover default risks related to borrowings which finance loans to countries outside the European
Union. In order to avoid any delays in payments due by the Entity, such borrowings are serviced by means
of cash advances from the Communities' budget. If, three months after a payment is due, it is confirmed
that a recipient country has defaulted, the cash advances are repaid to the budget by the Guarantee Fund for
external actions.

MFA & Euratom:

The largest concentrations of credit risk that the Communities have are towards Bulgaria, Romania and
Serbia-Montenegro. These countries represent approximately 27 %, 28 % and 22 % respectively of the total
volume of loans. As far as treasury operations are concerned, guidelines on the choice of counterparties
must be applied. Accordingly, the operating unit will be able to enter into deals only with eligible banks
being part of a ‘trading list of authorised banks’ and having sufficient counterparty limits.

Guarantee Fund:

Guarantee Fund Fixed Term Deposits — Profile of counterparties

In accordance with the agreement between the Community and the EIB on the management of the Guar-
antee Fund, all the inter-bank investments should have a minimum credit rating of A1. Short-term inter-
bank investments, including accrued interest, by type of counterparty at 31 December 2007 are as follows:

Rating

31.12.2007

31.12.2006

A1

A2

Aa1

Aa2

Aa3

75

0

20

53

100

248

Total

30 %

0 %

8 %

22 %

40 %

100 %

171

0

44

57

167

439

EUR millions

39 %

0 %

10 %

13 %

38 %

100 %

Guarantee Fund Available-for-sale assets — Profile of issuers

The profile of issuers, market value excluding accrued interest, at 31 December 2007 is as follows:

Issuer

31.12.2007

31.12.2006

Other issuers AAA

Supra Aaa

Govt./Agencies Aaa

Govt./Agencies Aa1

Govt./Agencies Aa2

Govt./Agencies Aa3

Govt./Agencies A1

Govt./Agencies A2

Govt./Agencies A3

Govt./Agencies Baa1

Govt./Agencies NR

310

5

196

72

0

81

73

132

4

10

0

883

Total

35 %

1 %

22 %

8 %

0 %

9 %

8 %

15 %

1 %

1 %

0 %

100 %

361

15

225

58

0

67

49

122

10

10

0

917

EUR millions

40 %

2 %

25 %

6 %

0 %

7 %

5 %

13 %

1 %

1 %

0 %

100 %

(1) Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994 establishing a Guarantee Fund for external actions

(OJ L 293, 12.11.1994, p. 1).

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All the securities held meet the following criteria:

— Either they are issued by states in, or by institutions guaranteed by, the European Union, the G10 or

supranational bodies,

— Or they are issued by another sovereign state with a rating of at least AA3,

— Or they are issued by another issuer with a rating of AAA.

7.8. FAIR VALUE

The estimated fair value of the MFA and Euratom loans and borrowings is determined using a discounted
cash flow model. According to this model, expected future cash flows are discounted by applying AAA yield
curves appropriate for the remaining term to maturity. The estimated fair value of floating rates loans are
assumed to approximate their carrying amount since re-pricing at market interest rates takes place every
6 months.

At the balance sheet date the estimated fair value of fixed interest bearing loans and borrowings amount to
EUR 90 million (2006: EUR 93 million) and EUR 89 million (2006: EUR 93 million), respectively,
compared to corresponding book value of EUR 87 million (2006: EUR 87 million) and EUR 87 million
(2006: EUR 87 million), respectively.

7.9. LIQUIDITY POSITION

The table below provides an analysis of assets and liabilities of the Guarantee Fund into relevant maturity
groupings based on the remaining period from the balance sheet date to the contractual maturity date. It is
presented under the most prudent consideration of maturity dates. Therefore, in the case of liabilities the
earliest possible repayment date is shown, while for assets it is the latest possible repayment date. Those
assets and liabilities that do not have a contractual maturity date are grouped together in the ‘Maturity unde-
fined’ category.

Maturity

Less than
3 months

3 months
to 1 year

1 to
10 years

Maturity
undefined

Total

EUR millions

Assets in EUR:

Current accounts

Short term deposits

Of which accrued interests

Available-for-sale assets

Of which accrued interests

Liabilities in EUR:

Equity

Account payables

Net liquidity position at 31.12.2007

Cumulative liquidity position at 31.12.2007

1

248

1

38

7

Total

287

Total

0

1

1

286

286

0

0

0

109

13

109

0

0

0

109

395

0

0

0

754

0

754

0

0

0

0

0

0

3

0

3

1

248

1

904

20

1 153

1 152

1 152

0

1

1 152

1 153

754

(1 149)

0

1 149

0

EUROPEAN COAL & STEEL COMMUNITIES (in liquidation)

The following disclosures relate to lending and borrowing, as well as treasury activities carried out by the
European Communities through the European Coal & Steel Communities (in Liquidation). Further infor-
mation is available in the accounts of the ECSC in liquidation.

7.10. RISK MANAGEMENT POLICIES AND HEDGING ACTIVITIES

Following the expiry of the ECSC Treaty on 23 July 2002, in accordance with Decision 2003/76/EC the
assets and liabilities of the ECSC be passed to the European Community, and that the liquidation of the
liabilities of the ECSC be managed by the Commission. Thus, no new loans and no corresponding funding
are foreseen for the ECSC in liquidation. New ECSC borrowings are restricted to refinancing with the aim of
reducing the cost of funds.

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The asset and liability management is carried out by the Commission in accordance with internal guidelines.
Written procedures manuals covering specific areas such as borrowings, loans and treasury management
have been developed and are used by the relevant operating units. Financial and operational risks are identi-
fied and evaluated and compliance with internal guidelines and procedures is checked regularly. As far as
treasury operations are concerned, the principles of prudent management with a view to limit operational
risk, counterparty risk and market risk are to be applied. Investments are restricted basically to the following
categories: term deposits with banks, money market instruments, fixed and floating rate bonds.

The main investment limits per category are as follows:

— For term deposits, the lower of either EUR 100 million per bank or 5 % of the bank's own funds

provided that the respective short-term rating is at least A-1 (S&P) or equivalent,

— For bonds issued or guaranteed by Member States or institutions of
EUR 250 million per Member State or institution depending on its rating,

the European Union, up to

— For bonds of other sovereign or supranational issuers with a long-term credit rating of not less than AA

(S&P) or equivalent up to EUR 100 million per issuer or guarantor,

— For bonds of other issuers having a minimum rating of AA or AAA (S&P) or equivalent, up to EUR 25

or 50 million respectively, depending on the rating and issuer status.

The ECSC in liquidation uses derivative financial
note E.2.3.4.2).

instruments to hedge certain risk exposures (see also

7.11. MARKET RISK

Foreign exchange risk

The ECSC in liquidation is exposed to foreign exchange risk arising from currency exposures with respect to
the US dollar and the UK pound. The table below summarises the ECSC in liquidation's exposure to foreign
currency exchange rate risk at 31 December 2007.

The ECSC in liquidation's assets and liabilities at their EUR equivalent nominal values, categorised by
currency are disclosed in the table.

Assets
Liabilities

Net balance sheet position

Effect of cross currency interest rate swaps

Net exposure

GBP

207
(285)

(78)

81

3

EUR millions

USD

68
(68)

0

—

0

The GBP assets and liabilities position is mainly composed of euro equivalent 204 million unquoted debt
securities issued by the European Investment Bank as substitute of a defaulted debtor (see note E.2.4.2).
According to the procedures manual, buying euro is the only foreign exchange operation authorised for
EC business. All exceptions to this rule must be duly justified.

Price risk

The ECSC in liquidation is exposed to debt securities price risk because of investments classified on the
balance sheet as available for sale.

7.12. INTEREST RATE RISK

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. Fair value interest risk is the risk that the value of a financial
instrument will fluctuate because of changes in market interest rates. Due to the nature of its activities, the
ECSC in liquidation is exposed to the effect of fluctuations in the prevailing levels of market interest rate on
both its fair value and cash flow risks.

(a) Loans granted from borrowed funds

The interest rate risks that arise from borrowings are generally offset by equivalent loans in terms and condi-
tions (back-to-back operations). If no perfect matching can be reached, derivative financial instruments are
used to reduce the exposure to interest rate movements (see note E.2.3.4.2).

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(b) Debt securities

Debt securities issued at variable rates expose the ECSC in liquidation to cash flow interest rate risk whereas
debt securities at fixed rates expose the Community to fair value interest rate risk. Fixed rate bonds represent
approximately 94 % of the investment portfolio at the balance sheet date (2006: 93 %).

The table below shows the distribution of the ECSC in liquidation holdings (market value excluding accrued
interest) at 31 December 2007:

Segments

Fixed rate investments

Less than
3 months

3 months to
1 year

1 to 10 years

Variable rate
securities

Total

EUR millions

Current accounts

Short term deposits — nominal

AFS portfolio

Percentage

Total

7

42

15

64

4 %

0

0

106

106

7 %

0

0

1 179

1 179

83 %

0

0

87

87

6 %

7

42

1 387

1 436

100 %

As at 31 December 2007, the accrued interest amounted to EUR 29 million for the AFS portfolio.

(c) Interest rate sensitivity analysis

The market price of a debt security depends on the time to maturity, its coupon and the actual yield to
maturity. For the shock analysis all debt securities of the portfolio (incl. Floating Rate Notes) are once priced
at actual yields, then re-priced at yields shifted upwards by 100 bps. The change in market price is the
reported hypothetical loss for the shock analysis. The 100 bps parallel shift is assumed to happen instanta-
loss was about
neously, no time horizon is considered. At 31 December 2007 this hypothetical
EUR 53 million.

7.13. CREDIT RISK

The ECSC in liquidation takes on exposure to credit risk, which is the risk that a counterparty will be unable
to pay amounts in full when due. Guidelines on the choice of counterparties must be applied. Accordingly,
the operating unit will be able to enter into deals only with eligible banks being part of a ‘trading list of
authorized banks’ and having sufficient counterparty limits. Exposure to credit risk is managed through
regular analysis of the ability of borrowers to meet interest and capital repayment obligations. Exposure to
credit risk is also managed by obtaining collateral as well as country, corporate and personal guarantees. At
31 December 2007, EUR 265 million was broken down as follows:

Loans granted to credit institutions

Loans granted to customers

EUR millions

Nominal Amount

41

224

265

Total

77 % of the total amount outstanding is covered by guarantees from a Member State or equivalent bodies
(public institutions or public-sector industrial groupings in the Member States). 17 % of loans outstanding
have been granted to banks or have been guaranteed by banks. 6 % of the outstanding debt (EUR 15 million)
is made up of loans granted to European institutions officials from the former ECSC pension fund (in the
summary table above, loans to officials are included in loans to customers), which are covered by life-and
disability insurances and the respective salaries.

The outstanding loan balance, i.e. 0,1 %, should be considered as presenting a higher degree of risk. It
means that the guarantees received (guarantee bonds put up by private industrial groupings and other
special guarantees) do not generally provide the same level of security in the event of problems.

From a liquidity perspective, the loans granted on borrowed funds are fully covered by a dedicated reserve.
This reserve amounts to EUR 134 million at 31 December 2007. The loans granted on own funds were
covered by another reserve,
formerly called ‘ECSC Special Reserve’. This special reserve amounts to
EUR 48 million at 31 December 2007.

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(a) Cash and deposits with credit institutions — profile of counterparties

At the balance sheet date, 43 % and 57 % of deposits and current account balances are placed with banks
rated (Fitch) F1+ (or equivalent) and F1 (or equivalent), respectively. All deposits and current account
balances are held with banks within the OECD.

(b) Loans and advances — profile of borrowers

Geographical concentrations of the loans granted from borrowed funds (expressed at their outstanding
nominal amount) at the balance sheet date are shown below. Note also that these loans were backed by
guarantees from public bodies, banks or industrial groups except for the United Kingdom where no
guarantee is received.

Greece

France

Italy

United Kingdom

31 December 2007

Number of loans

EUR millions

68

134

0

0

202

Total

1

2

8

0

11

Following a restructuring of debts of a defaulting debtor in 1998, the Commission acquired EUR 204 million
promissory notes from European Investment Bank (rated AAA) in order to re-establish the back-to back
character of the lending/borrowing transaction and thus cover interest rate and currency risk. These promis-
sory notes are not included in the tables above.

Regarding the geographical concentrations of the loans granted on own funds — without loans to European
Institutions officials — (expressed at their outstanding nominal amount) at the balance sheet date, 50 % of
the total of EUR 48 million are granted in Germany, with the rest spread across 12 EU Member States. All
loans were backed by guarantees.

(c) Derivative financial instruments — profile of counterparties

See note E.2.3.4.2.

(d) Available-for-sale securities — profile of issuers

Details of the debt securities (expressed at their fair value) by issuer type and by rating (Standard & Poor's)
at the balance sheet date are as follows:

Sovereign

Multinational Organisations

Banks & Financial Institutions

Other Public Issuer

AAA

AA+

AA

A+

A

A-

BBB+

BBB

31 December 2007

430

91

622

274

Total

1 417

31 December 2007

839

124

215

94

82

40

6

17

EUR millions

EUR millions

%

30 %

6 %

44 %

20 %

100 %

%

59 %

9 %

15 %

7 %

6 %

3 %

0 %

1 %

Total

1 417

100 %

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Concerning the geographical concentrations of the debt securities (expressed at their fair value) at the
balance sheet date 18 % are in Germany, 9 % in the US, 8 % in the UK, 5 % in France and 6 % each in
Austria, Spain and Supranational. The remainder are spread through countries within the OECD.

7.14. LIQUIDITY RISK

The liquidity risk that arises from borrowings is generally offset by equivalent loans in terms and conditions
(back-to-back operations). In case that no perfect matching can be reached, derivative financial instruments
are used to match cash flows.

For the asset and liability management of ECSC in liquidation, the Commission manages liquidity require-
ments based on disbursement forecast with an 11 years horizon obtained through consultations with the
responsible Commission services. Investments are carried out accordingly to meet respective annual require-
ments.

7.15. FAIR VALUE

Loans and borrowings

The estimated fair value of
loan and borrowings is determined using a discounted cash flow model.
According to this model, expected future cash flows are discounted by applying AAA yield curves appro-
priate for the remaining term of maturity.

The estimated fair value of floating rate loans are assumed to approximate their carrying amount since
re-pricing at market interest rates takes place every 3 or 6 months. The estimated fair value of fixed interest
bearing loans and borrowings could not be obtained as the necessary data for calculating these values was
not available.

Available-for-sale securities

The available-for-sale securities are presented at fair value which is the market price plus accrued interests.

Financial instruments measured at fair value

The total amount of the change in fair value estimated using a valuation technique that was recognised in
the economic outturn account during the year is EUR 9 million (net loss) compared to EUR 1 million (net
profit) in 2006. There are no financial instruments measured at fair value using a valuation technique that is
not supported by observable market prices or rates.

Receivables and payables

The nominal value less impairment provision of trade receivables and the nominal value of trade payables
are assumed to approximate their fair values.

Cash and cash equivalents

The fair value of cash and cash equivalents including currents accounts and short-term deposits (of less than
three months) is their carrying amount.

8. RELATED PARTY DISCLOSURES

For the purposes of presenting information on related party transactions concerning the key management of
the European Communities, such persons are shown here under five categories:

Category 1:

the President of the Commission and the President of the Court of Justice

Category 2:

the Vice-presidents of the Commission

Category 3:

the Members of the Commission, the Judges and Advocates General of the Court of Justice,
the President and Members of the Court of First Instance, the President and Members of the
European Civil Service Tribunal,
the Ombudsman and the European Data Protection
Supervisor

Category 4:

the President and Members of the Court of Auditors

Category 5:

the highest ranking civil servants of the Institutions and Agencies.

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KEY MANAGEMENT FINANCIAL ENTITLEMENTS

Entitlement (per employee)

Category 1

Category 2

Category 3

Category 4

Category 5

Basic salary (per month)

23 617,91

21 393,04

17 114,43 —
19 253,73

18 483,59 —
19 681,60

10 882,28 —
17 114,43

Residential allowance (% salary)

Expatriation allowance (% salary)

15 %

N/A

15 %

N/A

15 %

N/A

15 %

N/A

N/A

16 %

EUR

Representation allowance

1 418,07

911,38

500 — 607,71

Family allowances:

Household (% salary)

Dependent child

Pre-school

Education, or

Education outside place of work

Presiding judges allowance

Annual travel costs

Transfers to Member State:

Education allowance (1)

% of salary (1)

% of salary with no cc

2 % + 158,86

2 % + 158,86

2 % + 158,86

2 % + 158,86

2 % + 158,86

319,27

67,83

235,53

471,06

N/A

319,27

67,83

235,53

471,06

319,27

67,83

235,53

471,06

N/A

500 — 810,74

N/A

Yes

5 %

N/A

Yes

5 %

N/A

Yes

5 %

319,27

67,83

235,53

471,06

N/A

N/A

N/A

Yes

5 %

319,27

67,83

235,53

471,06

N/A

N/A

Yes

Yes

5 %

Representation expenses

reimbursed

reimbursed

reimbursed

N/A

N/A

max 25 %

max 25 %

max 25 %

max 25 %

max 25 %

Taking up duty:

Installation expenses

Family travel expenses

Moving expenses

Leaving office:

47 235,82

reimbursed

reimbursed

42 786,08

reimbursed

reimbursed

38 507,46

reimbursed

reimbursed

36 967,17

reimbursed

reimbursed

Resettlement expenses

23 617,91

21 393,04

19 253,73

Family travel expenses

Moving expenses

Transition (% salary) (2)

Sickness insurance

reimbursed

reimbursed

reimbursed

reimbursed

reimbursed

reimbursed

40 % — 65 %

40 % — 65 %

40 % — 65 %

40 % — 65 %

covered

covered

covered

covered

18 483,59 —
19 681,60

reimbursed

reimbursed

reimbursed

reimbursed

reimbursed

reimbursed

reimbursed

reimbursed

N/A

optional

Pension (% salary, before tax)

Max 70 %

Max 70 %

Max 70 %

Max 70 %

Max 70 %

Deductions:

Community tax

Sickness insurance (% salary)

Special levy on salary

Pension deduction

Number of persons at 31.12.2007

(1) With correction coefficient (cc) applied.
(2) Paid for the first 3 years following departure.

8 % — 45 %

8 % — 45 %

8 % — 45 %

8 % — 45 %

8 % — 45 %

1,8 %

3,79 %

N/A

2

1,8 %

3,79 %

N/A

5

1,8 %

3,79 %

N/A

92

1,8 %

3,79 %

N/A

27

1,8 %

3,79 %

10,25 %

77

9. EVENTS AFTER THE BALANCE SHEET DATE

At the date of approval of these accounts, no material issues came to the attention of the accounting officer
of the Commission or were reported to him that would require separate disclosure under this section. The
annual accounts and related notes were prepared using the most recently available information and this is
reflected in the information presented above.

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10. CONSOLIDATED ENTITIES

A. CONTROLLED ENTITIES

1. Institutions and consultative bodies

Committee of the Regions

Council of the European Union

Court of Justice of the European Union

European Commission

European Court of Auditors

European Data Protection Supervisor

European Economic and Social Committee

European Ombudsman

European Parliament

2. Community Agencies

European Agency for Reconstruction

European Agency for Safety and Health at Work

European Aviation Safety Agency

European Centre for Disease Prevention and Control

European Centre for the Development of Vocational Training

European Environment Agency

European Food Safety Authority

European Foundation for the Improvement of Living and Working Conditions

European Maritime Safety Agency

European Medicines Agency

European Monitoring Centre for Drugs and Drug Addiction

European Union Agency for Fundamental Rights

European Network and Information Security Agency

European Training Foundation

Translation Centre for the Bodies of the European Union

European Agency for the Management of Operational Co-operation at the External Borders of the Member
States of the European Union

European GNSS Supervisory Authority

Office for Harmonisation in the Internal Market (Trade Marks and Designs)

European Railway Agency

Community Plant Variety Office

Community Fisheries Control Agency (1)

3. Executive Agencies

Executive Agency for Competitiveness and Innovation

Education, Audiovisual & Culture Executive Agency

Executive Agency for the Public Health Programme (1)

4. Other controlled entities

European Coal and Steel Community (in liquidation)

Eurojust (2)

European Police College (CEPOL) (2)

(1) Consolidated for the first time in 2007.
(2) Decentralised body of the EU falling under the pillar ‘Police & Judicial Co-operation in criminal matters’.

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B. JOINT VENTURES

ITER International Fusion Energy Organisation (portion of interest/voting power: 45,5 %)
SESAR Joint Undertaking (valued at cost)
Galileo Joint Undertaking in liquidation (portion of interest/voting power: 91,6 %/49,3 %)

C. ASSOCIATES

European Investment Fund (portion of interest/voting power: 25 %)

11. NON-CONSOLIDATED ENTITIES

Although the Communities manage the assets of the below mentioned entities, they do not meet the
requirements to be consolidated and so are not included in the European Communities accounts.

11.1. THE EUROPEAN DEVELOPMENT FUND (EDF)

The European Development Fund (EDF) is the main instrument for Community aid for development coop-
eration in the ACP countries and the Overseas Countries and Territories (OCT). Each Fund is concluded for a
period of five years. Since the conclusion of the first partnership convention in 1964 (Yaoundé I Conven-
tion), the EDF cycles have generally followed that of the partnership conventions of Yaoundé and Lomé. The
ninth EDF was concluded at the same time as the most recent partnership convention, the so-called
Cotonou Agreement, on June 2000. The Cotonou Agreement was signed by 77 States: 48 countries of
Sub-Sahara Africa; 15 countries of the Caribbean and 14 countries of the Pacific. The ninth EDF has been
allocated EUR 13,5 billion over a period of five years, that expired in December 2007. The Cotonou agree-
ment makes provision for only 2 financial instruments under the EDF: an instrument for granting subsidies
for long-term development support (non-reimbursable aid); and an investment facility to promote the
private sector in ACP States. The Cotonou agreement was revised in Luxembourg in June 2005 and the
related 10th EDF will enter into force in 2008.

The EDF is not funded from the Communities' Budget but from direct contributions from Member States,
which are agreed in negotiations. The amount a Member State pays is, amongst other things, partly based
on their GNP and partly based on their historical links (i.e. previous colonies) with the ACP States involved.
The Commission and EIB manage the resources of the EDF.

The EDF is governed by its own Financial Regulation (OJ L 83, 1.4.2003, p. 1) which foresees the presenta-
tion of its own financial statements, separately from those of the Communities. The EDFs are subject to the
external control of the Court of Auditors and the Parliament. For information purposes, the balance sheet
and economic outturn account of the EDF are shown:

BALANCE SHEET — EDF

31.12.2007

31.12.2006

EUR millions

Current assets:

Receivables

Pre-financing

Other current assets

Cash & cash equivalents

Total

Current liabilities:

Accounts payable

Net assets

Funds & reserves

Called-up fund capital

Result for the year

Results carried forward from previous years

Reserves

Funds & reserves

Total assets

Total liabilities

8

957

(3)

388

1 350

1 350

(704)

(704)

646

25 019

(3 256)

(22 411)

1 294

646

217

2 809

1

291

3 318

3 318

(2 096)

(2 096)

1 222

29 900

(2 924)

(26 788)

1 034

1 222

10.11.2008

EN

Official Journal of the European Union

C 287/83

ECONOMIC OUTTURN ACCOUNT — EDF

Total revenue

Operating expenses

Operating Expenses:

Programme aid

Macro-economic support

Interest-rate subsidies

Emergency aid

Refugee aid

Risk capital

Stabex

Sysmin

Transfers from former EDFs

Structural adjustments

Debt relief

Sectorial policy

Compensation export receipts

Institutional support

Intra ACP projects

Congo Fund

Total

Administrative expenses:

2007

0

638

427

1

155

(6)

58

98

32

5

(6)

180

1 149

84

30

382

17

3 244

31

3 275

(Deficit) from operating activities

(3 275)

Non-operating activities

Financial income

Provisions

Surplus from non-operating activities

19

0

19

EUR millions

2006

0

750

408

1

130

7

63

189

30

15

1

17

911

53

32

339

(13)

2 933

24

2 957

(2 957)

31

2

33

Result for the year

( 3 256)

(2 924)

11.2. THE SICKNESS INSURANCE SCHEME

The Sickness Insurance Scheme is the scheme that provides medical assurance to the staff of the various
European Communities bodies. The funds of the Scheme are its own property and are not controlled by the
European Communities, although its financial assets are managed by the Commission. The Scheme is
funded by contributions from its members (staff) and from the employers (the Institutions/Agencies/bodies).
Any surplus remains within the Scheme.

The scheme has four separate entities — the main scheme covering staff of the Institutions, Agencies of the
European Communities, and three smaller schemes covering staff in the European University of Florence, the
European schools and staff working outside the EC such as staff in the EU delegations. The total assets of
the Scheme at 31 December 2007 totalled EUR 287 million (2006: EUR 279 million).

C 287/84

EN

Official Journal of the European Union

10.11.2008

CONSOLIDATED REPORTS ON IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN
COMMUNITIES AND EXPLANATORY NOTES

CONTENTS

PART II

A.

Consolidated reports on implementation of the budget:

1. 2007 budget outturn . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .

2. Overview of budget implementation. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .

Revenue:

3. Consolidated summary of the implementation of budget revenue . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .

4. Consolidated summary of implementation of budget revenue by Institution . . . . . . . . . . . . . . . . . .. . . . . . .

Expenditure:

5. Breakdown and changes in commitment and payment appropriations by policy area . . . . . . . . . . . .

6. Implementation of commitment appropriations by policy area . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

7. Implementation of payment appropriations by policy area . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .

8. Breakdown and changes in commitment and payment appropriations by financial

perspective . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . .

9. Implementation of commitment appropriations by financial perspective. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .

10. Implementation of payment appropriations by financial perspective . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .

11. Implementation of commitment and payment appropriations by Institution . . . . . . . . . . . . . . . . . . . . . . .

RAL:

12. Consolidated summary of commitments outstanding . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .

13. Breakdown of commitments outstanding by year of origin. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . .

Agencies:

14. Agency income: budget forecasts, entitlements and amounts received . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .

15. Commitment and payment appropriations by Agency. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .

Page

85

85

87

88

89

90

92

93

94

94

95

96

96

98

99

16. Budget outturn including Agencies . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .

100

B.

Explanatory notes to the consolidated reports on implementation of the budget:

1. Budgetary principles, structures and appropriations. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .

2. Explanation of budgetary revenue and expenditure and commentary on the 2007 outturn . . .

101

105

10.11.2008

EN

Official Journal of the European Union

C 287/85

SECTION A: CONSOLIDATED REPORTS ON IMPLEMENTATION OF THE BUDGET (1)

RESULT OF IMPLEMENTATION OF THE BUDGET

1. BUDGET OUTTURN 2007

EFTA — EEA

European
Communities

Total 2007

Total 2006

EUR millions

Revenue for the financial year

Payments against current year appropriations

Payment appropriations carried over to year N+1

EFTA appropriations carried over from year N-1

Cancellation of unused payment appropriations carried over from
year N-1

Exchange differences for the year

Budget Outturn

137

(122)

0

(2)

0

0

13

117 426

(112 906)

(3 114)

0

246

(123)

1 529

117 563

(113 028)

(3 114)

(2)

246

(123)

1 542

The budget surplus for the European Communities is returned to the Member States during the
following year through deduction of their amounts due for that year.

2. OVERVIEW OF BUDGET REVENUE AND BUDGET IMPLEMENTATION 2007

REVENUE

108 423

(105 412)

(1 401)

0

263

(16)

1 857

EUR millions

Title

Income
Appropria-
tions

Entitlements
established

%

Revenue

Receipts as %
of budget

Outstanding

1

2

3=2/1

4

5=4/1

6=2-4

1. Own resources

3.

Surpluses, balances and adjustments

4. Revenue accruing from persons working with the

institutions & other Community bodies

5. Administrative operation of the institution

6. Contributions by third parties, repayment of expendi-

ture, financial corrections

7.

Interest on late payments and fines

8. Borrowing and lending operations

9. Miscellaneous revenue

106 203

107 574

101,29 %

106 159

5 939

950

5 937

941

99,96 %

99,07 %

5 937

933

99,96 %

99,97 %

98,13 %

81

190

438

25

20

334

414,67 %

251

311,04 %

3 951

2 085,13 %

3 744

1 975,68 %

8 921

2 036,76 %

39

70

156,08 %

345,92 %

472

39

28

107,83 %

156,08 %

140,36 %

1 415

0

9

83

207

8 449

0

41

Total

113 846

127 767

112,23 %

117 563

103,27 %

10 205

(1) It should be noted that due to the rounding of figures into millions of euro, some financial data in these budgetary tables

may appear not to add-up.

C 287/86

EN

Official Journal of the European Union

10.11.2008

EXPENDITURE

EUR millions

Heading

Payment
Appropria-
tions

Payments
made

%

Appropria-
tions carried
over

%

Appropria-
tions lapsing

%

1

2

3=2/1

4

5=4/1

6=1-2-4

7=6/1

1.

2.

Sustainable growth

Preservation & management
resources

of

natural

45 462

57 020

43 713

56 648

3. Citizenship, freedom, security and justice

4. The EU as a global partner

5. Administration

6. Compensations

1 356

7 780

7 960

445

1 050

7 292

6 806

96,15 %

95,84 %

77,41 %

93,73 %

85,50 %

445

100,00 %

1 359

1 958

163

184

940

0

2,99 %

3,43 %

11,99 %

2,37 %

11,81 %

0,00 %

390

414

144

304

214

0

0,86 %

0,73 %

10,60 %

3,90 %

2,69 %

0,00 %

Total

120 021

113 953

94,94 %

4 603

3,84 %

1 465

1,22 %

3. CONSOLIDATED SUMMARY OF THE IMPLEMENTATION OF BUDGET REVENUE 2007

Title

Income appropriations

Entitlements established

Revenue

Initial

Final

Current year

Carried

Total

Current year

Carried

Total

EUR millions

Receipts as % of
budget

Outstanding

1. Own resources

114 288

106 203

106 145

1 429

107 574

104 806

1 353

106 159

3.

4.

Surpluses, balances and adjustments

Revenue accruing from persons working with
the institutions & other Community bodies

5. Administrative operation of the institution

6.

7.

8.

Contributions by third parties,
expenditure, financial corrections

repayment of

Interest on late payments and fines

Borrowing and lending operations

9. Miscellaneous revenue

0

950

81

10

123

25

20

5 939

950

81

190

438

25

20

5 936

915

309

3 734

3 446

39

59

0

26

25

217

5 475

0

10

5 937

941

334

3 951

8 921

39

70

5 937

908

230

3 639

(74)

39

26

0

24

20

105

546

0

2

5 937

933

251

3 744

472

39

28

99,96 %

99,97 %

98,13 %

311,04 %

1 975,68 %

107,83 %

156,08 %

140,36 %

1 415

0

9

83

207

8 449

0

41

Total

115 497

113 846

120 585

7 183

127 767

115 512

2 051

117 563

103,27 %

10 205

Chapter

10. Agricultural duties

11.

12..

13.

Sugar levies

Custom duties

VAT

14. GNI

15.

Correction of budgetary imbalances

Detail Title 1: Own resources

Income appropriations

Entitlements established

Revenue

Initial

Final

Current year

Carried

Total

Current year

Carried

Total

EUR millions

Receipts as % of
budget

Outstanding

1 487

533

15 288

17 827

79 153

0

1 487

(38)

15 084

18 517

71 153

0

1 406

(30)

15 179

18 469

71 062

59

388

28

1 010

0

2

0

1794

(3)

16 189

18 469

71 065

59

1 016

(58)

14 262

18 468

71 057

61

388

28

937

0

0

0

1 404

(31)

15 200

18 468

71 057

61

94,43 %

81,44 %

100,77 %

99,73 %

99,87 %

390

28

989

2

7

(2)

Total

114 288

106 203

106 145

1 429

107 574

104 806

1 353

106 159

99,96 %

1 415

Chapter

30.

31.

Surplus from previous year

VAT surplus

32. GNI surplus

34. Adjustment for non-participation in JHAP

35. United Kingdom correction

Total

Detail Title 3: Surpluses available

Income appropriations

Entitlements established

Revenue

Initial

Final

Current year

Carried

Total

Current year

Carried

Total

EUR millions

Receipts as % of
budget

Outstanding

0

0

0

0

0

0

2 109

961

2 869

0

0

2 109

973

2 857

0

(2)

5 939

5 936

0

0

0

0

0

0

2 109

973

2 857

0

(2)

2 109

973

2 857

0

(2)

5 937

5 937

0

0

0

0

0

0

100,00 %

101,22 %

99,60 %

2 109

973

2 857

0

(2)

5 937

99,97 %

0

0

0

0

0

0

.

1
0
1
1
2
0
0
8

.

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C

2
8
7
/
8
7

Title

European Parliament

Council

Commission

Court of Justice

Court of Auditors

Economic and Social Committee

Committee of the Regions

Ombudsman

European Data protection Supervisor

4. CONSOLIDATED SUMMARY OF THE IMPLEMENTATION OF BUDGET REVENUE 2007 BY INSTITUION

Income appropriations

Entitlements established

Revenue

Initial

Final

Current year

Carried

Total

Current year

Carried

Total

EUR millions

Receipts as % of
budget

Outstanding

85

52

85

52

198

86

20

13

218

100

135

85

10

10

144

94

115 290

113 639

120 227

7 148

127 375

115 220

2 030

117 250

35

17

11

6

1

1

35

17

11

6

1

1

37

17

13

5

1

0

1

1

0

0

0

0

38

17

13

5

1

0

37

16

13

5

1

0

1

1

0

0

0

0

37

17

13

5

1

0

170,21 %

181,38 %

103,18 %

106,17 %

99,39 %

116,93 %

97,24 %

99,49 %

75,36 %

74

5

10 125

0

1

0

0

0

0

Total

115 497

113 846

120 585

7 183

127 767

115 512

2 051

117 563

103,27 %

10 205

C

2
8
7
/
8
8

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

1
0
1
1
2
0
0
8

.

5. BREAKDOWN AND CHANGES IN COMMITMENT AND PAYMENT APPROPRIATIONS BY POLICY AREA

Commitment appropriations

Payment appropriations

EUR millions

Policy Area

Approp
adopted

Modifications

Approp carried
over

Assigned
revenue

Total additional

Total
authorized

Approp
adopted

Modifications

Carried over

Assigned
revenue

Total additional

Total
authorized

1

2

3

4

5=3+4

6=1+2+5

7

8

9

10

11=9+10

12=7+8+11

01

02

03

04

Economic and financial affairs

Enterprise

Competition

Employment and social affairs

05 Agriculture and rural development

06

07

08

09

Energy and transport

Environment

Research

Information society and media

10 Direct research

11

12

13

14

15

16

Fisheries and maritime affairs

Internal market

Regional policy

Taxation and customs union

Education and culture

Communication

17 Health and consumer protection

18 Area of freedom, security and justice

19

20

External relations

Trade

21 Development and relations with

ACP States

22

Enlargement

23 Humanitarian aid

24

25

26

27

Fight against fraud

Commission's policy coordination and
legal advice

Commission's administration

Budget

28 Audit

29

Statistics

495

540

72

11 431

54 940

1 809

353

3 565

1 435

348

955

56

34 694

110

1 223

201

545

671

3 527

72

1 244

1 065

750

73

169

922

519

9

121

(182)

(10)

0

(546)

(401)

(13)

0

77

(57)

0

0

(1)

732

0

0

0

1

0

281

0

(3)

(19)

0

0

1

58

(14)

0

(1)

0

0

0

5

0

9

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

0

0

0

18

44

3

18

18

45

3

24

2 532

2 532

80

21

408

159

314

4

2

8

4

88

21

408

159

314

4

2

8

4

218

218

3

26

21

75

2

3

26

22

75

2

169

169

87

10

0

8

67

3

0

9

87

10

0

8

68

3

0

9

330

575

74

10 908

57 041

1 885

374

4 049

1 537

663

959

57

510

584

72

11 662

53 652

1 195

329

2 693

1 175

359

1 223

58

(203)

(116)

0

(27)

(401)

(186)

(87)

(226)

(24)

0

(20)

(1)

35 434

27 129

(457)

114

1 440

204

572

693

3 883

74

1 410

114

1 158

192

288

522

3 008

68

1 163

1 133

1 853

759

73

178

1 048

509

10

130

750

69

169

922

519

9

119

0

31

0

1

(120)

288

0

(19)

(128)

0

0

1

59

(14)

0

(1)

5

17

7

15

24

17

23

42

16

35

39

5

13

5

14

27

267

6

55

5

35

13

4

6

18

106

9

1

7

17

65

3

14

22

81

10

30

2 527

2 551

116

19

803

269

262

6

2

8

4

246

3

27

21

80

2

165

55

10

0

7

68

3

0

8

133

41

844

285

297

44

7

21

9

260

30

294

27

134

7

200

69

15

6

25

174

12

1

16

329

550

82

11 664

55 802

1 142

284

3 312

1 436

656

1 248

64

26 693

123

1 450

223

582

428

3 429

76

1 344

1 793

764

75

194

1 155

518

11

134

.

1
0
1
1
2
0
0
8

.

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C

2
8
7
/
8
9

Commitment appropriations

Payment appropriations

EUR millions

Policy Area

Approp
adopted

Modifications

Approp carried
over

Assigned
revenue

Total additional

Total
authorized

Approp
adopted

Modifications

Carried over

Assigned
revenue

Total additional

Total
authorized

1

2

3

4

5=3+4

6=1+2+5

7

8

9

10

11=9+10

12=7+8+11

30

31

40

Pensions

Language Services

Reserves

90 Other Institutions

997

359

735

2 577

0

(2)

(68)

0

0

0

0

5

0

47

0

116

0

47

0

121

997

403

667

997

359

0

2 698

2 577

0

(2)

0

0

0

13

0

326

0

47

0

143

0

59

0

469

997

416

0

3 047

Total

126 551

(168)

21

4 477

4 498

130 881

115 497

(1 651)

1 174

5 002

6 176

120 021

6.

IMPLEMENTATION OF COMMITMENT APPROPRIATIONS BY POLICY AREA

Policy Area

Commit-
ment
appropria-
tions
authorised

From the
year's
approp

Commitments made

Appropriations carried over to 2008

Appropriations lapsing

From
carry-overs

Assigned
revenue

Total

%

Assigned
revenue

Carry-overs
by decision

Total

%

From the
year's
approp

Approp
Carried
over

Assigned
revenue
(EFTA)

Total

%

EUR millions

1

2

3

4

5=2+3+4

6=5/1

7

8

9=7+8

10=9/1

11

12

13

01

02

03

04

Economic and financial affairs

Enterprise

Competition

330

575

74

293

521

70

Employment and social affairs

10 908

10 847

05 Agriculture and rural development

57 041

51 471

06

07

08

09

Energy and transport

Environment

Research

1 885

1 786

374

342

4 049

3 635

Information society and media

1 537

1 374

10 Direct research

Fisheries and maritime affairs

Internal market

Regional policy

663

959

57

348

706

54

35 434

34 874

Taxation and customs union

114

99

Education and culture

Communication

1 440

1 220

204

195

11

12

13

14

15

16

0

0

0

5

0

8

0

0

0

0

0

0

0

0

0

0

16

17

2

9

309

538

93,57 %

93,47 %

72

96,74 %

10 861

99,57 %

1

28

1

9

0

0

0

14

1

28

1

23

0,41 %

4,86 %

1,90 %

0,21 %

20

9

1

24

556

52 027

91,21 %

1 976

1 409

3 386

5,94 %

1 628

42

7

204

117

53

1

1

6

2

1 836

97,41 %

349

93,22 %

3 839

94,80 %

1 491

97,01 %

402

706

60,61 %

73,68 %

55

96,48 %

34 880

98,44 %

101

88,67 %

107

1 327

92,12 %

2

197

96,50 %

37

13

204

42

261

3

1

1

2

111

1

0

0

0

0

0

2

0

38

13

204

42

2,01 %

3,59 %

5,05 %

2,73 %

261

39,36 %

5

1

0,55 %

1,54 %

134

135

0,38 %

0

0

0

2

1,61 %

111

7,69 %

1

0,61 %

10

12

6

4

0

247

1

419

11

3

6

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

14=11+12
+13

15=14/1

20

10

1

24

6,02 %

1,67 %

1,36 %

0,22 %

1 628

2,85 %

11

12

6

4

0

0,59 %

3,19 %

0,15 %

0,26 %

0,03 %

247

25,77 %

1

419

11

3

6

1,98 %

1,18 %

9,72 %

0,18 %

2,89 %

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

C

2
8
7
/
9
0

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

1
0
1
1
2
0
0
8

.

Policy Area

Commit-
ment
appropria-
tions
authorised

From the
year's
approp

Commitments made

Appropriations carried over to 2008

Appropriations lapsing

From
carry-overs

Assigned
revenue

Total

%

Assigned
revenue

Carry-overs
by decision

Total

%

From the
year's
approp

Approp
Carried
over

Assigned
revenue
(EFTA)

Total

%

1

2

3

4

5=2+3+4

6=5/1

7

8

9=7+8

10=9/1

11

12

13

14=11+12
+13

15=14/1

EUR millions

.

1
0
1
1
2
0
0
8

.

17 Health and consumer protection

18 Area of freedom, security and justice

19

20

External relations

Trade

572

693

486

613

3 883

3 743

74

70

21 Development and relations with ACP

1 410

1 212

Fight against fraud

Commission's policy coordination and
legal advice

Commission's administration

1 048

24

25

26

27

States

22

Enlargement

23 Humanitarian aid

Budget

28 Audit

29

30

31

40

Statistics

Pensions

Language Services

Reserves

1 133

1 029

759

73

178

509

10

130

997

403

667

749

69

165

957

498

9

107

994

352

0

90 Other Institutions

2 698

2 400

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

4

16

12

39

1

93

23

9

0

5

38

2

0

7

0

38

0

67

502

626

87,82 %

90,29 %

3783

97,42 %

72

97,02 %

1 305

92,55 %

1 053

92,90 %

758

69

169

995

499

99,83 %

94,72 %

95,39 %

94,97 %

98,10 %

9

91,82 %

114

994

390

0

87,71 %

99,70 %

96,63 %

0,00 %

9

9

35

1

75

64

1

0

3

29

2

0

2

0

8

0

0

2

2

0

22

14

0

0

0

0

0

0

0

0

0

0

9

11

37

1

97

78

1

0

3

29

2

0

2

0

9

0

2 472

91,63 %

49

119

168

1,65 %

1,53 %

0,95 %

1,27 %

6,90 %

6,86 %

0,10 %

0,01 %

1,96 %

2,77 %

0,35 %

1,74 %

1,58 %

0,00 %

2,12 %

0,00 %

6,21 %

60

57

63

1

8

3

1

4

5

24

8

1

14

3

5

667

58

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

2

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

1

10,52 %

E
N

60

57

63

1

8

3

1

4

5

24

8

1

14

3

5

667

58

8,17 %

1,63 %

1,71 %

0,55 %

0,24 %

0,07 %

5,27 %

2,65 %

2,25 %

1,55 %

6,44 %

10,72 %

0,30 %

1,26 %

100,0 %

2,16 %

Total

130 881

121 285

19

1 494

122 798

93,82 %

2 982

1 717

4 699

3,59 %

3 381

3 383

2,59 %

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C

2
8
7
/
9
1

7.

IMPLEMENTATION OF PAYMENT APPROPRIATIONS BY POLICY AREA

Policy Area

Payment
approp
authorised

From the
year's
approp

From
carry-
overs

Assigned
revenue

Total

%

Automatic
carry-
overs

Carry-
overs by
decision

Assigned
revenue

Total

%

From the
year's
approp

From
carry-
overs

Assigned
revenue
(EFTA)

Total

%

Payments made

Appropriations carried over to 2008

Appropriations lapsing

EUR millions

1

2

3

4

5=2+3+4

6=5/1

7

8

9

10=7+8+9

11=10/1

12

13

14

01

Economic and financial affairs

Enterprise

Competition

329

550

82

242

336

64

Employment and social affairs

11 664

11 531

05 Agriculture and rural development

55 802

53 045

06

07

08

09

Energy and transport

Environment

Research

1 142

284

886

203

3 312

2 415

Information society and media

1 436

1 112

10 Direct research

656

318

Fisheries and maritime affairs

1 248

1 034

Internal market

Regional policy

64

49

26 693

26 568

Taxation and customs union

123

78

Education and culture

1 450

1 150

02

03

04

11

12

13

14

15

16

Communication

17 Health and consumer protection

18 Area of freedom, security and justice

19

20

External relations

Trade

223

582

428

159

228

240

3 429

3 171

76

60

21 Development and relations with ACP

1 344

1 081

States

22

Enlargement

23 Humanitarian aid

24

25

Fight against fraud

Commission's policy coordination and
legal advice

1 793

1 690

764

75

194

742

56

150

4

12

6

11

16

13

17

27

12

32

3

4

9

5

12

22

210

5

38

4

23

6

4

4

17

16

22

1

5

262

79,75 %

370

67,28 %

71

86,65 %

11 547

99,00 %

624

53 685

96,21 %

20

12

236

103

56

2

1

6

2

99

2

10

13

55

1

89

919

80,43 %

232

81,64 %

2 678

80,88 %

1 227

85,40 %

406

61,87 %

1 039

83,25 %

54

85,18 %

26 583

99,59 %

85

68,93 %

1 261

86,95 %

183

81,94 %

448

76,88 %

259

60,41 %

3 265

95,20 %

65

85,87 %

1 193

88,77 %

52

1 749

97,51 %

9

0

4

756

98,87 %

60

79,62 %

170

87,53 %

5

22

7

19

24

17

16

43

15

33

5

5

13

6

15

17

26

8

44

5

29

17

6

6

15

0

0

0

0

37

50

0

0

0

0

4

0

0

0

0

2

0

82

0

0

0

0

0

0

0

2

40

2

9

7

2,11 %

63

11,37 %

9

10,74 %

28

0,24 %

59

110

1

84

1 904

1 965

3,52 %

145

95

7

567

166

206

3

1

1

2

163

14,25 %

23

8,11 %

609

18,40 %

181

12,58 %

239

36,39 %

56

24

9

24

8

13

1,05 %

160

7

10,24 %

14

8

0,05 %

6,44 %

147

162

11,17 %

2

17

8

24

1

77

3

1

0

4

21

43

97

68

6

9,31 %

7,31 %

22,76 %

1,98 %

8,45 %

106

7,87 %

20

1,09 %

7

6

0,90 %

7,77 %

19

9,54 %

2

92

30

25

14

35

71

80

4

33

18

1

7

4

1

5

1

4

8

4

5

15

4

4

36

1

4

0

2

5

57

1

17

1

12

7

1

2

1

15=12+
13+14

16=15/1

60

18,14 %

117

21,34 %

2

89

2,61 %

0,76 %

152

0,27 %

61

29

24

29

11

5,32 %

10,25 %

0,72 %

2,02 %

1,74 %

196

15,71 %

3

96

30

27

20

92

72

97

4

45

25

2

9

6

4,58 %

0,36 %

24,63 %

1,88 %

8,75 %

15,81 %

16,83 %

2,83 %

5,68 %

3,36 %

1,40 %

0,23 %

12,60 %

2,93 %

0

2

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

C

2
8
7
/
9
2

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

1
0
1
1
2
0
0
8

.

Policy Area

Payment
approp
authorised

From the
year's
approp

From
carry-
overs

Assigned
revenue

Total

%

Automatic
carry-
overs

Carry-
overs by
decision

Assigned
revenue

Total

%

From the
year's
approp

From
carry-
overs

Assigned
revenue
(EFTA)

Total

%

Payments made

Appropriations carried over to 2008

Appropriations lapsing

EUR millions

1

2

3

4

5=2+3+4

6=5/1

7

8

9

10=7+8+9

11=10/1

12

13

14

Commission's administration

1 155

91

30

26

27

Budget

28 Audit

29

30

31

40

Statistics

Pensions

Language Services

Reserves

844

489

8

95

994

328

0

518

11

134

997

416

0

965

498

83,60 %

96,16 %

9

83,04 %

102

994

373

76,37 %

99,70 %

89,78 %

0

0,00 %

2 447

80,31 %

1

0

2

0

34

0

67

1 576

113 953

94,94 %

8

1

5

0

11

0

295

925

113

9

1

7

0

24

0

316

888

0

0

0

0

0

0

0

119

295

37

151

13,06 %

2

0

6

0

12

0

76

11

1

13

0

36

0

2,08 %

9,42 %

9,44 %

0,00 %

8,66 %

0,00 %

511

16,77 %

23

8

1

17

3

5

0

58

3 421

4 603

3,84 %

1 211

15

1

0

2

0

1

0

31

249

90 Other Institutions

3 047

2 085

Total

120 021

111 452

8. BREAKDOWN AND CHANGES IN COMMITMENT AND PAYMENT APPROPRIATIONS BY FINANCIAL PERSPECTIVE

15=12+
13+14

16=15/1

38

9

1

19

3

6

0

89

3,33 %

1,76 %

7,54 %

14,18 %

0,30 %

1,56 %

0,00 %

2,92 %

1 465

1,22 %

0

0

0

0

0

0

0

0

5

EUR millions

Financial Perspective Heading

Appropriations
adopted

Modifications
(Transfers and
AB)

Appropriations
carried over

Assigned
revenue

Total additional

Total
authorised

Appropriations
adopted

Modifications
(Transfers and
AB)

Carried over

Assigned
revenue

Total additional

Total authorised

1

2

3

4

5=3+4

6=1+2+5

7

8

9

10

11=9+10

12=7+8+11

Commitment appropriations

Payment appropriations

1

2

3

4

Sustainable growth

Preservation and management of natural
resources

Citizenship, freedom, security and justice

The EU as a global partner

5 Administration

6

Compensations

54 854

56 250

1 247

6 812

6 942

445

(2)

(400)

198

0

36

0

15

0

0

0

6

0

1 193

2 549

98

330

307

0

1 208

2 549

98

330

313

0

56 060

58 399

1 544

7 142

7 291

445

44 861

54 719

1 178

7 353

6 942

445

(1 239)

(562)

51

64

36

0

124

321

19

63

647

0

1 716

2 543

109

300

335

0

1 840

2 863

128

363

982

0

45 462

57 020

1 356

7 780

7 960

445

Total

126 551

(168)

21

4 477

4 498

130 881

115 497

(1 651)

1 174

5 002

6 176

120 021

.

1
0
1
1
2
0
0
8

.

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C

2
8
7
/
9
3

9.

IMPLEMENTATION OF COMMITMENT APPROPRIATIONS BY FINANCIAL PERSPECTIVE

Commitments made

Appropriations carried over to 2008

Appropriations lapsing

EUR millions

Financial Perspective Heading

Commit-
ment
appropria-
tions
authorised

From the
year's
appropria-
tions

From carry-
overs

From
assigned
revenue

Total

%

Assigned
revenue

Carry-overs
by decision

Total

%

From the
year's
appropria-
tions

Appropria-
tions
carried over

Assigned
revenue
(EFTA)

1

2

3

4

5=2+3+4

6=5/1

7

8

9=7+8

10=9/1

11

12

13

Total

%

14=11+12
+13

15=14/1

1

2

3

4

Sustainable growth

Preservation and management of natural
resources

Citizenship, freedom, security and justice

The EU as a global partner

5 Administration

6

Compensations

56 060

58 399

53 702

52 563

1 544

7 142

7 291

445

1 368

6 479

6 729

445

14

0

0

0

5

0

540

558

54

158

183

0

54 256

96,78 %

53 122

90,96 %

652

1 990

131

1 363

783

3 354

1 422

6 637

6 918

92,10 %

92,92 %

94,88 %

445

100,0 %

44

171

124

0

2

102

119

0

46

274

243

0

1,40 %

5,74 %

2,98 %

3,83 %

3,34 %

0,00 %

1 020

1 924

76

232

129

0

Total

130 881

121 285

19

1 494

122 798

93,82 %

2 982

1 717

4 699

3,59 %

3 381

10.

IMPLEMENTATION OF PAYMENT APPROPRIATIONS BY FINANCIAL PERSPECTIVE

1

0

0

0

1

0

2

1

0

0

0

0

0

1

1 022

1 924

76

232

130

0

1,82 %

3,29 %

4,92 %

3,25 %

1,78 %

0,00 %

3 383

2,59 %

EUR millions

Payments made

Appropriations carried over to 2008

Appropriations lapsing

Financial Perspective Heading

Payment
approp
authorised

From the
year's
appropria-
tions

From
carry-
overs

From
assigned
revenue

Total

%

Automatic
carry-
overs

Carry-
overs by
decision

Assigned
revenue

Total

%

From the
year's
appropria-
tions

From
carry-
overs

Assigned
revenue
(EFTA)

1

2

3

4

5=2+3+4

6=5/1

7

8

9

10=7+8+9

11=10/1

12

13

14

1

2

3

4

Sustainable growth

Preservation and management of natural
resources

Citizenship, freedom, security and justice

The EU as a global partner

5 Administration

6

Compensations

45 462

43 085

57 020

53 796

1 356

7 780

7 960

445

995

7 054

6 077

445

Total

120 021

111 452

90

220

15

37

563

0

925

539

632

39

201

166

0

43 713

96,15 %

54 648

95,84 %

1 050

77,41 %

7 292

93,73 %

6 806

85,50 %

445

100,00 %

1 576

113 953

94,94 %

136

40

10

50

652

0

888

50

7

84

35

119

0

295

1 173

1 911

1 359

1 958

2,99 %

3,43 %

69

99

169

0

163

184

940

11,99 %

2,37 %

11,81 %

0

0,00 %

352

313

139

277

130

0

34

101

4

26

84

0

3 421

4 603

3,84 %

1 211

249

4

0

1

0

0

0

5

Total

%

15=12+
13+14

16=15/1

390

414

144

304

214

0

0,86 %

0,73 %

10,60 %

3,90 %

2,69 %

0,00 %

1 465

1,22 %

C

2
8
7
/
9
4

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

.

1
0
1
1
2
0
0
8

.

11.

IMPLEMENTATION OF COMMITMENT AND PAYMENT APPROPRIATIONS BY INSTITUTION

Commitment appropriations

Institution

Commit-
ment
appropria-
tions
authorised

From the
year's
approp

From
carry-overs

From
assigned
revenue

Total

%

From
assigned
revenue

Carry-overs
by decision

Total

%

From the
year's
approp

Appropria-
tions
carried
over

Assigned
revenue
(EFTA)

Commitments made

Appropriations carried over to 2008

Appropriations lapsing

EUR millions

Total

%

14=11+12
+13

15=14/1

17

10

3 325

7

12

9

2

1

1

1,14 %

1,54 %

2,59 %

2,57 %

9,58 %

7,82 %

3,65 %

9,52 %

13,86 %

3 383

2,59 %

EUR millions

1

2

3

4

5=2+3+4

6=5/1

7

8

9=7+8

10=9/1

11

12

13

European Parliament

Council

Commission

Court of Justice

Court of Auditors

Economic and Social Committee

Committee of the Regions

Ombudsman

European Data protection Supervisor

1 454

650

1 338

508

128 183

118 885

275

122

116

68

8

5

265

109

104

65

7

4

4

0

15

0

0

0

0

0

0

38

24

1 380

94,92 %

532

81,89 %

13

33

44

75

57

108

3,94 %

16,57 %

1 427

120 327

93,87 %

2 934

1 598

4 532

1

0

3

1

0

0

266

110

107

66

7

4

96,84 %

90,21 %

91,64 %

96,22 %

90,48 %

86,14 %

2

0

1

0

0

0

0

0

0

0

0

0

2

0

1

0

0

0

3,54 %

0,59 %

0,22 %

0,54 %

0,13 %

16

10

3 323

7

12

9

2

1

1

Total

130 881

121 285

19

1 494

122 798

93,82 %

2 982

1 717

4 699

3,59 %

3 381

1

0

1

0

0

0

0

0

0

2

0

0

1

0

0

0

0

0

0

1

Payment appropriations

Institution

Payment
appropria-
tions
authorised

Payments made

Appropriations carried over to 2008

Appropriations lapsing

From the
year's
approp

From
carry-
overs

From
assigned
revenue

Total

%

Automatic
carry-
overs

Carry-
overs by
decision

From
assigned
revenue

Total

%

From the
year's
approp

From
carry-
overs

Assigned
revenue
(EFTA)

Total

%

1

2

3

4

5=2+3+4

6=5/1

7

8

9

10=7+8
+9

11=10/1

12

13

14

15=12
+13+14

16=15/1

European Parliament

Council

Commission

Court of Justice

Court of Auditors

Economic and Social Committee

Committee of the Regions

Ombudsman

European Data protection Supervisor

1 668

1 112

741

453

116 975

109 367

288

129

128

78

9

6

252

101

98

59

7

3

179

80

630

12

6

9

8

0

1

38

24

1 329

79,68 %

558

75,21 %

1 509

111 506

95,33 %

1

0

3

1

0

0

265

107

109

91,93 %

83,11 %

85,66 %

68

86,89 %

7

4

84,00 %

66,73 %

225

55

572

13

9

6

6

0

1

44

75

39

33

308

163

18,49 %

21,98 %

176

3 345

4 093

0

0

0

0

0

0

2

0

2

1

0

0

15

9

8

6

1

1

3,50 %

5,04 %

7,08 %

6,17 %

8,02 %

6,42 %

15,96 %

16

10

1 154

7

12

9

2

1

1

15

11

217

2

1

1

1

0

0

Total

120 021

111 452

925

1 576

113 953

94,94 %

888

295

3 421

4 603

3,84 %

1 211

249

0

0

5

0

0

0

0

0

0

5

31

21

1 376

9

13

10

4

1

1

1,83 %

2,81 %

1,18 %

3,03 %

9,80 %

8,17 %

5,09 %

9,58 %

17,31 %

1 465

1,22 %

.

1
0
1
1
2
0
0
8

.

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
U
n
o
n

i

C

2
8
7
/
9
5

C 287/96

EN

Official Journal of the European Union

10.11.2008

12. CONSOLIDATED SUMMARY OF COMMITMENTS OUTSTANDING

Non-Differentiated
Appropriations

Differentiated Appropriations

Total

EUR millions

Commitments carried forward from previous year

1 114

130 511

Decommitments/Revaluations

Payments

Cancellations

Commitments outstanding at year-end

Commitments for the year

Payments

Cancellation of commitments that cannot be carried over

Commitments outstanding at year-end

Total commitments outstanding at year-end

(61)

872

151

60

50 718

49 825

14

880

939

(1 535)

45 836

0

83 140

72 080

17 420

0

54 661

137 801

131 655

(1 596)

46 709

151

83 200

122 798

67 245

14

55 540

138 740

13a. Consolidated breakdown of commitments outstanding by the commitment's year of origin

EUR millions

Financial Perspective Heading

< 2001

2001

2002

2003

2004

2005

2006

2007

Total

1

2

Sustainable growth

Preservation & management of natural resources

3 Citizenship, freedom, security and justice

4

The EU as a global partner

5 Administration

646

195

10

849

1

374

18

7

664

0

691

1 650

4 384

16 532 38 372 44 870 107 519

51

16

62

31

122

91

1 299

3 939

4 218

170

251

778

9 905

1 354

885

1 258

2 007

3 373

5 201

5 013

19 250

0

0

0

0

51

660

712

Total

1 701

1 063

1 643

3 001

6 605

21 374 47 813 55 540 138 740

10.11.2008

EN

Official Journal of the European Union

13b. Consolidated breakdown of commitments outstanding by the commitment's year of origin

C 287/97

EUR millions

Policy Area

< 2001

2001

2002

2003

2004

2005

2006

2007

Total

01 Economic and financial affairs

02 Enterprise

03 Competition

04 Employment and social affairs

05 Agriculture and rural development

06 Energy and transport

07 Environment

08 Research

09 Information society and media

10 Direct research

11 Fisheries and maritime affairs

12 Internal market

13 Regional policy

14 Taxation and customs union

15 Education and culture

16 Communication

17 Health and consumer protection

18 Area of freedom, security and justice

19 External relations

20 Trade

21 Development and relations with ACP States

22 Enlargement

23 Humanitarian aid

24 Fight against fraud

25 Commission policy coordination & legal advice

26 Commission's administration

27 Budget

28 Audit

29 Statistics

30 Pensions

31 Language Services

90 Other Institutions

3

5

0

191

152

60

0

35

2

1

43

0

411

0

21

0

1

1

475

0

104

193

2

0

0

0

0

0

0

0

0

0

0

8

0

14

0

60

9

99

1

1

10

0

0

7

0

57

1

63

17

155

10

1

36

0

0

22

0

101

47

113

35

577

71

4

32

0

28

22

0

298

78

250

67

854

165

2

57

1

41

63

0

3 072

1 213

505

89

145

119

0

9 405

3 525

651

118

1 414

2 046

461

14

261

0

679

24

608

2

127

334

7

344

581

8

9 162

22 299

3 475

1 601

244

3 263

1 051

95

277

12

8 491

3 303

580

8 443

2 440

140

1 324

15

354

627

1 233

3 115

11 357 25 807 29 347

72 250

0

7

0

0

2

266

0

80

152

0

0

0

0

0

0

0

0

0

0

0

12

0

3

6

435

0

102

111

0

0

0

0

0

0

1

0

0

0

1

21

0

13

8

387

0

142

189

2

0

0

0

0

0

1

0

0

0

0

32

0

21

20

4

64

1

27

60

27

123

11

54

80

47

291

67

324

453

80

571

79

444

629

870

1 295

1 901

2 728

8 358

0

282

433

4

0

0

0

0

0

4

0

0

0

1

486

915

22

4

678

1 675

80

0

0

0

0

0

9

0

0

0

3

0

0

0

0

20

0

0

27

17

845

936

273

21

18

127

9

1

44

0

27

22

2 719

4 604

383

24

19

128

9

1

81

0

27

316

343

Total

1 701

1 063

1 643

3 001

6 605

21 374 47 813 55 540 138 740

C 287/98

EN

Official Journal of the European Union

10.11.2008

14. AGENCY INCOME: BUDGET FORECASTS, ENTITLEMENTS AND AMOUNTS RECEIVED

EUR millions

Agency

Forecasted income

Entitlements
established

Amounts received

Outstanding

Policy Area

European Aviation Safety Agency

Frontex

European Centre for the Development of Vocational
Training

European Police College

European Centre for Disease prevention and control

European Monitoring Centre for Drugs and Drug
Addiction

European Environment Agency

Community Fisheries Control Agency

European Food Safety Authority

European Union Agency for Fundamental Rights

European GNSS supervisory authority

Eurojust

European Maritime Safety Agency

Office For Harmonisation in the Internal Market

European Medicines Agency

European Network and Information Security Agency

European Railway Agency

European Agency for Reconstruction

European Agency for Safety and Health at Work

Translation Centre for the Bodies of the EU

European Training Foundation

Community Plant Variety Office

European Foundation for the Improvement of Living
and Working Conditions

Education, Audiovisual & Culture Executive Agency

Executive Agency for Competitiveness and Innovation

Executive Agency for the Public Health Programme

72

42

17

9

29

14

35

5

52

14

210

19

46

276

163

8

17

250

14

46

23

10

20

36

7

4

93

43

17

8

29

14

38

2

49

15

210

19

38

199

166

8

17

251

14

43

21

10

20

36

7

5

85

42

17

8

29

14

38

2

48

15

183

19

38

199

165

8

17

251

14

42

21

10

20

36

7

5

7

1

0

0

0

0

0

0

0

0

27

0

0

0

1

0

0

0

0

1

0

0

0

0

0

0

06

18

15

18

17

18

07

11

17

18

06

18

06

12

02

09

06

22

04

31

15

17

04

15

06

17

Total

1 440

1 370

1 332

37

Type of revenue

Forecasted income

Entitlements established

Amounts received

Outstanding

EUR millions

Commission Subsidy

Fee income

Other income

771

334

336

Total

1 440

749

371

249

1 370

729

363

240

1 332

20

8

9

37

10.11.2008

EN

Official Journal of the European Union

15. COMMITMENT AND PAYMENT APPROPRIATIONS BY AGENCY

C 287/99

EUR millions

Agency

Commitment appropriations

Payment appropriations

Approp

Commit

Carried

Lapsing

Approp

Commit

Carried

Lapsing

European Aviation Safety Agency

Frontex

European Centre for the Development of Vocational
Training

European Police College

European Centre for Disease prevention and control

European Monitoring Centre for Drugs and Drug
Addiction

European Environment Agency

Community Fisheries Control Agency

European Food Safety Authority

European Union Agency for Fundamental Rights

European GNSS supervisory authority

Eurojust

European Maritime Safety Agency

Office For Harmonisation in the Internal Market

European Medicines Agency

European Network and Information Security Agency

European Railway Agency

European Agency for Reconstruction

European Agency for Safety and Health at Work

Translation Centre for the Bodies of the EU

European Training Foundation

Community Plant Variety Office

European Foundation for the Improvement of Living
and Working Conditions

Education, Audiovisual & Culture Executive Agency

Executive Agency for Competitiveness and Innovation

Executive Agency for the Public Health Programme

87

43

18

10

29

15

41

5

52

15

210

19

48

276

163

8

17

714

15

55

24

15

21

36

7

4

70

39

16

6

28

15

40

1

48

14

135

18

43

143

159

8

13

302

14

43

21

12

20

34

6

4

15

0

1

2

0

0

2

0

0

0

74

1

0

0

0

0

0

410

0

0

2

0

0

0

0

0

1

3

1

2

1

0

0

4

5

0

1

0

5

132

4

0

3

2

1

13

2

2

1

2

1

0

106

54

19

12

36

15

47

5

60

16

184

22

50

302

193

9

19

714

18

58

27

14

24

43

8

5

68

20

15

6

22

14

37

0

45

8

95

16

34

139

155

7

13

259

13

41

19

11

19

33

5

3

35

22

3

4

12

1

9

1

9

8

87

5

2

29

32

2

3

454

4

4

5

2

5

7

2

2

4

11

1

2

2

0

1

4

6

0

2

1

14

135

5

0

4

2

1

13

2

2

1

3

1

1

Total

1 947

1 254

508

185

2 061

1 097

745

219

Commitment appropriations

Payment appropriations

EUR millions

Type of expenditure

Administrative expenses

Operational expenses

Staff

Approp

185

1 385

377

Commitments
made

Carried
to 2008

Amounts
lapsing

164

737

353

1

507

0

508

20

141

24

185

Approp

233

1 441

387

2 061

Payments
made

Carried
to 2008

Amounts
lapsing

149

600

348

1 097

59

675

11

745

24

167

28

219

Total

1 947

1 254

C 287/100

EN

Official Journal of the European Union

10.11.2008

16. BUDGET OUTTURN INCLUDING AGENCIES

Revenue for the financial year

Payments against current year appropriations

Payment appropriations carried over to year N+1

EFTA appropriations carried over from year N-1

Cancellation of unused payment appropriations carried
over from year N-1

Exchange differences for the year

Budget Outturn

European
Communities

117 563

(113 028)

(3 114)

(2)

246

(124)

1 542

Agencies

Elimination of subsi-
dies to agencies

1 332

(976)

(745)

0

477

(3)

86

(729)

729

—

—

—

—

0

EUR millions

Total

118 166

(113 275)

(3 859)

(2)

723

(126)

1 628

10.11.2008

EN

Official Journal of the European Union

C 287/101

SECTION B: EXPLANATORY NOTES TO THE CONSOLIDATED REPORTS ON IMPLEMENTATION OF THE BUDGET

1. BUDGETARY PRINCIPLES, STRUCTURES AND APPROPRIATIONS

1.1. BUDGETARY PRINCIPLES

The general budget of the Communities is governed by a number of basic principles:

— unity and budget accuracy: all Communities' expenditure and revenue must be incorporated in a single
budget document, must be booked on a budget line and expenditure must not exceed authorised appro-
priations,

— universality: this principle comprises two rules:

— the rule of non-assignment, meaning that budget revenue must not be earmarked for specific items

of expenditure (total revenue must cover total expenditure),

— the gross budget rule, meaning that revenue and expenditure are entered in full

in the budget

without any adjustment against each other,

— annuality: the appropriations entered are authorised for a single year and must therefore be used during

that year,

— equilibrium: the revenue and expenditure shown in the budget must be in balance (estimated revenue

must equal payment appropriations),

— specification: each appropriation is assigned to a specific purpose and a specific objective,

— unit of account: the budget is drawn up and implemented in euro and the accounts are presented in

euro,

— sound financial management: budget appropriations are used in accordance with the principle of
sound financial management, namely in accordance with the principles of economy, efficiency and effec-
tiveness,

— transparency: the budget is established and implemented and the accounts presented in compliance
with the principle of transparency — the budget and amending budgets are published in the Official
Journal of the European Union.

1.2. BUDGET STRUCTURE

The budget consists of:

a) a general statement of revenue;

b) separate sections divided into the statements of revenue and expenditure of each Institution: Section I:
Parliament; Section II: Council; Section III: Commission; Section IV: Court of Justice; Section V: Court of
Auditors; Section VI: Economic and Social Committee; Section VII: Committee of
the Regions;
Section VIII: Ombudsman; Section IX: European Data Protection Supervisor.

Each Institution's items of revenue and expenditure are classified according to their type or the use to which
they are assigned under titles, chapters, articles and items.

A part of the funds of the ECSC in liquidation were placed at the disposal of the operational budget of the
ECSC in liquidation. This operational budget was adopted annually by the Commission, after consultation
with the Council and the European Parliament. The last budget was drawn up for the period of 1 January to
23 July 2002. As from 24 July 2002, the revenue and charges connected with the operational budget are
included in the revenue and expenditure account of the ECSC in liquidation. The remaining commitments to
be fulfilled are shown on the liability side of the balance sheet.

1.3. STRUCTURE OF THE BUDGETARY ACCOUNTS

Only the Commission budget contains administrative appropriations and operating appropriations. The
other Institutions have only administrative appropriations.

C 287/102

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Official Journal of the European Union

10.11.2008

The budget distinguishes between two types of appropriation: non-differentiated appropriations and differen-
tiated appropriations. Non-differentiated appropriations are used to finance operations of an annual nature
(which comply with the principle of annuality). Differentiated appropriations were introduced in order to
reconcile the principle of annuality with the need to manage multi-annual operations.

a) Non-differentiated appropriations cover:

— all the administrative sections of the budget (Chapter 1 of the Commission Section and the whole of

every other section),

— EAGGF Guarantee appropriations of an annual nature, and

— certain technical appropriations (repayments, borrowing and lending guarantees, etc.).

In the case of non-differentiated appropriations, the amount of commitment appropriations is the same
as that of payment appropriations.

b) Differentiated appropriations are intended to cover multi-annual operations and comprise the appro-

priations in all Chapters except Chapter 1 of the Commission Section (not including EAGGF).

These differentiated appropriations break down into commitment appropriations and payment appro-
priations:

— commitment appropriations: cover the total cost of the legal obligations entered into for the
current financial year for operations extending over a number of years. However, budgetary commit-
ments for actions extending over more than one financial year may, in accordance with Article 76(3)
of the Financial Regulation, be broken down over several years into annual instalments where the
basic act so provides. For the differentiated appropriations, budget commitments not yet made for
future years are shown as a contingent liability in the off balance sheet,

— payment appropriations: cover expenditure arising from commitments entered into in the current

financial year and/or earlier financial years.

1.4. ORIGIN OF APPROPRIATIONS

The main source of appropriations is the Communities' budget for the current year. However, there are
other types of appropriations resulting from the provisions of the Financial Regulation. They come from
previous financial years or outside sources.

1.4.1. Final Budget Appropriations

Initial budget appropr iations adopted

Transfers

Appropriations may be transferred between lines in accordance with the rules laid down in Articles 22 to 24
of the Financial Regulation (Regulation (EC, Euratom) No 1605/2002).

Amending budgets

The budget adopted may be amended or increased by an amending budget. The rules are set out in Arti-
cles 37 and 38 of the Financial Regulation.

1.4.2. Appropriations carried over from previous year or made available again

Appropriations automatically carried over

These are non-differentiated payment appropriations which may be carried over automatically for one finan-
cial year only (no limits for the ECSC in liquidation) in accordance with Article 9(4) of the Financial Regu-
lation.

Appropriations carried over by decision of the Institutions

An Institution may decide to carry over appropriations from the previous budget in one of two cases: if the
preparatory stages have been completed (Article 9(2)(a) of the Financial Regulation) or if the legal base is
adopted late (Article 9(2)(b)). Both commitment and payment appropriations may be carried over
(Article 9(3)).

Appropriations made available again as a result of decommitments

This involves the re-entry of commitment appropriations concerning structural funds which have been
decommitted. Amounts can be re-entered by way of exception in the event of error by the Commission or if
they are indispensable for completion of the programme (Article 157 of the Financial Regulation).

10.11.2008

EN

Official Journal of the European Union

C 287/103

1.4.3. Assigned revenue

Refunds

These appropriations arise from the refund of amounts paid in error, proceeds from the supply of
goods/services to other Communities' bodies, insurance payments received and revenue from lettings and
publication sales — the amounts are assigned revenue on the budget line which incurred the initial expendi-
ture (Financial Regulation Article 10 and Article 18(1)(e), (f), (g), (h), (i), and (j)), and may be carried over
without limit.

EFTA appropriations

The agreement on the European Economic Area provides for financial contribution by its members to
certain activities in the Communities' budget. The budget lines concerned and the amounts projected are
published in Annex III of the Communities' budget. The lines concerned are increased by the EFTA contribu-
tion. Appropriations not used at the year-end are cancelled and returned to the EEA countries.

Revenue from third parties

As with the EFTA appropriations other countries have concluded agreements with the European Commu-
nities involving a financial contribution to Communities' activities. The amounts received are considered to
be revenue from third parties which is allocated to the budget lines concerned (often in the field of research)
and may be carried over without limit (Article 10 and Article 18(1)(a) and (d) of the Financial Regulation).

Work for third parties

their research activities,

As part of
the Communities' research centres may work for outside bodies
(Article 161(2) of the Financial Regulation). Like the revenue from third parties, the work for third parties is
assigned to specific budget lines and may be carried over without limit (Article 10 and Article 18(1)(d) of
the Financial Regulation).

Appropriations made available again as a result of repayment of payments on account

These are Communities' funds which have been repaid by the beneficiaries. Repayments of payments on
account are entered as assigned revenue (Articles 10 and 18(2) of the Financial Regulation) and may be
carried over without limit. In the area of Structural Funds the re-inscription is based on a Commission Deci-
sion (Article 18(2) of the Financial Regulation and Article 228 of its Implementing Rules).

1.5. COMPOSITION OF APPROPRIATIONS AVAILABLE:

— Final budget appropriations = initial budget appropriations adopted + amending budget appropriations

+ transfers;

— Additional appropriations = assigned revenue (see above) + appropriations carried over from the previous

financial year or made available again following decommitments;

— Total appropriations authorised = final budget appropriations + additional appropriations;

— Appropriations for the year (as used to calculate the budgetary result) = final budget appropriations

+ assigned revenue.

1.6 BUDGET IMPLEMENTATION

Article 48(1) of the Financial Regulation states: ‘The Commission shall implement … the budget in accord-
ance with this Regulation, on its own responsibility and within the limits of the appropriations authorised.’.

Article 50 states that the Commission shall confer on the Institutions the requisite powers for the implemen-
tation of the sections of the budget relating to them.

1.6.1. Execution of revenue

The budget takes over the revenue forecasts subject to any changes resulting from the adoption of amending
budgets which adjust the forecasts in the initial budget in line with the reductions or increases in revenue
established during implementation. The budget revenue covers appropriations for payment.

The revenue outturn comprises established entitlements, revenue actually collected against these established
entitlements and the balance to be recovered.

The actual revenue for a financial year corresponds to the revenue collected against entitlements established
in the course of the year and amounts collected against entitlements still to be recovered from previous
years.

C 287/104

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Official Journal of the European Union

10.11.2008

1.6.2. Execution of expenditure

As with revenue, expenditure is forecast in the initial budget. The execution of expenditure shows how
commitments appropriations and payments appropriations are changed, used, carried over and lapse during
the year.

Utilisation of appropriations:

Appropriations for commitments:

The appropriations authorised are available during the financial year for entering into commitments.

Appropriations for payments:

The appropriations authorised are available during the financial year for making payments.

Carryovers to the following year:

Appropriations for commitments:

Some types of appropriation which are not committed may be carried over automatically, as is the case with
assigned revenue (Article 10 of the Financial Regulation).

Carryovers may be authorised by the Institutions:

— if most of the preparatory stages of the commitment procedure have been completed by 31 December

(Article 9(2)(a) of the Financial Regulation); or

— if the legal base is adopted in the final quarter of the financial year (Article 9(2)(b) of the Financial

Regulation).

The budgetary authority must be notified of this decision (Article 9(5) of the Financial Regulation).

Appropriations for payments:

As is the case for commitment appropriations, unused payment appropriations from assigned revenue are
carried over automatically.

— non-differentiated appropriations: carryover is generally automatic if it is to cover outstanding commit-

ments (Article 9(4) of the Financial Regulation);

— differentiated appropriations: unused payment appropriations usually lapse; however,

they may be
carried over by Commission decision if the payment appropriations for the following financial year will
not cover existing commitments or commitments linked to commitment appropriations which have
themselves been carried over (Article 9(3) of the Financial Regulation).

Cancellation of appropriations:

Any appropriations for commitment and for payment not used and not carried over are cancelled at
year-end (Article 9(1) of the Financial Regulation).

1.7. BUDGET OUTTURN FOR THE YEAR

1.7.1. Revenue

The amounts of own resources entered in the accounts are those credited in the course of the year to the
accounts opened in the Commission's name by the governments of the Member States. Revenue comprises
also, in the case of a surplus, the budget outturn for the previous financial year.

The other revenue entered in the accounts is the amount actually received in the course of the year.

1.7.2. Expenditure

For the purposes of calculating the budget outturn for the year, expenditure comprises payments made
against the year's appropriations for payments plus any of the appropriations for that year that are carried
over to the following year.

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Payments made against the year's appropriations for payments means payments that are made by the
accounting officer by 31 December of the financial year. In the case of the European Agricultural Guarantee
Fund, the payments are those effected by the Member States between 16 October 2006 and 15 October
2007, provided that the accounting officer was notified of the commitment and authorisation by 31 January
2008. EAGF expenditure may be subject to a conformity decision following controls in the Member States.

1.7.3. Budget Outturn for the year

The budget outturn comprises two elements: the result of the European Communities and the result of
the participation of the EFTA countries belonging to the EEA. In accordance with Article 15 of Regulation
(EC, Euratom) No 1150/2000 on own resources, this outturn represents the difference between:

— total revenue received for that year,

— and total payments made against that year's appropriations plus the total amount of that year's appro-

priations carried over to the following year (1).

The following are added to or deducted from the resulting figure:

— the net balance of cancellations of payment appropriations carried over from previous years and any
payments which, because of fluctuations in the euro rate, exceed non-differentiated appropriations
carried over from the previous year,

— the balance of exchange-rate gains and losses recorded during the year.

The budget outturn is returned to the Member States the following year through deduction of their
amounts due for that financial year.

1.8. OUTSTANDING COMMITMENTS

With the introduction of differentiated appropriations, a gap developed between commitments entered into
and payments made: this gap, corresponding to outstanding commitments, represents the time-lag between
when the commitments are entered into and when the corresponding payments are made.

2. EXPLANATION OF BUDGETARY REVENUE AND EXPENDITURE AND COMMENTARY ON THE 2007 OUTTURN

2.1. LEGAL BASIS AND THE FINANCIAL REGULATION

The budgetary accounts are kept in accordance with Regulation (EC, Euratom) No 1605/2002 of 25 June
2002 (OJ L 248, 16.9.2002, p. 1, last amended by Regulation (EC, Euratom) No 1995/2006 of 13 December
2006 (OJ L 390, 30.12.2006)) on the Financial Regulation applicable to the general budget of the European
Communities and Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying
down detailed rules for the implementation of this Financial Regulation, last modified on 28 March 2007.
The general budget, the main instrument of the Communities' financial policy, is the instrument which
provides for and authorises the Communities' revenue and expenditure every year.

The budgetary procedure is set out in Article 272 of the EC Treaty which stipulates the sequence of stages
and the time-limits which must be respected by the two arms of the budgetary authority: the Council and
Parliament. Every year, the Commission estimates all the European Institutions' revenue and expenditure for
the coming year and draws up a preliminary draft budget which it sends to the budgetary authority. On the
basis of this preliminary draft budget, the Council draws up a draft budget which is then the subject of
negotiations between the two arms of the budgetary authority. The President of Parliament declares that the
budget has been finally adopted making the budget enforceable. The task of executing the budget is mainly
the responsibility of the Commission.

2.2. BUDGETARY CONSOLIDATION

The consolidated reports on the implementation of the general budget of the European Communities
include, as in previous years, the budget implementation of all Institutions since within the Communities'
budget a separate budget for each Institution is established.

Agencies do not have a separate budget inside the Communities' budget and they are partially financed by a
Commission budget subsidy. In order to provide all relevant budgetary data for the Agencies, the budgetary
part of the consolidated annual accounts include separate reports on the implementation of the individual
budgets of the traditional agencies consolidated. Those reports are:

— A table on budgetary income, indicating the amount received from the Commission budget,

(1) In the case of the EFTA-EEA countries, the volume of appropriations carried over from year N to year N+1 is known
after the accounts have been closed. As a result the calculation of the balance includes carryovers of appropriations from
year N-1 to year N.

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— Two tables on budgetary expenditure (commitments, payments) giving the detail by agency and splitting

budget and additional appropriations,

— At the bottom of each table a sub-total has been inserted that gives information on the Agencies total

financial impact by type of expenditure/income,

— A budget outturn table, adding the Agencies' budget result to the Communities' result (by eliminating

subsidies paid from Communities' expenditure and subsidies received as Agencies revenue).

2.3. REVENUE

The revenue of the general budget of the European Communities can be divided into two main categories:
own resources and other revenue. This is laid down in Article 269 of the Treaty establishing the European
Communities, which states that: ‘Without prejudice to other revenue, the budget shall be financed wholly
from own resources’. The main bulk of budgetary expenditure is financed by own resources. Other revenue
represents only a minor part of total financing.

There are three categories of own resources:
the VAT resource and the
GNI resource. Traditional own resources, in turn, comprise agricultural duties, sugar levies and customs
duties. A correction mechanism in respect of budgetary imbalances is also part of the own resources system.

traditional own resources,

2.3.1. Traditional own resources

Traditional own resources: All established amounts of traditional own resources must be entered in one or
other of the accounts kept by the competent authorities.

— In the ordinary account provided for in Article 6(3)(a) of Regulation (EC, Euratom) No 1150/2000:

all amounts recovered or guaranteed.

— In the separate account provided for in Article 6(3)(b) of Regulation (EC, Euratom) No 1150/2000:
all amounts not yet recovered and/or not guaranteed; amounts guaranteed but challenged may also be
entered in this account.

For the separate account, the Member States send the Commission a quarterly statement that includes:

— the balance to be recovered during the previous quarter,

— the amounts recovered during the quarter in question,

— rectifications of the base (corrections/cancellations) during the quarter in question,

— amounts written off,

— balance to be recovered at the end of the quarter in question.

The information sent in by the Member States does not allow the amounts recovered during the year to be
assigned to the year in which the entitlements arose. Hence the column for amounts received against carry-
overs in the table ‘Summary of the implementation of general budget revenue, 2007’
includes amounts
received during the year and the amount of entitlements cancelled and replaced by the new amount of enti-
tlements declared by the Member States when making their new statement. A value reduction is applied to
own resources entitlements.

When the traditional own resources from the separate account are recovered, they must be entered in the
Commission's account with the treasury or the body appointed at the latest on the first working day
following the 19th day of the second month following the month during which the entitlement was recov-
ered. Member States retain, by way of collection costs, 25 % of traditional own resources.

2.3.2. VAT resources and GNI resources

VAT own resources derive from the application of a uniform rate, for all Member States, to the harmonised
VAT base determined in accordance with the rules of Article 2(1)(c) of the Council Decision of 29 September
2000. The VAT base is capped at 50 % of GNI for all Member States.

The GNI resource is a variable resource intended to supply the revenue required, in any given year, to cover
expenditure exceeding the amount collected from traditional own resources, VAT resources and miscella-
neous revenue. The revenue derives from the application of a uniform rate to the aggregate GNI of all the
Member States.

VAT and GNI resources are determined on the basis of forecasts of VAT and GNI bases made when the preli-
minary draft budget is being prepared. These forecasts are subsequently revised; the figures are updated
during the budget year in question by means of an amending budget.

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The final figures for the VAT and GNI bases are available in the course of the year following the budget year
in question. The Commission calculates the differences between the amounts due by the Member States by
reference to the final bases and the sums actually paid on the basis of the (revised) forecasts. These VAT and
GNI balances, either positive or negative, are called in by the Commission from the Member States for
1 December of the year following the budget year in question. Corrections may still be made to the final
VAT and GNI bases in subsequent years. The balances calculated earlier are adjusted and the difference is
called in at the same time as the VAT and GNI balances for the previous budget year. It should be noted that
corrections made in 2007 relating to the period 1995-2006 for GNI resources were EUR 2 857 million.
Similarly, corrections relating to the period 1996-2006 for VAT Resources were EUR 973 million.

When conducting controls of VAT statements and GNI data, the Commission may notify reservations to the
Member States regarding certain points which may have consequences to their own resources contributions.
These points, for example, may result from an absence of acceptable data, or a need to develop a suitable
methodology. These reservations have to be seen as potential claims on the Member States for uncertain
amounts as their financial impact cannot be estimated with accuracy. When the exact amount can be deter-
mined, the corresponding VAT and GNI resources are called either in connection with VAT and GNI balances
or by individual calls for funds.

2.3.3. UK correction

This mechanism reduces the own resources payments of the UK in proportion to what is known as its
‘budgetary imbalance’ and increases the own resources payments of the other Member States correspond-
ingly. The budgetary imbalance correction mechanism in favour of the United Kingdom was instituted by
the European Council in Fontainebleau (June 1984) and the resulting Own Resources Decision of 7 May
1985. The purpose of the mechanism was to reduce the budgetary imbalance of the UK through a reduction
in its payments to the Communities.

2.4. EXPENDITURE

2.4.1. Financial Framework 2007-2013

1.

2.

3.

4.

5.

6.

Sustainable Growth

Preservation & management of natural resources

Citizenship, freedom, security & justice

EU as a global partner

Administration

Compensations

EUR millions

2007

2008

2009

2010

2011

2012

2013

53 979

55 143

1 273

6 578

7 039

445

57 653

59 193

1 362

7 002

7 380

207

59 700

59 639

1 523

7 440

7 699

210

61 782

60 113

1 693

7 893

8 008

0

63 638

60 338

1 889

8 430

8 334

0

66 628

60 810

2 105

8 997

8 670

0

69 621

61 289

2 376

9 595

9 095

0

Commitment appropriations

124 457

132 797

136 211

139 489

142 629

147 210

151 976

Total payment appropriations

122 190

129 681

123 858

133 505

133 452

140 200

142 408

This section describes the main categories of Communities' expenditure, classified by heading of the financial
perspective 2007-2013. The 2007 financial year was the first covered by the financial perspective
2007-2013. The overall ceiling on commitments appropriations for 2007 comes to EUR 124 457 million,
equivalent to 1,04 % of GNI. The corresponding ceiling on the appropriations for payments comes to
EUR 122 190 million, i.e. 1,02 % of GNI. The above table shows the financial perspective at current prices

Heading 1 — Sustainable growth

This Heading divided into two separate, but interlinked components:

— 1a. Competitiveness for growth and employment, encompassing expenditure on research and innovation,
education and training, trans-European networks, social policy, the internal market and accompanying
policies.

— 1b. Cohesion for growth and employment, designed to enhance convergence of the least developed
Member States and regions, to complement the EU strategy for sustainable development outside the less
prosperous regions and to support inter regional cooperation.

Heading 2 — Preservation and management of natural resources

Heading 2 includes the common agricultural and fisheries policies, rural development and environmental
measures, in particular Natura 2000. The amount earmarked for the common agricultural policy reflects the
agreement reached at the Brussels European Council in October 2002.

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Heading 3 — Citizenship, freedom, security and justice

The new heading 3 (Citizenship, freedom, security and justice) reflects the growing importance attached to
certain fields where the Union has been assigned new tasks — justice and home affairs, border protection,
immigration and asylum policy, public health and consumer protection, culture, youth, information and
dialogue with citizens. It is split in two components:

— 3a. Freedom, Security and Justice,

— 3b. Citizenship.

Heading 4 — The EU as a global partner

Heading 4 covers all external action, including pre-accession instruments. Whereas the Commission had
proposed to integrate the European Development Fund (EDF) into the financial framework, the European
Council and the European Parliament agreed to leave it outside.

Heading 5 — Administration

This heading covers administrative expenditure for all institutions, pensions and the European Schools. For
the Institutions other than the Commission, these costs make up the total of their expenditure, but the
Agencies and other bodies make both administrative and operational expenditure.

Heading 6 — Compensations

In accordance with the political agreement that the new Member States should not become net-contributors
to the budget at the very beginning of their membership, compensation was foreseen under this heading.
This amount was available as transfers to them to balance their budgetary receipts and contributions.

2.4.2. Policy areas

As part of
its use of Activity Based Management (ABM) the Commission implements Activity Based
Budgeting (ABB) in its planning and management processes. ABB involves a budget structure in which
budget titles correspond to policy areas and budget chapters to activities.

ABB aims to provide a clear framework for translating the Commission's policy objectives into action, either
through legislative, financial or any other public policy means. By structuring the Commission's work in
terms of activities, a clear picture is obtained of the Commission's undertakings and simultaneously a
common framework is established for priority setting. Resources are allocated to priorities during the
budget procedure, using the Activities as the building blocks for budgeting purposes. By establishing such a
link between activities and the resources allocated to them, ABB aims to increase efficiency and effectiveness
in the use of resources in the Commission.

A policy area may be defined as a homogeneous grouping of Activities constituting parts of the Commis-
sion's work, which are relevant for the decision-making process. In total 32 policy areas have been identi-
fied, each policy area corresponding, in general, to a DG, and encompassing an average of about 6 or 7 indi-
vidual Activities. These policy areas are predominantly operational, since their core activities aim at bene-
fiting a third-party beneficiary, each within their respective domains of activity. The operational budget is
completed with the necessary administrative expenditure for each policy area.

2.5. COMMENTS ON 2007 BUDGET IMPLEMENTATION

2.5.1. 2007 budget outturn

Appropriations carried over from the previous financial year in respect of contributions by and work for
third parties, which by definition never lapse, are included with the additional appropriations for the finan-
cial year. This explains the difference between carryovers from the previous year in the 2007 budget imple-
mentation statements and those carried over to the following year in the 2006 budget implementation state-
ments.

The payment appropriations for re-use and appropriations made available again following the repayment of
payments on account are disregarded when calculating the outturn for the year.

The EFTA-EEA part of the payment appropriations carried over by the Communities from 2007 to 2008
could not be included in the 2007 balance as this is subject to the approval by EFTA of the amounts in
question, and this will not be given until mid-2008.

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The payment appropriations carried over include: automatic carryovers and carryovers by decision. It also
includes the increase of appropriations on earmarked revenue as appropriations not used at the end of the
year shall be carried over automatically. The cancellation of unused payment appropriations carried over
from the previous year now shows only the cancellations on appropriations carried over automatically and
by decision.

2.5.2. Summary of main points concerning implementation of the 2007 budget

In accordance with the principle of equilibrium, budget revenue and expenditure (payment appropriations)
must be in balance. The amount of payment appropriations in the initial adopted budget, signed by the
President of the European Parliament on 15 December 2006, was fixed at EUR 115 497 million, to be
financed by own resources amounting to EUR 114 288 million. It should be noted that the revenue and
expenditure estimates in the initial budget are subject to adjustment during the budgetary year, such modifi-
cations being presented in amending budgets. Adjustments in the Member States GNI-based own resources
payments ensure that budgeted revenue matches exactly budgeted expenditure.

During 2007 seven amending budgets were adopted. Their impact on the revenue side of the 2007 budget
resulted in a total final revenue of EUR 113 846 million. This was financed by own resources totalling
EUR 106 203 million (thus EUR 8 085 million less than initially forecasted) and the remainder by other
revenue. The reduced need for own resources was due to various factors such as the inclusion of
EUR 2 109 million relating to the surplus of the previous year plus the surplus from the Guarantee Fund
for external measures. Finally, the combined effect of a decrease in payment appropriations and an increase
in the forecast of revenue in the Amending Budget No 7/2007 resulted in a supplementary reduction of the
GNI resources of EUR 5 976 million.

As far as the own resources are concerned it should be noted that the collection of traditional own resources
reached 100 % of forecast amounts. This is explained by the fact that the budgetary estimates were modified
at the time that Amending Budget No 5/2007 was established (they were decreased by EUR 775 million).
This adjustment was based mainly on the new macroeconomic forecasts of spring 2007, being less opti-
mistic than the previous ones.

The final Member States' VAT and GNI payments also corresponded very closely to the final budgetary esti-
mate. The differences between the forecasted amounts and the amounts actually paid are explained by the
differences in the euro rates used for budgetary purposes and the rates in force at the time when the
Member States, not part of the EMU, actually made their payments.

On the expenditure side, the implementation of payment appropriations in the 2007 budget, the first year
of the new Financial Framework, amounted to EUR 109 billion (98 %). After carryover of approximately
EUR 750 million in payment appropriations, mostly relating to (non-differentiated) administrative expendi-
ture, the implementation rate of payment appropriations in the 2007 budget reached 99 %, similar to that
of commitment appropriations. This compares favourably to previous years.

The implementation of commitment appropriations in the 2007 budget amounted to EUR 119 billion
(96 %). The commitment appropriations remaining unused at year-end were primarily related to the delayed
adoption of some operational programmes for Cohesion and Natural Resources. These appropriations will
be either carried forward to 2008, or reprogrammed to the later years of the Financial Framework. After
carry forward and requested reprogramming (amounting in total to approximately EUR 3,6 billion), the
implementation rate of commitment appropriations in the 2007 budget reached 99 %. This compares
favourably to previous years, and especially to 2000, the first year of the previous Financial Framework,
when carry forward and reprogramming had to be used on a large scale.

2.5.3. Reconciliation of the 2007 budget outturn with the 2007 economic outturn

The economic outturn for the year presented on Part I, Section B is calculated on the basis of accrual
accounting principles. The budget outturn is however based on modified cash accounting rules, in accord-
ance with the Financial Regulation. As both are the result of the same underlying transactions, it is a useful
control to ensure that they are reconcilable. The table below shows this reconciliation, highlighting the key
reconciling amounts, split between revenue and expenditure items.

Reconciling items — Revenue

The actual budgetary revenue for a financial year corresponds to the revenue collected from entitlements
established in the course of the year and amounts collected from entitlements established in previous years.
Therefore the entitlements established in the current year but not yet collected are to be deducted
from the economic outturn for reconciliation purposes as they do not form part of budgetary revenue. On
the contrary the entitlements established in previous years and collected in current year must be
added to the economic outturn for reconciliation purposes.

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The net accrued revenue mainly consists of accrued revenue for agricultural levies, own resources and
interests and dividends. Only the net-effect, i.e. accrued revenue for current year minus reversal accrued
revenue from previous year, is taken into consideration.

Reconciling items — Expenditure

The net accrued expenses mainly consist of accruals made for year-end cut-off purposes,
expenses incurred by beneficiaries of Community funds but not yet reported to the EC.

i.e. eligible

While accrued expenses are not considered as budgetary expenditure, the payments made in the current
year relating to invoices registered in prior years are part of current year's budgetary expenditure.

The net effect of pre-financing is the combination of (1) the new pre-financing amounts paid in the
current year and recognised as budgetary expenditure of the year and (2) the clearing of the pre-financing
paid in current year or previous years through the acceptance of eligible costs. The latter represent an
expense in accrual terms but not in the budgetary accounts since the payment of the initial pre-financing
had already been considered as a budgetary expenditure at the time of its payment.

Besides the payments made against the year's appropriations, the appropriations for that year that are
carried to the next year also need to be taken into account in calculating the budget outturn for the year
(in accordance with Article 15 of Regulation (EC, Euratom) No 1150/2000). The same applies for the
budgetary payments made in the current year from carry-overs and the cancellation of unused payment
appropriations.

The movement in provisions relate to year-end estimates made in the accrual accounts (employee benefits
mainly) that do not
the budgetary accounts. Other reconciling amounts comprise different
elements such as asset depreciation, asset acquisitions, capital lease payments and financial participations for
which the budgetary and accrual accounting treatments differ.

impact

Finally the economic outturn of the agencies and the CECA that are included in the consolidated economic
outturn need to be excluded since their budgetary execution is not part of the consolidated budget outturn.

RECONCILIATION: ECONOMIC OUTTURN — BUDGET OUTTURN

EUR millions

ECONOMIC OUTTURN FOR THE YEAR

Revenues

Entitlements established in current year but not yet collected

Entitlements established in previous years and collected in current year

Accrued revenue (net)

Expenditure

Accrued expenses (net)

Expenses prior year paid in current year

Net-effect pre-financing

Payment appropriations carried over to next year

Payments made from carry-overs & cancellation unused payment appropriations

Movement in provisions

Other

Economic outturn result agencies + CECA

BUDGET OUTTURN FOR THE YEAR

2007

7 462

(5 036)

2 543

(1 068)

8 814

(3 635)

(6 810)

(3 116)

1 171

1 395

(33)

(145)

1 542