Report from the Commission to the European Parliament and the Council on the functioning of the Interinstitutional Agreement on budgetary discipline and sound financial management
Date: 2010-04-27
Institutions: European Commission
Subjects: EU financial instrument, budgetary discipline (EU), financial management, interinstitutional agreement, report

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EUROPEAN COMMISSION 

Brussels, 27.4.2010 
COM(2010) 185 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on the functioning of the Interinstitutional Agreement on budgetary discipline and 
sound financial management 

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REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT 
AND THE COUNCIL 

on the functioning of the Interinstitutional Agreement on budgetary discipline and 
sound financial management 

1. 

INTRODUCTION 

The  Interinstitutional  Agreement  on  budgetary  discipline  and  sound  financial 
management (IIA) is a political agreement between the European Parliament, the Council 
and the Commission. It contains many provisions and principles that have proven to be 
helpful  and  even  necessary  to  ensure  budgetary  discipline  and  smooth  budgetary 
procedures. The IIA affects numerous aspects of the planning, preparation, execution and 
control of the budget.  
The current IIA was adopted on 17 May 20061 on the basis of the agreement reached at 
the  Brussels  European  Council  on  15-16 December 2005  and  subsequent  changes  later 
agreed  with  the  European  Parliament.  It  represents  the  most  recent  milestone  in  a  long 
history — more than 50 years — of budgetary debates between the European institutions. 
Since  1988,  four  successive  IIAs  have  been  concluded:  the  Delors I  (1988-1992)  and 
Delors II  (1993-1999)  packages,  Agenda 2000  (2000-2006)  and  the  current  2007-2013 
package. Together, they have ensured that the EU budget has been adopted smoothly and 
on time over the last 20 years.  

This report presents a thorough examination of the functioning of the current IIA in line 
with  Declaration 1  to  the  IIA,  which  states  that  in  relation  to  Point  7  of  the 
Interinstitutional Agreement, the Commission will prepare a report on the functioning of 
the Interinstitutional Agreement ‘accompanied, if necessary, by relevant proposals’.  

The  analysis  below  follows  broadly  the  structure  of  the  IIA.  It  focuses  first  on  the 
procedures implementing the Multiannual Financial Framework (MFF), in particular the 
adjustments and revisions, and on flexibility (margins and instruments of flexibility). It 
then  assesses  provisions  related  to  the  institutional  collaboration  during  the  budgetary 
procedure.  Finally,  issues  related  to  the  sound  financial  management  of  EU  funds 
(Statements of Assurance, financial programming and the new financial instruments) are 
examined. 

The  report  does  not  claim  to  be  exhaustive.  A  number  of  important  issues  related  to 
interinstitutional collaboration are not examined here. And many important aspects of the 
budget  reform  are  left  to  the  ‘full,  wide-ranging  review'  of  the  EU  budget  pursuant  to 
Declaration 3 to the IIA.  

Equally, the Treaty of Lisbon introduces or gives new emphasis to many policy areas that 
may  in  the  longer  term  require  corresponding  budgetary  changes.  But  this  will  first 

1 

Interinstitutional Agreement (IIA) of 17 May 2006 between the European Parliament, the Council 
and  the  Commission  on  budgetary  discipline  and  sound  financial  management  (OJ C 139, 
14.6.2006). 

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require  the  preparation  of  new  legal  acts  and  a  careful  assessment  of  their  potential 
financial impact.  

Finally,  it  must  be  noted  that  the  Commission  has  tabled  proposals  for  a  Regulation 
laying  down  the  Multiannual  Financial  Framework  pursuant  to  article  312(2)  of  the 
Treaty  on  the  Functioning  of  the  European  Union2.  The  Multiannual  Financial 
Framework  regulation  together  with  the  proposed  new  Interinstitutional  Agreement  on 
cooperation in budgetary matters3 and some provisions of the Financial Regulation4 will 
together replace the IIA. 

2. 

ANALYSIS OF IMPLEMENTATION PROCEDURES RELATED TO THE MFF 

The MFF, together with the other provisions in the IIA, has ensured 

•  budgetary discipline: the annual budgetary procedure must respect the MFF ceilings; 

•  a smooth budgetary procedure and effective cooperation between institutions thanks to 
the  various  rules  of  procedure  agreed  upon  in  the  IIA.  It  is  important  to  stress  that 
since 1988 all budgets have been adopted on time; 

•  more predictability regarding the evolution of EU expenditure. 

Acknowledgement  of  the  usefulness  of  the  MFF  is  reflected  in  the  insertion  of  article 
312(1) in the Treaty on the Functioning of the European Union stating that ‘the annual 
budget of the Union shall comply with the multiannual financial framework’. 

2.1. 

Procedures for adjusting the Multiannual Financial Framework 

2.1.1.  Yearly technical adjustment 

Point  16  of  the  IIA  provides  for  a  yearly  technical  adjustment  ahead  of  the  budgetary 
procedure for year n+1. This involves in particular a revaluation, at year n+1 prices, of 
the  ceilings  and  of  the  overall  figures  for  appropriations  for  commitments  and 
appropriations for payments5.  

For this purpose, a fixed deflator of 2 % a year is used and not the price deflator of GDP 
as  was  partially  the  case  for  previous  MFFs.  This  offers  a  clear  advantage  in  terms  of 
transparency as the ceilings are known in real as well as in nominal terms for the entire 
duration of the financial framework. This in turn facilitates long-term financial planning 
and gives more certainty to all stakeholders involved in the budgetary procedure.  

The advantages of the current system would appear to outweigh the inevitable positive or 
negative  difference  between  ceilings  and  overall  figures  for  appropriations  obtained 
using  the  fixed  deflator  and  figures  that  would  be  obtained  using  the  observed  price 
deflator of GDP. In 2007, the ceilings would have been 1.7% higher using the observed 
price deflator. In 2008, this difference disappeared. In 2009, a divergence appeared as a 
consequence of the economic recession: the deflator index using the fixed deflator was at 

2 
3 
4 
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COM(2010) 72. 
COM(2010) 73. 
COM(2010) 71. 
The same provisions maintained in the draft MFF Regulation (Article 4). 

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110.4 (base year 2004 = 100) while the deflator index using the observed price deflator 
of GDP was at 106.7. 

(a) Fixed deflator used for technical adjustments 

(b) Cumulated index using the 2 % deflator (2004=100) 

(c) Price deflator of GDP (ECFIN Autumn 2009 forecast) 

(d) Cumulated index using effective deflator (2004=100) 

(e) Cumulated divergence (d)-(b) 

2.1.2.  Adjustment of cohesion policy allocations 

2007 

2.0 % 

106.1 

2.9 % 

107.8 

1.7 

2008 

2.0 % 

108.2 

0.4 % 

108.2 

0.0 

2009 

2.0% 

110.4 

-1.3% 

106.7 

-3.7 

Point  17  of  the  IIA  provides  for  a  technical  adjustment  for  the  year  2011  if  it  is 
established  that  any  Member  State’s  cumulated  GDP  for  the  years  2007-2009  has 
diverged by more than +/- 5 % from the cumulated GDP estimated when drawing up the 
IIA.  In  that  case,  the  Commission  will  adjust  the  amounts  allocated  from  funds 
supporting cohesion to the Member States concerned for that period.  

The assessment of the GDP divergence and the corresponding adjustment was made by 
the Commission as part of the technical adjustment for the year 2011 presented in April 
20106. 

2.1.3.  Adjustment of the global payment ceiling 

Pursuant to Point 18 of the IIA, the Commission checks every year the global ceiling for 
appropriations  for  payments,  which  was  established  when  the  financial  framework  was 
drawn up, in the light of implementation, to ensure an orderly progression in relation to 
the appropriations for commitments7. 

During  the  first  years  of  the  programming  period,  the  actual  level  of  payment 
appropriations has been significantly lower than the ceilings, which could possibly lead 
to  a  catch-up  phenomenon  with  higher  than  foreseen  payment  levels  in  years  to  come. 
Nevertheless, based on the current assessment regarding levels of payment appropriations 
until 2013, it is premature to adjust the existing ceiling of payments. 

The  Commission  will  continue  to  monitor  carefully  the  evolution  of  the  situation  and 
keep  fine-tuning  its  estimates  of  payments  for  structural  operations  and  for  all  other 
headings. 

Regarding payment appropriations after 2013, the Commission will update the forecasts 
in 2010, in accordance with the terms of Point 19 of the IIA in the form of a new "Fiche" 
11 as presented on 28 April 2004. 

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COM(2010) 160. 
The same provisions maintained in the draft MFF Regulation (Article 6). 

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2.1.4.  Adjustment  for  implementation  of  structural  funds,  cohesion  funds,  rural 

development and the European Fund for Fisheries (EFF) 

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

Appropriations  for  commitments  totalling  EUR 2 034 million  were  not  implemented  in 
2007 and were not carried forward to 2008. This corresponds to the 2007 allocations for 
45 Operational Programmes that could not be adopted in 2007, mainly due to delays in 
their  submission  to  the  Commission.  The  reprogramming  for  heading 1b  and  heading 2 
was  implemented  as  follows  by  Decision 2008/3718  of  the  European  Parliament  and  of 
the Council of 29 April 2008: 

(in current prices, in EUR million) 

Heading 1b 

Heading 2 

2008 

378 

394 

2009 

0 

387 

2010 

0 

387 

2011 

24 

147 

2012 

24 

147 

2013 

0 

147 

Better preparation by the Commission meant that this amount was much lower than the 
EUR 6 152.3 million reprogrammed in 20019. 

Key messages on the procedures for adjusting the MFF 

The  procedures  for  adjusting  the  MFF  appear  to  function.  The  advantages  of  using  a 
fixed deflator (Point 16) outweigh the limited average difference with the observed price 
deflator of GDP. Adjustment of the global payment ceiling (Point 18) has so far not been 
necessary,  but  continued  careful  monitoring  is  appropriate.  Finally,  the  adjustment  for 
implementation  (Point  48)  went  smoothly  and  the  amounts  concerned  were  far  lower 
than in 2001.  

2.2. 

Flexibility in the Multiannual Financial Framework 

2.2.1.  Analysis of margins  

Heading 1a covers priorities of immediate relevance for the renewed Lisbon agenda for 
growth and jobs. This heading gathers the largest number of different EU policies and is 
regularly under pressure due to the evolving context of global challenges.  

The  financing  of  the  Galileo  programme,  of  the  European  Institute  of  Innovation  and 
Technology and of the energy-related projects under the European Economic Recovery 
Plan have required repeated revisions of the ceilings (see Chapter 2.3.1.). Appropriations 
for  more  recent  decisions  or  proposals,  such  as  the  continuation  of  funding  for  the 

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OJ L 128, 16.5.2008, p. 8. 
See Decision 2001/692/EC of the European Parliament and of the Council of 3 May 2001 adopted 
pursuant to paragraph 17 of the IIA of 6 May 1999. 

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decommissioning of the Kozloduy (Bulgaria) nuclear power plant, the setting up of new 
financial supervisory  authorities,  the European Microfinance Facility and the launching 
of  the  operational  phase  of  the  European  Earth  Observation  Programme  (GMES)  have 
already been included in the updated financial programming on the basis of the proposal 
by  the  Commission.  The  available  margins  and  possibilities  to  respond  to  future 
eventualities have been reduced accordingly, leaving only an estimated margin of EUR 
50.1 million in 2011, EUR 34.6 million for 2012 and EUR 47.8 million for 2013. 

New additional needs are expected to come up over the next three years, for instance in 
relation to ITER.  

The estimated additional commitment appropriations for ITER to be provided by the EU 
budget  under  the  present  MFF  might  be  well  above  one  billion  euro.  The  need  for 
payments  appropriations  remains  to  be  assessed  in  the  light  of  the  schedule  currently 
under discussion, but payments are expected to occur mainly after 2013. 

The issue of margins is not as relevant for heading 1b as, under Point 13 of the IIA, the 
institutions are not obliged to maintain any margin under this heading, i.e. this ceiling is a 
target for expenditure. 

The  situation  of  heading  2  is  quite  different.  At  the  European  Council  in  Brussels  in 
October  2002  EU  leaders  agreed  the  ceilings  for  CAP  first  pillar  spending  at  the  2006 
level with an annual increase of 1% in current prices from 2007 and up to the year 2013. 
The subsequent 2003 CAP reform introduced a financial discipline mechanism to ensure 
that the amounts for the financing of the CAP are not exceeded in any year. In practice 
this  situation  has  not  arisen,  and  during  the  budget  years  2007  to  2009  the  budget 
execution has left substantial margins under the ceiling of heading 2. These margins have 
therefore  been  a  source  of  flexibility:  whereby  increases  in  other  headings  have  been 
offset by decreases in heading 2, allowing the overall MFF to remain unchanged.  

However,  these  margins  will  diminish  over  coming  years  in  particular  in  view  of  the 
continued  phasing-in  of  direct  aids  in  new  Member  States.  Currently  a  margin  of  EUR 
456 million remains in the 2010 budget, which may become available towards the end of 
the  year.  Barring  very  favourable  market  conditions,  it  is  unlikely  that  for  2011-2013 
budgetary  availabilities  will  be  found  within  the  sub-ceiling  for  the  first  pillar  of  the 
CAP, particularly not up-front in view of the obligation to maintain a margin of at least 
EUR 300 million to avoid application of the financial discipline mechanism. 

Regarding  headings  3,  the  evolution  of  expenditure  has  been  managed  within  the 
existing  ceilings  with  no  major  problems  from  2007  to  2009.  For  sub-heading  3a 
Freedom,  Security  and  Justice  that  has  been  possible  thanks  to  the  relatively  steep 
expenditure profile of the ceiling, which increases by 2.5 times between 2007 and 2013. 
On  the  other  hand,  the  situation  is  tighter  in  sub-heading  3b  Citizenship  given  the 
relatively stable ceiling which translates into very tight margins till the end of the period. 

Recurring  international  crises  and  emergencies  regularly  confront  heading  4  with 
insufficient  margins  and  flexibility  issues.  Problems  in  this  area  are  particularly  acute 
because of the volatile nature of external events, for example sudden conflicts and natural 
disasters, such as the recent earthquakes in Haiti, Chile or Turkey. Even though it has so 
far  been  possible  to  accommodate  the  additional  needs  through  recourse  to  various 
flexibility  instruments  in  the  course  of  the  annual  budget  procedure,  the  protracted 
negotiations on the food facility, for instance, have clearly shown the limits of the IIA’s 
flexibility mechanisms. Furthermore, the current strict separation of internal and external 

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expenditure,  which  was  highlighted  when  the  budgetary  authority  rejected  the 
Commission  proposal  to  make  available  part  of  the  financing  for  the  so-called  Food 
Facility  within  the  margin  available  under  heading  2,  appears  to  limit  the  Union’s 
capacity to react timely to global challenges.  

In  the  remaining  years  of  the  present  MFF  the  margins  programmed  for  heading  4  are 
very  limited.  After  taking  into  consideration  the  financing  of  banana  accompanying 
measures  to  ACP  countries  following  a  trade  agreement  in  the  framework  of  the  WTO 
trade  negotiations,  the  expected  margins  amount  to  EUR  70.3  million  for  2011,  EUR 
132.3 million for 2012 and EUR 134.6 million for 2013.  

In the area of climate change, the EU budget is expected to contribute EUR 150 million 
over 2010-2012 to the fast-start international funding set out as part of the Copenhagen 
Accord.  In  addition  to  EUR  50  million  already  included  in  the  2010  budget,  EUR  50 
million will be expected for each year 2011 and 2012. However a new dimension could 
be opened if from 2013 funding for an ambitious climate agreement would be provided 
from the EU budget as proposed by the Commission in September 200910.  

Over  the  period  2007-2009,  expenditure  under  heading  5  evolved  in  line  with 
expenditure  ceilings.  As  part  of  the  package  agreed  to  finance  the  European  Economic 
Recovery  Plan  (see  section  2.3.1  below),  the  expenditure  ceiling  was  reduced  by  EUR 
126.5 million in 2010 (and by EUR 173.5 million in 2009). The situation in heading 5 is 
becoming  much  tighter  in  2010  and  till  the  end  of  the  period  because  of  two  main 
reasons:  the  impact  of  the  entry  into  force  of  the  Lisbon  Treaty,  and  the  impact  of  the 
annual  salary  adjustment  for  staff  higher  than  originally  estimated.  On  the  one  hand, 
several institutions have requested additional appropriations in relation to the entry into 
force  of  the  Lisbon  Treaty  thus  eroding  the  available  margin.  Moreover,  it  cannot  be 
excluded that the creation of the European External Action Service (EEAS) may require 
additional spending. On the other hand, if the Council's decision to limit the annual salary 
adjustment for staff to only half the proposed increase was to be reversed by the Court of 
Justice ruling (following the Commission's appeal), there would be an additional one-off 
increase in expenditure (with retroactive effect) and an increase in the expenditure base 
to which future salary adjustments will have to apply. All in all, the ceilings of heading 5 
are  going  to  become  a  much  tighter  constraint  on  expenditure  than  observed  till  now. 
Nevertheless, there is still a limited margin as the Commission sticks to its strict policy of 
no new human  resources (except for enlargement) and is facing the new tasks deriving 
from Lisbon Treaty and other new priorities by redeployement only. 

2.2.2. 

Instruments of flexibility 

The  IIA  contains  provisions  regarding  a  number  of  instruments  of  flexibility:  the 
Emergency  Aid  Reserve  (EAR),  the  European  Union  Solidarity  Fund  (EUSF),  the 
European  Globalisation  Adjustment  Fund  (EGF)  and  the  Flexibility  Instrument.  The 
amounts  for  the  EU  Solidarity  Fund  are  only  entered  in  the  budget  when  the  Fund  is 
mobilised  while  the  amounts  corresponding  to  the  Emergency  Aid  Reserve  and  the 
European Globalisation Fund are already entered in the budget from the beginning of the 

10 

Commission  Communication  to  the  EP,  the  Council,  the  ECOSOC  and  the  CoR  -  Stepping  up 
international climate finance: A European blueprint for the Copenhagen deal - COM(2009) 475, 
10.9.2009. 

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year,  albeit  in  a  reserve.  The  Flexibility  Instrument  is  of  a  different  nature:  it  is  never 
entered in the budget as such but it allows expenditure to be budgeted above the ceiling 
of the corresponding heading of the multiannual financial framework. 

There are also slight differences in the procedures for mobilising these instruments:  

•  The  mobilisation  of  the  Emergency  Aid  Reserve  requires  a  transfer  and  a  trilogue 
procedure,  ‘if  necessary  in  simplified  form’.  The  commitment  appropriations 
mobilised recently are EUR 49 million in 2007, EUR 479 million in 200811 and EUR 
188 million in 2009. 

•  Mobilising the EU Solidarity Fund requires a proposal to deploy the instrument, the 
use of the ‘appropriate budgetary instrument’, which de facto is an amending budget, 
and the initiation of a trilogue procedure, ‘if necessary in simplified form’. Although 
the  EUSF  may  be  mobilised  for  up  to  EUR 1 billion  in  a  given  year,  the  highest 
mobilisation  was  in  the  first  year,  2002,  and  was  for  EUR 728 million.  In  all  other 
years  the  annual  mobilisation  levels  have  been  between  EUR 22 million  and 
EUR 615 million. Similarly, there has never been a problem in respecting the rule that 
25 % of the total amount should remain unused by 1 October.  

the 

instrument  and  a 

•  The European  Globalisation  Adjustment  Fund is mobilised through a proposal to 
deploy 
total  amounts  mobilised  were 
transfer.  The 
EUR 18.6 million in 2007, EUR 49 million in 2008 and EUR 54 million in 2009. Use 
of a transfer for the EGF should mean a speedier process. However, the necessity to 
accompany  this  with  a  mobilisation  decision  slows  the  procedure  down.  It  is  only 
when  the  mobilisation  decision  is  finally  adopted  that  the  transfer  can  actually  be 
made  in  the  accounting  system,  although  it  has  already  been  endorsed  by  the 
budgetary authority. With the experience gained over the last three years the practical 
modalities of the procedure have been adjusted12 but it could be simplified further.  

•  The  mobilisation  of  the  Flexibility  Instrument  is  accompanied  by  a  proposal  for  a 
decision of the European Parliament and the Council. In practice this may accompany 
the  Commission’s  [Preliminary]  Draft  Budget  or  a  Commission  proposal  for  a 
[Preliminary] Draft Amending Budget or an Amending Letter. The proposal may also 
be prepared following a political agreement at conciliation to mobilise the Instrument. 
In accordance with the provisions of the IIA, amounts mobilised are first taken from 
the oldest open tranche. The key difference between the present text and that included 
in  the  IIA  of  6  May  1999  is  the  deletion  of  the  following  text  ‘The  flexibility 
instrument should not, as a rule, be used to cover the same needs two years running’. 
This stipulation no longer applies, which is a valuable development as experience has 
shown (e.g. in Kosovo or Palestine) that some crises may require repeated recourse to 
the Flexibility Instrument. At the same time, there is an inherent contradiction — and 
inevitable  trade-offs  —  when  a  financial  instrument  which  has  been  conceived  to 
respond to short-term crises also has to play a role to solve lasting or recurring crises.  

11 

12 

Taking  into  account  the  one-off  increase  of  EUR  240  million  decided  in  the  framework  of  the 
agreement  reached  during  conciliation  on  21  November  2008  for  the  financing  of  the  Food 
Facility. 
As  suggested  by  the  European  Parliament,  the  Commission  now  submits  EGF  individual 
applications to the budgetary authority, rather than in batches. 

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The common strand for the first three instruments is the trilogue procedure "if necessary 
in  simplified  form".  What  this  ‘simplified  form’  entails  has  never  been  clarified.  The 
pragmatic solution, frequently followed, is that no trilogue takes place, unless a regular 
budgetary  trilogue  is  on  the  horizon.  The  draft  Interinstitutional  Agreement  on 
cooperation  in  budgetary  matters  incorporates  the  current  practice  and  it  stipulates  that 
the trilogue is called only if there is a disagreement between the institutions regarding the 
mobilisation of the instruments. 

The main reason for mobilising the Flexibility Instrument over the period 2000-2009 has 
been  to  meet  the  needs  of  heading  4,  where  the  margins  have  proved  too  tight  to  deal 
with  unforeseen  events.  Once  the  political  decision  to  mobilise  is  taken,  the  procedure 
has advanced quite smoothly. The main issue here is therefore not one of procedures, but 
one  of  available  means  compared  to  a  vast  array  of  needs  responding  to  important 
European priorities. Even though the IIA foresees that unused amount can be carried over 
up to n+2, the amount currently available in 2010 is limited to EUR 115 million due to 
the recurrent use of the Flexibility Instrument. 

2.2.3.  Possibility to diverge by 5 % from legislative act 

Point  37  of  the  IIA  defines  the  circumstances  under  which  the  amounts  set  out  in  the 
[Preliminary] Draft Budget can depart by more than 5 % from the reference amounts laid 
down  in  the  legislative  act,  while  it  leaves  to  the  Commission  and  to  the  budgetary 
authority a certain degree of discretion for deviations within the 5 % limit13. 

This has resulted in the adoption of a set of common rules to be applied to budgeting and 
programming  by  the  Commission:  as  a  general  rule,  modifications  are  systematically 
offset in following years of the programming period in order to continue respecting the 
overall financial allocations of the corresponding legislative act.  

Exceptions  to  this  general  rule  can  be  considered  if  the  Commission  finds  substantial 
arguments  for  diverging  from  the  financial  allocation,  which  will  be  explained  in  the 
financial  programming  documents  transmitted  to  the  budgetary  authority.  Whereas  the 
general  rule  of  compensation  is  applied  to  Commission  proposals,  it  is  not  applied  in 
cases where the Council or European Parliament amends the [Preliminary] Draft Budget 
proposal with additional appropriations.  

Key messages on flexibility in the MFF  

Margins  under  all  ceilings  of  the  MFF  are  becoming  very  tight.  The  margins  under 
heading  2  are  expected  to  shrink  significantly  in  coming  years.  At  the  same  time 
remaining margins and possibilities for redeployment within headings 1a, 3b and 4 offer 
only  limited  scope  at  best  to  respond  to  future  eventualities.  Overall,  the  remaining 
margin for manoeuvre within the MFF for years to come is severely limited. The various 
instruments (Points 25 to 28) which provide flexibility outside the MFF have been used 
with varying degrees of intensity. Furthermore, regarding the Flexibility Instrument, the 
main  issue  is  one  of  available  means  compared  to  a  vast  array  of  needs  responding  to 
important European priorities. Besides, the rules framing the possibility for amounts in 
the  [Preliminary]  Draft  Budget  to  depart  from  reference  amounts  (Point  37)  are  clear 
and function well. 

13 

The same provisions maintained in the draft new IIA (Point 15). 

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2.3. 

Revisions of the Multiannual Financial Framework  

2.3.1.  Analysis of the recent revisions of the MFF and amendments to the IIA 

Except for the  first financial perspectives (1988-1992),  only  little  use  was  made  before 
2007 of the possibility to revise the multiannual financial framework (MFF). The 1993-
1999  framework  was  revised  only  once  and  the  2000-2006  framework  not  at  all,  apart 
from  the  adjustments  related  to  enlargements.  By  contrast,  exceptional  developments 
have  already  triggered  two  revisions  of  the  2007-2013  financial  framework,  as  well  as 
one other amendment of the IIA: 

•  In the first half of 2007, the negotiations with the private partners on the financing of 
the  European  Global  Navigation  Satellite  System  (GNSS)  programmes  EGNOS  and 
GALILEO  failed.  In  order  to  secure  the  implementation  of  this  strategically 
important  project,  as  well  as  the  financing  of  the  European  Institute  of  Technology 
(EIT),  the  budgetary  authority  decided  on  18  December  2007  to  revise  the  financial 
framework. The increase in the ceilings for heading 1a for the years 2008 to 2013 by a 
total amount of EUR 1.6 billion in current prices was offset by an equivalent reduction 
of  the  ceiling  for  heading  2  for  the  year  200714.  Additionally,  EUR  600  million  was 
made available by re-allocating funds from other programmes and budget lines within 
heading 1a, and EUR 200 million by mobilising the Flexibility Instrument. In total, an 
amount of EUR 2.4 billion of EU financing was added to the amount provided for in 
May 2006 when the financial framework was agreed. 

•  In order to provide a rapid response to soaring food prices in developing countries a 
EUR 1 billion Food Facility was set up in late 2008. The solution agreed by the three 
institutions  for  financing  this  facility  required  an  amendment  of  the  IIA  in  order  to 
exceptionally increase the Emergency Aid Reserve (EAR) provided for in Point 25 of 
the IIA by an amount of EUR 240 million in 200815. This allowed the EAR to make 
EUR 340 million available to the food facility. The remaining amount was provided 
by the Flexibility Instrument (EUR 420 million for 2009) and through redeployment 
from other programmes within heading 4 (EUR 240 million in 2009 and 2010). 

•  On 2 April 2009 agreement was reached on the financing of a EUR 5 billion package 
for energy and rural development proposed by the Commission in the framework of 
its  European  Economic  Recovery  Plan  (EERP)  of  26  November  2008.  The 
agreement involved an immediate revision of the financial framework16, by which the 
2009  ceiling  for  commitment  appropriations  under  heading  1a  was  increased  by  an 
amount  of  EUR  2.0  billion,  fully  offset  by  a  decrease  of  the  2009  ceiling  for 
commitment  appropriations  under  heading  2.  Additionally,  EUR  600  million  was 
made available within the margin of heading 2 in 2009 for rural development in the 
form  of  broadband  infrastructure  and  measures  related  to  the  ‘new  challenges’ 
identified under the Common Agricultural Policy’s ‘health check’. As a second step, 
at  the  November  2009  conciliation  meeting  additional  EUR  1980  million  was  made 
available for energy projects under heading 1a. This implied a further revision of the 

14 
15 
16 

OJ L 6, 10.1.2008, p. 7. 
OJ C 326, 20.12.2008, p. 3. 
OJ L 132, 29.5.2009, p. 8. 

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financial  framework17  with  a  raising  of 
the  2010  ceiling  for  commitment 
appropriations  under  heading  1a  fully  compensated  by  a  decrease  of  the  2009  and 
2010 ceilings of other headings (mainly heading 2). Furthermore, additional EUR 420 
million  was  made  available  for  broadband  and  'new  challenges'  within  the  2010 
margin of heading 2.  

The above-mentioned revisions of the 2007-2013 MFF aimed to increase the ceilings for 
commitment  appropriations  under  heading  1a.  The  time  needed  for  an  agreement 
(starting  from  the  initial  Commission  proposal)  tended  to  increase:  three  months  were 
needed for the first revision (Galileo and EIT) of the 2007-2013 MFF. Five months were 
needed  for  the  agreement  on  the  EERP  package,  excluding  the  time  needed  for 
effectively implementing the budgetary ‘compensation mechanism’ it provides for.  

The Council only accepted the principle of a revision to the extent that the raising of the 
ceilings under heading 1a could be fully offset by the lowering of the ceilings for another 
heading  so  as  to  leave  the  ‘overall  ceiling’  (i.e.  the  total  amounts  expressed  in  current 
prices  for  commitment  appropriations  as  well  as  for  payment  appropriations  for  all 
headings and years) of the 2007-2013 MFF unchanged. For financing the EUR 5 billion 
EERP package, a compensation mechanism potentially stretching over two or even three 
budgetary procedures was preferred to a one-off revision of the MFF as proposed by the 
Commission. In practice, this limited the flexibility allowed for by the IIA.  

Full  offsetting  of  the  increase  of  the  ceilings  under  heading  1a  by  the  lowering  of  the 
ceilings  for  heading  2  was  only  possible  because  of  exceptionally  large  margins  left 
under that particular  heading  in  the years 2007 to 2009. This was due to the combined 
effect  of  very  favourable  market  conditions  in  the  agricultural  sector,  high  levels  of 
assigned revenue and the gradual phasing-in of direct aids in the new Member States.  

Overall,  experience  shows  that  agreement  for  a  revision  takes  time  and  that  recent 
revisions have been greatly facilitated by existing margins. However, such a favourable 
environment for revisions is unlikely to be found in the foreseeable future, thus calling 
into question the capacity of the Union to react swiftly and effectively to future changes. 

2.3.2.  Procedures applicable to revisions 

Point 22 of the IIA, which lays down the voting rules for revision of the MFF, sets the 
threshold  for  switching  from  a  qualified  majority  vote  in  Council  to  a  unanimous 
decision at 0.03 % of the EU GNI. This is to be interpreted as relating to each of the years 
concerned by the revision, e.g. for 2009 the threshold was set at 0.03 % of the EU GNI of 
2009 or EUR 3.6 billion18. Even though consensual decision-making has generally been 
sought, the possibility to have a qualified majority vote in Council was crucial in terms of 
obtaining a timely agreement on the revision. 

Point  22  of  the  IIA  further  provides  that,  ‘as  a  general  rule’,  any  revision  of  the  MFF 
must be presented and adopted before the start of the budgetary procedure for the year or 
the  first  of  the  years  concerned.  The  words  ‘as  a  general  rule’  were  interpreted  as 
allowing for some flexibility in terms of the timing of the relevant Commission proposal 
within the budgetary year concerned.  

17 
18 

OJ L 347, 24.12.2009, p. 26. 
The GNI to be used for setting the threshold is the one used for the latest technical adjustment of 
the financial framework and it is the GNI used for the purposes of the Own Resources Decision. 

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There was, however, no agreement between the institutions on whether the increase of a 
ceiling  for  the  present  or  future  years  can  be  ‘offset’  (within  the  meaning  of  Point  23, 
second paragraph, of  the IIA) by lowering a ceiling for a year  for which the budgetary 
exercise is closed. As a result, this option was foreclosed19. 

Key messages on revisions of the MFF 

In the first three years of the 2007-2013 MFF, the financial framework and the IIA have 
already been amended on three different occasions to accommodate new initiatives with 
substantial  financing  needs:  the  financing  of  Galileo  and  the  EIT,  the  increase  of  the 
Emergency Aid Reserve to finance part of the Food Facility, and the European Economic 
Recovery Plan. The related adjustments to the current Financial Framework and the IIA 
totalled EUR 8.4 billion. While the institutions agreed on the procedures and instruments 
to deal with the financial impact of these unforeseen situations (Points 21 to 23), in each 
instance their use led to prolonged and very difficult political negotiations. Success was 
ultimately  possible  because  the  increases  in  the  ceiling  for  heading  1a  were  offset  by 
decreases  of  the  other  ceilings,  in  particular  of  heading  2,  where  large  margins  were 
available.  Recourse  to  this  option  will  be  much  more  difficult  in the  second  half  of  the 
Financial Framework at a time when further adjustments may be necessary.  

3. 

INTERINSTITUTIONAL COLLABORATION 

Points  31,  32  and  33  and  Annex  II  of  the  IIA  set  out  the  provisions  relating  to  the 
improvement  of  interinstitutional  collaboration  during  the  budgetary  procedure.  These 
provisions  have  proved  extremely  useful  as  a  framework  for  the  annual  budget 
procedure.  

3.1. 

Interinstitutional collaboration and the budget procedure 

As  the  Lisbon  Treaty  significantly  changes  the  budgetary  procedure,  the  provisions  on 
the interinstitutional cooperation adjusted to the new procedure are included in the Annex 
of  the  new  Interinstitutional  Agreement  on  cooperation  in  budgetary  matters.  This  new 
annex keeps some of the well-established practices of the previous agreement but most of 
the  provisions  had  to  be  adjusted.  Amongst  the  provisions  that  would  remain,  albeit 
adjusted in the new framework, appropriate attention should be granted to the following:  

–  Point  33  refers  to  the  so-called  ‘letter  of  executability’,  in  which  the  Commission 
comments on the European Parliament’s first reading amendments. The IIA specifies 
that "the two arms of the budgetary authority will take those comments into account in 
the context of the conciliation procedure." It would be useful to see greater use made 
of  these  provisions  by  the  budgetary  authority  and  this  would  certainly  help  to 
improve  budgetary  implementation.  Under  the  new  procedure,  the  format  and  the 
content  of  the  Commission  comments  will  have  to  be  adjusted  to  take  into  account 
both the Council's position and the European Parliaments' amendments. 

–  Under the provisions of Part D of Annex II, both arms of the budgetary authority will 
inform  the  Commission  by  mid-June  of  their  intentions  in  regard  to  pilot 

19 

The same provisions are included in the draft MFF Regulation (Article 8). 

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projects/preparatory  actions,  with  a  view  to  holding  a  first  discussion  at  the 
conciliation  meeting  of  the  Council’s  first  reading.  During  the  2009  procedure, 
important progress was made in this regard, when the European Parliament presented 
its initial proposals in due time. All parties agreed that this had greatly improved the 
process, and hopefully such an approach can be built on in the future. 

3.2. 

Classification of expenditure 

Since  the  Council  had  the  final  say  on  compulsory  expenditure,  and  the  European 
Parliament  had  the  final  say  on  non-compulsory  expenditure,  the  potential  for  disputes 
had been significant. 

However,  with  the  introduction  of  interinstitutional  agreements,  and  an  agreed 
breakdown between the two categories, this type of dispute had largely disappeared. The 
Lisbon Treaty takes this a stage further by abolishing the distinction altogether. 

3.3.  Maximum rate of increase 

Article  272(9)  of  the  Treaty,  which  is  repealed  by  the  Lisbon  Treaty,  required  the 
Commission  to  declare  each  year  the  ‘maximum  rate  of  increase’  of  non-compulsory 
expenditure  in  the  budget  of  the  following  year  and  to  communicate  this  rate  before 
1 May to all the institutions of the Community. This maximum rate, which was based on 
the  average  growth  of  GDP,  central  government  expenditure  and  cost  of  living  in  the 
Member States, was established at 4.6 % for the 2010 budget20, 5.0 % for the 2009 budget 
and 4.7 % for the 2008 budget.  

Since the European Parliament, the Council and the Commission have agreed to respect 
the ceilings of the MFF, this maximum rate was de facto purely indicative. 

3.4. 

Fisheries agreements and CFSP 

The provisions relating to the fisheries agreements are set out in Point 41 and Annex IV 
of  the  IIA.  The  Commission  undertakes  to  keep  the  European  Parliament  regularly 
informed  of  developments,  and  each  quarter  the  Commission  presents  detailed 
information about the implementation of agreements in force and financial forecasts for 
the remainder of the year21. 

This process seems to be working well in practice. It is not necessary to modify it.  

The provisions relating to the Common Foreign and Security Policy (CFSP) are set out in 
Points  42  and  43.  The  good  practice  of  joint  meetings  between  the  Council  and  the 
European  Parliament  (AFET  and  COBU  committees),  held  under  Point  43  at  least  five 
times a year, has proved to be a useful tool not only for the dialogue on political issues 
concerning the CFSP, but also for regular updates on budgetary issues22. 

20 
21 
22 

SEC(2009) 583, 30.4.2009. 
The same provisions are included in the draft new IIA (Point 17). 
Provisions included both in the draft MFF Regulation (Art. 12) and the draft new IIA (Point 18 
and 19). 

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Key messages on the interinstitutional collaboration provisions 

The IIA has been a useful tool to facilitate interinstitutional collaboration. The principles 
and  procedures  for  cooperation  set  out  in  Annex  II  of  the  IIA  have  contributed  to 
smoother  negotiation  procedures.  Based  on  this  positive  experience,  these  principles 
should  obviously  be  revised  to  take  into  consideration  the  new  procedure  and 
competences deriving from the Lisbon Treaty. The arrangement whereby the Commission 
provides  Parliament  with  quarterly  information  about  the  implementation  of  fisheries 
agreements  in  force  and  financial  forecasts  for  the  remainder  of  the  year  (Point  41) 
seems  to  be  working  well  in  practice.  Similarly,  regular  joint  meetings  between  the 
Council and the European Parliament on the CFSP (Point 43) have proved a useful tool. 
At  the  same  time,  greater  use  of  provisions  regarding  the  so-called  'letter  of 
executability'  and  comments  made  by  the  Commission  in  the  new  context  of  the 
conciliation  procedure 
improve  budgetary 
implementation.  Important  progress  was  made  during  the  2009  procedure  on 
information  regarding  pilot  projects/preparatory  actions  (Annex  II)  and  hopefully  such 
an approach can be built on in the future. 

(Point  33)  would  certainly  help 

4. 

SOUND FINANCIAL MANAGEMENT OF EU FUNDS 

4.1. 

Statements of Assurance 

To implement Point 44 of the Interinstitutional Agreement, the Financial Regulation and 
the Implementing Rules were flanked by provisions to strengthen internal control in the 
area of shared management whereby the relevant audit authorities in Member States were 
to  produce  an  assessment  of  the  compliance  of  management  and  control  systems  with 
Community regulations through an annual summary at the appropriate national level of 
the available audits and declarations23.  

The Commission issued guidance to Member States on the preparation of the statements 
of assurance and annual summaries on 2007, and revised these in the light of experience 
for the 2008 and 2009 rounds to reinforce the value-added elements. While in agriculture 
the  sectoral  legislation  contains  a  legal  requirement  for  the  provision  of  annual 
statements  of  assurance,  this  is  not  the  case  in  cohesion  policy.  As  a  result  the 
Commission  can  currently  only  recommend  that  Member  States  supplement  their 
summaries  in  this  field  with  a  declaration  of  assurance:  seven  Member  States  provided 
such  statements  in  their  annual  summaries  due  on  15  February  2009.  For  these 
summaries,  all  Member  States  respected  the  obligation  and  eventually  submitted 
summaries  which  complied  with  the  minimum  requirements.  For  the  first  time  annual 
summaries were also received in the area of justice, freedom and security.  

The responsible departments provide an assessment of the quality of annual summaries 
and  of  their  contribution  to  assurance  in  their  annual  activity  reports.  The  Commission 
will  continue  to  work  with  Member  States  to  maximise  the  added  value  of  annual 
summaries  and  to  obtain  an  increased  assurance  on  their  management  and  control 
systems. 

23 

Articles 53b(3) of the Financial Regulation and 42a of the Implementing Rules. 

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In its annual report on the year 2008, the Court of Auditors observed that some Member 
States had submitted elements or analyses which added value to the annual summaries, 
by  seeking  to  identify  and  comment  on  systemic  deficiencies  or  cross-cutting  issues. 
Noting the encouragement in successive Discharge Resolutions, the Commission intends, 
in  its  proposal  for  the  triennial  revision  of  the  Financial  Regulation,  to  reinforce  the 
provisions on annual summaries to add value in terms of assurance, notably through the 
incorporation of declarations of assurance and audit opinions. 

Parallel  to  the  work  on  annual  summaries,  the  Commission  supports  the  voluntary 
initiatives  taken  by  some  Member  States  to  provide  national  management  declarations 
covering EU funds. 

4.2. 

Financial programming 

In  accordance  with  Point  46  of  the  IIA,  the  Commission  submits  the  financial 
programming to the budgetary authority twice a year — once in May/June as part of the 
[Preliminary]  Draft  Budget,  and  once  in  December/January  after  the  adoption  of  the 
budget.24  The  financial  programming  sent  each  January  is  a  technical  update  to  the 
results of the budgetary procedure and to the evolution of various legislative procedures. 

In presenting the financial programming, the provisions of Point 37 of the IIA are taken 
into consideration (see above).  

The financial programming provides an orientation for future years, remains indicative in 
nature  and,  as  such,  does  not  prejudge  any  decision  the  Commission  or  the  budgetary 
authority might take in future annual budgetary procedures. 

In  line  with  requests  from  the  two  arms  of  the  budgetary  authority,  the  format  of  the 
financial programming document has been revised in 2009 to highlight more clearly the 
changes since the last financial programming.  

Point 46 of the IIA also states that "on the basis of the data supplied by the Commission, 
stocktaking should be carried out at each trilogue". In practice this is not the case, unless 
one of the institutions specifically requests that the item be added to a trilogue agenda. 
This flexible approach is valuable and this provision shall not be reproduced in the new 
IIA. 

4.3. 

Agencies and European Schools  

Point  47  of  the  IIA  regarding  agencies  foresees  a  procedure  for  the  two  arms  of  the 
budgetary authority to arrive at a timely agreement on the financing of a new agency, as 
proposed  by  the  Commission.  The  three  Institutions  have  clarified  the  practical 
application  of  point  47  in  a  joint  declaration  in  November  2009,  by  applying  three 
procedural  steps  to  arrive  at  agreement.  Accordingly,  the  Commission  has  proposed  to 
include the text of the joint declaration in the Interinstitutional Agreement on cooperation 
in budgetary matters25. 

4.4. 

New financial instruments 

In  accordance  with  Point  49,  when  presenting  the  [Preliminary]  Draft  Budget,  the 
Commission is requested to report to the budgetary authority on the activities financed by 

24 
25 

The same provisions are included in the draft new IIA (Point 20). 
Point 21 of the draft new IIA. 

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the EIB, EIF and EBRD to support investment in research and development, TENs, and 
SMEs. There are no particular problems to address here, and no need for change26. 

Key messages on the sound financial management provisions 

A positive overall assessment can be made of provisions in the IIA regarding the sound 
financial  management  of  EU  funds.  The  new  format  of  the  financial  programming 
(Point 46) appears to be a valuable tool for supporting political decisions. Reports by the 
Commission  to  the  budgetary  authority  on  the  activities  financed  by  the  EIB,  EIF  and 
EBRD to support investment in research and development, TENs, and SMEs (Point 49) 
have  been  running  smoothly.  The  reinforcement  of  the  annual  summaries  will  be 
proposed  in  the  triennial  revision  of  the  Financial  Regulation.  In  the  meantime  efforts 
must be made to add value to the annual summaries and to support those Member States 
choosing  to  produce  voluntary  national  declarations.  Lastly,  a  more  systematic 
procedure for the implementation of Point 47 regarding agencies has been agreed. 

5. 

CONCLUSIONS 

The  Interinstitutional  Agreement  has  proved  invaluable  in  facilitating  budgetary 
discipline and ensuring a smooth budgetary  procedure.  Overall, the track record  of this 
instrument  and,  in  particular,  of  the  Multiannual  Financial  Framework  (MFF)  can  be 
regarded as quite positive. 

At the same time, this report has highlighted that adjustments to the current MFF and the 
IIA  totalling  a  gross  amount  of  EUR 8.4  billion  have  already  been  required  in  the  first 
half of this MFF, and that the remaining margin for manoeuvre is now severely limited. 
This  raises  questions  as  to  whether  the  Union  will  be  adequately  equipped  for  new 
challenges and rapidly evolving circumstances in the second half of this MFF. Concerns 
along these lines have already been expressed by the European Parliament in its Report 
on  the  Mid-Term  Review  of  the  2007-2013  Financial  Framework27.  Furthermore,  the 
Europe  2020  strategy  makes  it  clear  that  more  can  and  must  be  done  to  deliver  smart, 
sustainable and inclusive growth and to create new jobs. 

Under  heading  1A,  a  number  of  issues  are  emerging,  for  which  the  exact  additional 
financial needs still have to be determined (for example on ITER). Given the extremely 
limited margin, the potential amounts at stake decisively exceed amounts anticipated to 
remain  unspent/uncommited  under  the  current  ceiling  of  heading  1A  and  there  is  no 
budgetary room for new initiatives.  

Regarding heading 4, the current foreseeable margins are very limited and may not be 
sufficient  to  deal  with  future  demands.  In  particular,  the  consequences  of  recurring 
international  crises  and  the  potentially  important  impact  of  the  2013  climate  change 
financing needs to be considered carefully. 

Depending  on  the  size  of  additional  requirements  in  headings  1A  and  4  and  the  nature 
(one-off vs. permanent) of additional needs, a number of options could be envisaged: 

–  Redeployment within the heading concerned for limited amounts; 

26 
27 

The same provisions included in the draft new IIA (Point 22). 
P6_TA(2009)0174, 25.3.2009. 

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–  Mobilisation of the Flexibility instrument could play a role; 

–  Revision of the ceiling of the heading concerned may need to be necessary if 
the amounts required are substantial and permanent, which could be the case 
for  either  ITER or  climate change financing  in 2013.  Such a revision could 
either take the form of a compensation mechanism offsetting the increase in 
one heading by the decrease in another or, if necessary, a net increase of the 
overall ceiling of the 2007-2013 MFF. 

Other  financing  possibilities  outside  the  scope  of  the  IIA  such  as  EIB  loans  or 
intergovernmental financing could be examined as well. 

In view of the very limited margins, it is clear that more flexibility will be needed to cope 
with  the  potential  budgetary  impact  of  new  developments.  On  the  basis  of  the  above-
mentioned options, the Commission will make proposals as soon as the budgetary impact 
of the pending issues mentioned in this report has been sufficiently clarified. 

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