COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE NATIONAL PARLIAMENTS The EU Budget Review
Date: 2010-10-19
Institutions: European Commission
Subjects: Community budget, European Parliament, report, revision of financial perspectives

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EUROPEAN COMMISSION 

Brussels, 19.10.2010 
COM(2010) 700 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE NATIONAL 
PARLIAMENTS 

The EU Budget Review 

{SEC(2010) 7000 final} 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE NATIONAL 
PARLIAMENTS 

The EU Budget Review 

The  decision  to  undertake  a  full,  wide-ranging  review  of  EU  spending  and  resources  was 
agreed in 20061. The economic climate has radically changed since the mandate was given; 
and the global economic crisis has put public spending at the heart of the political debate in 
European countries. Throughout the European Union, difficult choices are being made. Public 
spending priorities are being challenged in a way not seen for decades. 

At  the  same  time,  public  spending  has  played  a  key  role  in  the  process  of  recovery.  The 
stimulus  agreed  at  the  end  of  2008  prevented  the  worst  of  the  crisis.  Intelligent  targeting 
meant  that  stimulus  was  directed  at  areas  which  could  pay  off  for  the  future:  at  growth-
enhancing  policies,  at  strategic  infrastructure,  at  preventing  key  skills  and  key  assets  from 
being wiped out by the shock. 

This  review  therefore  comes  forward  at  a  time  when  prioritisation,  added  value  and  a  high 
quality  of  spending  are  uppermost  in  the  minds  of  citizens.  It  follows  a  long  process  of 
consultation  and  reflection2  which  allowed  promising  ideas  to  be  floated  about  how  the 
budget can best be targeted to secure the EU's objectives, be policy-driven and promote the 
Europe 2020 strategy; about how the budget can deliver in the most effective way possible; 
and  about  how  to  take  a  fresh  look  at  the  best  way  of  providing  the  resources  necessary  to 
fund EU policies. 

Public  spending  is  a  means  to  an  end  and  growth  for  jobs  is  our  overarching  priority, 
concentrating  on  getting  more  people  in  jobs,  boosting  our  companies'  competitiveness  and 
building an open and modern single market. 

The  Commission  must  present  its  proposals  for  the  next  multiannual  financial  framework 
before 1 July 2011. This review sets out some of the issues facing the EU budget for the next 
framework and beyond. How the EU must take account of both the impact of the economic 
and  fiscal  crisis  and  long-term  challenges  like  demographic  change,  the  need  to  address 
climate  change  and  pressure  on  natural  resources.  How  the  issue  is  not  first  and  foremost 
about  spending  more  or  less,  but  about  finding  ways  to  spend  more  intelligently.  How  we 
need  to  present  a  holistic  vision  of  budget  reform,  covering  both  the  expenditure  and  the 
revenue side of the budget. 

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OJ C 139, 14.6.2006, p. 15 (Declaration No 3). 
Consultation website: 
http://ec.europa.eu/budget/reform/library/issue_paper/summary_consulation_doc_final_en.pdf 

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Agreeing the way forward will be a major challenge for the European Union, but also a major 
prize.  It  would  represent  a  powerful  signal  that  the  European  Union  is  equal  to  the  task  of 
harnessing the tools at its disposal to make a real difference for its citizens.  

1. 

WHAT LESSONS FROM THE BUDGET TODAY? 

The  Lisbon  Treaty  has  introduced  a  new  legal  setting  for  the  multiannual  financial 
framework.  It  confirmed  the  need  to  provide  a  medium-term  approach  to  EU  spending,  as 
well as the principle that the EU is financed by Own Resources. This means that the review 
process  –  while  looking  ahead  –  has  also  drawn  heavily  on  the  experience  of  the  current 
financing period.  

So far, the EU budget has proved itself as an effective tool to realise the EU's aspirations and 
implement  its  policies.  The  EU  budget  has  made  a  real  difference  to  the  task  of  delivering 
more  growth  and  jobs,  boosting  research,  competitiveness  and  skills  and  ensuring  that  the 
Union  offers  particular  support  to  those  most  in  need  of  solidarity.  It  has  given  particular 
support to priority projects, including contributing to the stimulus needed in the wake of the 
economic  crisis.  It  has  reinforced  the  Union's  security.  It  has  brought  help  to  hundreds  of 
millions  of  the  world's  poorest,  accelerated  the  development  of  Europe's  neighbours  and 
promoted EU policies worldwide. 

The goal must be to use the budget as effectively as possible to achieving the EU's objectives. 
Some of the key lessons to be learnt to further this objective include: 

•  Since their introduction in 1988, the EU's multiannual financial frameworks have ensured 
strict  budgetary  discipline  and  medium-term  predictability  of  EU  expenditure.  This 
predictability has come at the price of limited flexibility. The past years have shown that 
the  financial  framework  and  its  programmes  have  not  always  been  able  to  respond  to 
political  imperatives  and  changing  circumstances.  EU  decisions  to  bring  extra  help  to 
developing countries when food prices soared in 2008, to respond to changing demands in 
major  European  projects  such  as  Galileo  and  ITER  due  to  their  long  lead  times  and 
evolving  costs,  to  contribute  to  economic  stimulus  in  2008-2009,  or  indeed  to  react  to 
global  crises  such  as  the  tsunami  have  come  up  against  the  excessive  inflexibility  of  he 
current  system.  They  have  only  been  accommodated  with  extreme  difficulty,  relying  on 
unexpected margins in other parts of the budget. Even within programmes, the obstacles to 
re-prioritisation  have  made  it  harder  to  give  the  right  priority  to  new  issues  like  public 
health  emergencies,  to  refocus  training  needs  in  the  wake  of  the  crisis  or  to  reflect  the 
Union's  changing  relationship  with  emerging  economies.  So  the  budget's  inability  to 
"expect the unexpected" brings both an operational and a reputational cost to the EU.  

•  Another  of  the  unforeseen  events  of  recent  years  has  been  the  economic  crisis  and  its 
effects on the debate on economic governance. This underlined the interdependence of the 
EU's economies and the need to strengthen common rules. In the first place, the use of the 
budget as collateral to support the European stabilisation mechanism showed an innovative 
use  of  the  budget  to  support  an  urgent  policy  need,  however  tightly  constrained  by  the 
ceiling of own resources. In addition, it was suggested that the receipt of EU funds could 
be used to reinforce both preventative and corrective measures to support the Stability and 
Growth Pact.  

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•  The nature of the debate leading up to agreement on the last financial framework also had 
consequences for the ability of the budget to deliver. The concentration on the issue of "net 
balances" meant that programmes were skewed to maximise the ability to put a "national 
flag" on spending in advance. This was given priority over measures designed to improve 
performance,  such  as  macro  policy  dialogue  and  holding  back  reserves  to  reward 
effectiveness.  It  also  meant  that  the  European  dimension  –  where  the  EU  can  bring  the 
highest added value – was not always the primary consideration. The "juste retour" debate 
therefore had a negative impact on the quality of delivery and reduced the EU added value. 

•  Putting  new  programmes  in  place  takes  time  –  particularly  when  they  are  based  on  a 
partnership  approach  to  factor  in  local  needs  and  priorities.  The  time  available  between 
agreement on the legal texts and the start of a financing period is crucial to make this work 
well.  In  the  run-up  to  2007,  the  late  agreement  on  the  financing  package  squeezed  this 
critical period. The result was that the real start of programmes was delayed, and in some 
cases this has had a knock-on throughout the period. 

•  The  delays  in  launching  the  programmes,  enshrined  complexities  in  the  process,  a  very 
decentralised approach and the impact of the financial crisis on national public budgets led 
to a slow uptake of cohesion spending. A better design, faster decision making, streamlined 
and harmonised procedures, a clearer definition of priorities at all levels and more flexible 
approach to co-financing have all been identified as potential remedies. 

•  The  impact  of  EU  spending  can  be  hampered  by  the  rules  governing  the  programmes 
concerned. Whilst controls have helped to ensure a steady improvement in sound financial 
management,  inconsistencies  between  programmes  and  high  administrative  burdens  have 
both  proved  obstacles  to  effectiveness.  Controls  have  also  had  a  tendency  to  assess 
programmes  on  the  basis  of  inputs  rather  than  performance,  reducing  the  incentives  for 
effective results. 

•  The existing financial framework has taken the first steps in pioneering a new approach to 
the impact the EU budget can have. If the EU budget can leverage investment from other 
public  and  private  sources,  the  same  funding  can  achieve  the  EU's  policy  goals  more 
effectively.  This  approach  has  been  successful  in  cases  like  the  Risk  Sharing  Finance 
Facility,  which  has  kick-started  business  investment  in  higher-risk  research.  So  the 
domination of the grants approach may have limited the budget's potential impact.  

2. 

PRINCIPLES FOR THE EU BUDGET 

The  EU  budget  must  be  grounded  in  a  series  of  core  principles.  These  are  the  tests  against 
which options should be assessed. Through these principles, European citizens should be able 
to have a better view of what the EU budget is for, and how the key choices have been made.  

2.1. 

Delivering key policy priorities 

The  EU  budget  is  a  key  instrument  for  shaping  and  delivering  EU  policies  for  citizens  and 
economic  and  social  actors.  It  is  not  the  only  tool  at  the  EU's  disposal:  many  of  the  EU's 
objectives can be reached through law or policy coordination. But it is an essential part of the 
EU's toolbox.  

Amongst the policies that require significant public spending, the weight of spending should 
mirror the EU's core policy priorities.  It  should also reflect the new policy directions of the 

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Treaty of Lisbon,  the importance given to particular areas, for example energy and climate, 
the external projection of the EU and justice and home affairs.  

Above all, it should be designed as one of the most important instruments to help deliver the 
Europe 2020 strategy for smart, sustainable and inclusive growth. The economic and financial 
crisis has left a legacy of weaker growth. Dealing effectively with the legacy of the crisis and 
increasing  potential  growth  in  times  of  budgetary  consolidation  cannot  be  achieved  at  the 
national level alone, but will also require a common response at the EU level. The EU budget 
needs to help the process of restoring the capacity for growth by directing resources where the 
rewards can come more quickly, more broadly and more strongly. 

2.2. 

EU added value 

Whilst  added  value  of  a  political  project  cannot  be  reduced  to  a  balance  sheet,  it  is  another 
key test to justify spending at the EU level: whether spending at EU level means a better deal 
for  citizens  than  spending  at  national  level.  The  European  dimension  can  maximise  the 
efficiency  of  Member  States'  finances  and  help  to  reduce  total  expenditure,  by  pooling 
common services and resources to benefit from economies of scale. As a consequence, the EU 
budget  should  be  used  to  finance  EU  public  goods,  actions  that  Member  States  and  regions 
cannot finance themselves, or where it can secure better results. 

EU  spending  for  2010  amounted  to  € 122.9bn.  This  is  relatively  small  in  comparison  to 
national  budgets  –  some  1%  of  EU  GDP,  compared  to  overall  public  spending  averaging 
between  45  and  50%  across  the  EU.  Large  areas  of  spending  –  such  as  providing  services 
such  as  health,  education,  and  social  security  –  are  rightly  the  domain  of  national  budgets, 
delivering services which reflect societal choices. 

But in other areas, delivery through the EU budget is the rational choice and the best way to 
achieve the EU's objectives. The EU has 500 million citizens, and is the largest economy in 
the  world.  This  offers  real  opportunities  to  exploit  added  value.  It  can  offer  economies  of 
scale and allow the effective targeting of policy priorities and avoid unnecessary overlaps. Its 
continental scale can allow core policies to work well, such as the identification of excellence 
in  research  through  competition,  where  the  critical  mass  required  often  does  not  exist  at 
national  level  alone.  It  can  plug  gaps  left  by  the  dynamics  of  national  policy-making,  most 
obviously addressing cross-border challenges in areas like infrastructure, mobility, territorial 
cohesion or EU research cooperation – gaps which would otherwise damage the interests of 
the  EU  as  a  whole.  It  can  open  the  door  to  leveraging  a  much  wider  range  of  public  and 
private resources than available at the national level alone.  

In  times  of  severe  and  long-term  budgetary  constraints,  coordination  between  the  EU  and 
national  budgets  should  be  seen  as  crucial  for  the  sake  of  improving  economic  governance, 
transparency and efficiency of public spending. 

2.3. 

A results-driven budget  

Identifying  those  areas  where  the  EU  dimension  can  offer  more  is  not  in  itself  sufficient. 
Spending  on  the  right  policies  is  only  worthwhile  if  it  secures  the  desired  results.  Spending 
programmes must have a real impact, with the investment feeding through into action – action 
which  is  measured  in  terms  of  real  impact,  rather  than  in  terms  of  the  inputs  involved.  The 
right  balance  has  to  be  found  between  predictability  and  the  important  goals  of  flexibility, 
conditionality, and payment on the basis of results, as well as between simplification and the 

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controls required for sound financial management. But incentives and checks must be in place 
to ensure that spending fulfils its real purpose. 

2.4.  Mutual benefits through solidarity  

Solidarity is one of the foundation stones of the European Union, a core principle and source 
of strength. The EU budget is not the only way for the EU to express solidarity, but it is an 
indispensible part of the EU approach. Enlargement has increased the economic diversity of 
the  Union,  and  the  Union  has  a  political,  social  and  economic  interest  in  helping  the  less 
developed parts of the Union to contribute to its overall goals: the benefits of stability accrue 
to all. In addition, as the European Union seeks to realise a comprehensive economic strategy 
for future growth, solidarity requires that special attention is paid to the most vulnerable and 
to  those  on  whom  reform  places  a  particular  burden.  But  the  benefits  of  this  solidarity  are 
enjoyed  by  all,  through  the  growth  potential  of  the  single  market,  through  the  transnational 
effects  of  EU  spending  at  national  or  regional  level  and  through  the  virtuous  circle  of 
individuals and businesses taking the opportunities opened up by the EU as a whole. GDP in 
the EU25 as a whole is estimated to have been 0.7% higher in 2009 as a result of cohesion 
policy over the 2000/2006 period – meaning a good  return for spending accounting for less 
than 0.5 % of EU GDP over the same period3. 

The  EU's  collective  objectives  often  require  geographically  concentrated  interventions. 
Protecting  the  external  borders  of  the  Union  against  illegal  immigration  falls  naturally  on 
Member States with external borders. Infrastructure located in particular Member States can 
still  have  major  benefits  for  the  Union.  Action to  promote  environment  protection  or  tackle 
climate  change  can  be  very  local,  but  the  benefits  are  spread  much  more  widely.  In  such 
cases,  the  investment  available  at  the  national  level  often  falls  short  of  what  is  needed  to 
trigger action, but failure to act can come at a real loss to Europe as a whole. The EU budget 
should make a contribution to such costs to further its collective goals.  

2.5. 

A reformed financing of the budget 

The issue of "own resources" is an important part of the budget review. From the beginning of 
the1970s, the EU collected own resources deriving from common policies like the common 
customs tariff duties. The autonomy of  these own resources has been gradually undermined 
and the current system of EU financing has evolved piecemeal into a confusing and opaque 
mix of contributions from national budgets, corrections and rebates. The connection between 
the  original  own  resources  and  common  EU  policies  has  been  lost,  making  the  system  less 
transparent  and  increasing  doubts  about  fairness.  A  fresh  look  is  essential,  to  re-align  EU 
financing with principles of autonomy, transparency and fairness.  

3. 

A BUDGET FOR THE FUTURE 

The  EU  is  now  committed  to  a  fundamental  programme  of  economic  reform,  to  unlock  the 
potential of the EU economy to find new sources of growth and create new jobs – the Europe 
2020 strategy.  

Europe 2020 pursues smart, sustainable and inclusive growth, exemplified by the following 
five targets: 

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This includes both EU budget and national co-financing. 

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–  Increase the employment rate of the population aged 20-64 to at least 75%; 

–  Invest 3% of GDP in R&D; 

–  Reduce  greenhouse  gas  emissions  by  at  least  20%  compared  to  1990  levels,  30%  if  the 
conditions  are  right;  increase  the  share  of  renewable  energy  sources  in final  energy 
consumption to 20%; and increase by 20% its energy efficiency; 

–  Reduce the early-school leavers rate to 10% and increase the share of the population aged 

30-34 having completed tertiary education to at least 40% in 2020; 

–  Lift at least 20 million people out of poverty. 

Taken  together,  the  Commission  estimates  that  when  these  targets  are  achieved,  the  result 
could be an extra 4% on EU GDP and 5.6 million new jobs by 20204. 

This task touches on a wide range of policy areas. It requires a partnership between the EU, 
national  and  regional  levels;  and  it  also  requires  careful  targeting  to  ensure  that  efforts  are 
concentrated where they can be most effective. There should also be special attention paid to 
where action can have an early impact on growth. The EU budget can and must play a key 
part  in  delivering  this  strategy,  and  it  should  be  the  touchstone  for  a  new  generation  of 
spending programmes. 

Part  of  the  driving  force  of  Europe  2020  is  the  need  to  have  a  global  vision  for  the  EU 
economy  and  society,  where  objectives  reinforce  each  other  and  where  actions  can  serve 
different goals at once. This does not require a single fund – it does require a high degree of 
coordination. Europe 2020 needs integrated solutions, so the instruments to deliver it should 
be  integrated  as  well.  The  actions  set  out  below  should  therefore  be  seen  as  a  package  of 
measures,  closely  linked  and  working  together  to  secure  smart,  sustainable  and  inclusive 
growth. 

3.1. 

Smart growth 

At  the  core  of  the  2020  strategy  is  the  need  to  support  the  transformation  of  the  European 
economy towards an economy based on knowledge and innovation. Much of the work needed 
to drive future competitiveness and create tomorrow's jobs centres on national efforts to boost 
research  and  innovation,  upgrade  education  and  remove  barriers  to  entrepreneurship.  But 
Europe has a huge asset in its scale, and this asset must be used to the full: by exploiting the 
potential of the single market, and by using funds from the EU budget to bring added value to 
how the public sector galvanises the drivers of growth. 

Research, innovation and education 

Research  and  innovation  are  the  most  sustainable  engines  of  economic  and  productivity 
growth. The current EU programmes for research and innovation offer a high societal pay-off 
and  clear  European  added  value,  bringing  critical  mass  in  areas  like  basic  research.  EU 
expenditure  on  research  and  innovation  has  doubled  over  the  last  multiannual  financial 

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Commission  services'  estimate  based  on  the  following  analyses:  "Quantifying  the  potential 
macroeconomic  effects  of  the  Europe  2020  strategy:  stylised  scenarios"  (European  Commission 
Economic  Papers  n°424.  September  2010)  and  "Macroeconomic  effects  of  Europe  2020:  stylised 
scenarios" (ECFIN Economic Briefs 2010 n°11). 

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framework  and  by  2013  it  will  amount  to  around  7%  of  the  Union's  budget5.  With  the 
European  Research  Council  and  the  European  Institute  for  Technology,  the  EU  has  put  in 
place a fresh new approach to promoting excellence on a European scale and forging the links 
between  education,  research  and  business  so  critical  to  seeing  creativity  carry  through  into 
growth. Future research and innovation spending must have an even stronger impact in terms 
of growth and job creation and in terms of significant social and environmental return. 

To  achieve  Europe  2020's  goals  in  this  area,  the  Commission  has  proposed  an  Innovation 
Union. In times of fiscal constraints, the EU and Member States need to continue to invest in 
R&D, and innovation. They also need to ensure that remaining barriers for entrepreneurs to 
bring  "ideas  to  market"  must  be  removed:  better  access  to  finance,  affordable  IPR,  faster 
setting of interoperable standards, and strategic use of our procurement budgets. This should 
go  hand  in  hand  with  reforms  to  get  more  value  for  money,  tackle  fragmentation  and 
maximise leverage effects.  

–  Focussing on innovation. Future research and innovation funding must contribute directly 
to the achievement of Europe 2020, in particular the Innovation Union6. It should build on 
the  work  of  the  Competitiveness  and  Innovation  Programme  and  support  innovative 
projects, notably involving SMEs, with clear economic potential, to help consolidate and 
enlarge Europe's industrial base. The success of the Risk-sharing Finance Facility (RSFF) 
has  demonstrated  that  novel  approaches  to  providing  support  can  be  successful  in 
leveraging private investment. This facility has used an EU budget of € 1 billion to bring 
an  additional  € 16.2  billion  to  support  R&D  across  the  EU.  The  European  Technology 
Platforms  have  been  instrumental  in  helping  to  define  industry  relevant  priorities  for  the 
Framework  Programme.  Public-private  partnerships  have  been  created  to  get  industry 
actively  involved  and  co-invest  in  industry-driven  research  programmes  such  as  Joint 
Technology  Initiatives,  which  have  shown  how  imaginative  collaboration  can  use  a 
relatively small EU budgetary contribution to galvanise major European industrial efforts. 
The full range of instruments should work together, in a common strategic framework, to 
this end. 

–  Tackling  major  societal  challenges.  Europe  is  faced  with  an  unprecedented  range  of 
societal  challenges,  which  can  only  be  tackled  with  major  scientific  and  technological 
breakthroughs.  Priority  should  be  given  to  the  EU's  core  objectives,  and  in  particular 
Europe  2020.  For  example,  the  EU  should  contribute  to  remedy  decades  of  shortfall  in 
energy  research,  which  has  left  Europe  lagging  behind  in  terms  of  developing  domestic 
energy  supplies  and  tackling  the  challenge  of  reduced  emissions.  European  Innovation 
Partnerships will be launched to accelerate research, development and market deployment 
of  innovations  to  pool  expertise  and  resources  and  boost  the  competitiveness  of  EU 
industry.  

–  Delivering  the  European  Research  Area.  It  is  more  vital  than  ever  to  maximise  the 
efficiency of the European research and innovation system by creating a genuinely unified 
European Research Area, in which all actors, both public and private, can operate freely, 
forge  alliances  and  gather  critical  mass  in  order  to  compete  and  cooperate  on  a  global 
scale.  Better  coordination  at  regional,  national  and  EU  level  can  do  more  to  prevent 

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The current Framework Programme has been estimated to bring 900,000 jobs and to add 1% to the EU's 
GDP. 
Innovation  Union  -  COM(2010)  565,  6.10.2010.  Other  key  2020  flagships  in  this  area  include  the 
Digital Agenda and industrial policy. 

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overlaps  and  encourage  best  practice  and  reinforced  joint  programming  could  ensure 
synergies  and  complementarity  of  the  different  funding  levels.  This  implies  that  the 
barriers to the mobility of researchers need to be addressed.  

–  Spreading  the  base  of  EU  research.  Whilst  EU  support  needs  to  drive  excellence,  it 
should also contribute to broaden the base of research and innovation by helping to raise 
the quality of research infrastructure across the EU. The Structural Funds should be fully 
exploited  to  develop  the  next  generation  of  research  infrastructures,  based  on  regional 
specialisation.  

–  Increasing the efficiency of delivery through simplification. The scientific and business 
community has complained about excessive administrative burden and has called upon the 
Commission to find a better balance between trust and control and between risk taking and 
risk  avoidance.  Despite  progress  made  towards  simplification  under  the  existing 
programmes  more  needs  to  be  done.  Measures  with  a  far  reaching  potential  for 
simplification  are  the  general  acceptance  of  the  accounting  practices  of  participants 
including average costs, a unique set of rules for all participants covering all intervention 
measures and a reduction of the number of different reimbursement rates and methods for 
calculating indirect costs.  

–  Modernising  education  systems  at  all  levels.  Excellence  must  even  more  become  the 
guiding  principle  for  education.  We  need  more  world-class  universities,  raise  skill  levels 
and attract top talent from abroad. A coordinated review of existing education and training 
programmes  should  be  launched  to  develop  an  integrated  approach  in  the  context  of  the 
"Youth  on  the  move"  flagship.  Most  of  the  competences  for  education  and  employment 
policy  lie  with  Member  States,  but  the  Union  has  a  special  responsibility  to  promote 
mobility  and  eliminate  barriers  across  Europe.  Existing  mobility  schemes  in  education 
have not only improved the skills, knowledge and education of the beneficiaries, they also 
stimulate  competition  between  universities  and  educational  systems.  Demand  currently 
goes well beyond the current supply – with Erasmus, at university level, limited to around 
5% of students. Such programmes could be extended and the allocation of resources linked 
more clearly to the extent to which the opportunities of mobility are used in practice.  

Infrastructures of the future 

Cross-border  infrastructure  is  one  of  the  best  examples  of  where  the  EU  can  plug  gaps  and 
deliver better value results. Transport, communication and energy networks bring enormous 
benefits  to  society  at  large.  But  market  failures  can  mean  that  projects  with  high  EU  added 
value can fail to attract the investment needed from private companies. The result is a cost for 
the  EU  in  terms  of  competitiveness,  solidarity,  and  the  effective  functioning  of  the  single 
market. Targeted financial support on EU level can help to kick-start such important projects, 
which often hold great commercial potential in the long term.  

Countries like the United States and China are now launching huge, ambitious infrastructure 
investment  drives.  Maintaining  competitiveness  means  that  Europe  has  a  particularly  strong 
strategic  interest  in  effective  infrastructure,  to  lay  the  foundations  for  long-term  economic 
growth. The EU needs to offer the right policy mix to stimulate the modernisation required, as 
well as maintaining the standards of existing infrastructure. This means a credible long-term 
policy framework which will convince investors to release the huge long-term capital finance 
required. It needs a supportive regulatory framework and carefully directed financial support 
through appropriate finance vehicles to help get projects off the ground. The result would be a 

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European  core  transport  network  shifting  freight  and  passenger  flows  towards  more 
sustainable transport modes; high-speed broadband available in every part of the EU; and an 
energy  network  capable  of  delivering  on  the  promise  of  the  internal  market,  accessing  new 
energy sources and exploiting new smart technologies.  

Such support needs to be targeted on key priorities – removing bottlenecks on strategic trans-
European  axes,  encouraging  their  extension  and  building  cross-border  and  inter-modal 
connections.  Strict  criteria  are  also  needed  to  select  the  best  projects:  those  that  can 
demonstrate  that  they  have  the  management  capacity  required  and  can  be  launched  in  a 
reasonable  timeframe,  and  that  they  meet  sustainability  benchmarks.  Whilst  for  some 
infrastructure,  like  rail  transport  or  bringing  networks  to  sparsely-populated  communities, 
public  investment  will  always  be  needed,  for  other  areas  the  ability  of  projects  to  attract 
private financing could also be an important criterion. A common approach would be needed 
between  the  EU  and  national  budgets,  the  European  Investment  Bank  and  private  funding 
sources to determine the priorities for investment and to provide the right catalyst for action. 
This requires the right regulatory framework at EU level, to pool resources from private and 
public  sources.  Consideration  should  also  be  given  to  how  support  could  include  projects 
stretching  beyond  the  borders  of  the  EU,  to  the  mutual  benefit  of  our  neighbours  and 
ourselves.  

3.2. 

Sustainable growth 

Mainstreaming energy and climate policies in a resource-efficient economy 

Tackling  the  challenge  of  resource  efficiency,  climate  change,  and  of  delivering  energy 
security  and  efficiency,  is  one  of  the  core  objectives  of  the  Europe  2020  strategy.  This  not 
only  means  gearing  up  the  economy  to  deliver  the  agreed  goals,  but  also  kick-starting 
investment in the greener technologies and greener services recognised as having some of the 
greatest potential for future exports and future jobs as an industry which already employs 3.5 
million  Europeans7.  To  secure  this  ambitious  goal,  all  the  instruments  at  the  EU's  disposal, 
including innovative financial instruments and sources, need to be harnessed effectively. 

One option would be to reshape the EU budget to create large-scale, dedicated funds devoted 
to the delivery of investment in such areas. The European Economic Recovery Plan showed 
how it was possible to identify and support key strategic energy projects, and address the risk 
that the credit crunch brought such projects to a standstill. It helped to give credibility to the 
EU's  long-range  policies  on  energy,  as  well  as  increasing  the  willingness  of  investors  to 
release capital for projects with long lead-times. This approach could be taken forward as an 
option  based  on  distinct  programmes.  Nevertheless,  mainstreaming  these  priorities  into 
different programmes may be a more effective approach, recognising that the same action can 
and  should  pursue  different  objectives  at  once.  The  primacy  of  policy  goals  like  climate 
change  and  energy  would  already  point  to  a  re-prioritisation  inside  policies  like  research, 
cohesion, agriculture and rural development – with a clear political earmarking balanced by 
the  need  to  avoid  new  rigidities.  This  could  be  accompanied  with  a  clear  cross-cutting 
obligation to identify where programmes had promoted such policies. The result should mean 
that the EU would be able to set out clearly what resources were contributing to policies like 
tackling climate change or supporting energy security, irrespective of the instruments through 
which these policies are delivered.  

7 

Commission report for the high level conference on industrial competitiveness (April 2010): 

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The Common Agriculture Policy 

A  sustainable  EU  economy  needs  a  thriving  agricultural  sector  making  its  contribution  to  a 
wide variety of EU objectives – including cohesion, climate change, environmental protection 
and biodiversity, health and competitiveness, as well as food security. A series of reforms to 
the Common Agricultural Policy has seen support to farmers increasingly linked to delivering 
these  goals  and  the  share  of  the  CAP  in  the  overall  budget  falling  steadily  in  recent  years. 
Continuing  the  trend  would  still  leave  agriculture  representing  a  major  public  investment  – 
one falling on the EU's shoulders, rather than on national budgets. 

Successive  reforms  have  brought  EU  agriculture  closer  to  the  market  and  helped  to  deliver 
food  security,  a  better  management  of  natural  resources  and  stable  rural  communities.  Over 
one third of farm income relies on payments from the EU budget. EU farming continues to be 
a  major  supplier  of  high  quality  food  at  a  time  when  the  needs  of  a  rapidly  growing  world 
population continue to grow. The agro-industry is an important source of dynamism in the EU 
economy.  

However, there are also clear issues to address. The allocation of direct payments is based on 
reference  values  now  over  a  decade  old,  and  the  levels  of  direct  payments  to  farmers  vary 
considerably from one Member State to another. Whilst some variation can be justified, there 
is  a  strong  case  for  progressively  bringing  payments  levels  closer  together.  Moving  away 
from historical references would also avoid a culture of dependency which may hold back the 
use of incentives to ensure that results are delivered. This would also raise issues with regard 
to pressure on farmers' income and on production costs, as well as the question of targeting 
and prioritisation of both pillars of the CAP.  

The  European  Council  underlined  in  June  how  a  sustainable,  productive  and  competitive 
agricultural  sector  could  make  an  important  contribution  to  the  Europe  2020  strategy, 
considering  the  growth  and  employment  potential  of  rural  areas  while  ensuring  fair 
competition. 

Continuing along the path of reform could be pursued in different ways: 

–  Further targeting the CAP on the EU's broader policy priorities with the greening of direct 
aids  to  support  more  demanding  environmental  practices  and  positive  improvements  to 
boost  innovation  and  competitiveness  in  the  countryside,  in  addition  to  the  cross-
compliance concept; 

–  Rural development should aim at fostering a competitive agricultural sector and innovation 
in areas like production processes and technological progress; economic diversification in 
rural areas; preserving the environment and natural resources; addressing climate change, 
both  mitigation  and  adaptation;  helping  water  management  and  resource  efficiency;  and 
offering specific support to the most disadvantaged in the rural economy – including those 
facing issues such as desertification; 

–  Reliance  on  the  market,  coupled  with  the  development  of  forms  of insurance  compatible 
with the WTO "green box", and other tools for the management of risks linked to sudden 
shifts in incomes, combined with better competitive conditions in the food supply chain; 

–  Better synergy between rural development and other EU policies, to help deliver policies in 
areas such as research, employment and network infrastructure, including integration with 
a common strategic framework and the National Reform Programmes under Europe 2020. 

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Reform  of  the  CAP  could  therefore  be  pursued  with  different  degrees  of  intensity.  It  could 
restrict itself to ironing out some current discrepancies, such as more equity in the distribution 
of direct payments between Member States and farmers. It could make major overhauls of the 
policy in order to ensure that it becomes more sustainable, and reshapes the balance between 
different  policy  objectives,  farmers  and  Member  States,  in  particular  by  introducing  a  more 
targeted approach to priorities. A more radical reform would go further, moving away from 
income support and most market measures, and giving priority to environmental and climate 
change objectives rather than the economic and social dimensions of the CAP.  

3.3. 

Inclusive growth 

Cohesion policy and Europe 2020 

Cohesion  has  proved  one  of  the  most  successful  ways  for  the  Union  to  demonstrate  its 
commitment to solidarity, while spreading growth and prosperity across the EU. The policy 
has positive effects for all: investing in the economies of the EU benefits all Member States. It 
provides investment for modernisation, galvanises growth in the least prosperous parts of the 
EU and acts as a catalyst for change in all Europe's regions. It increases markets and creates 
new business opportunities for the EU as a whole. When coupled with structural reform and 
macroeconomic stability, it can make a real contribution to growth. However, to ensure these 
benefits, cohesion funding must be accurately targeted so that its added value is maximised. 
This  points  to  a  disciplined  concentration  on  the  objectives  of  Europe  2020,  and  a  rigorous 
concentration on results.  

The earmarking of cohesion spending in 2007-2013  to the objectives of the Lisbon strategy 
has shown the benefits of using a variety of financial instruments to pursue overarching policy 
objectives. For the next period the Europe 2020 strategy provides both a clear set of common 
priorities, and a clear framework for identification of funding priorities. Europe 2020 allows a 
much greater concentration than in the past. Clear priorities could be fixed to deliver smart, 
sustainable  and  inclusive  growth,  with  work  on:  support  for  new  businesses;  innovation; 
reducing  emissions;  improving  the  quality  of  our  environment;  modernising  universities; 
energy saving; the development of energy, transport and telecommunication networks with a 
common EU interest; investment in research infrastructure; human capital development; and 
active inclusion to help the fight against poverty. 

The explicit linkage of cohesion policy and Europe 2020 provides a real opportunity to both 
continue  to  help  the  poorer  regions  of  the  EU  to  catch  up,  and  to  develop  further  cohesion 
policy  into  an  important  enabler  of  growth  for  the  whole  of  the  EU.  The  National  Reform 
Programmes offer the right vehicle to ensure that EU cohesion spending and national reform 
and spending priorities are working effectively in tandem.  

Cohesion  policy  should  become  a  standard  bearer  for  the  objectives  of  smart,  inclusive  and 
sustainable growth of the Europe 2020 strategy in all regions. This can be a powerful driver 
for  the  policy,  reinforcing  the  Treaty  obligations  of  strengthening  the  Union's  economic, 
social and territorial cohesion, so as to accelerate the process of reducing disparities between 
the levels of development of the different regions. As today, Community resources should be 
focused  on  the  poorest  regions  and  Member  States  in  line  with  the  Union's  commitment  to 
solidarity.  Cohesion  policy  support  is  also  important  for  the  rest  of  the  Union  –  to  tackle 
issues  like  social  exclusion  or  environmental  degradation  (for  example  in  urban  areas),  to 
support  economic  restructuring  and  the  shift  to  a  more  innovative  and  knowledge  based 
economy, and to create jobs and improve skills. Particular attention needs to be paid to those 

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regions which have not yet completed their process of catching up. A simple and fair system 
of transitional support would avoid an economic shock due a sudden drop of funding. 

A number of adjustments to the current strategic programming are needed to increase the EU 
added value of strategic programming, through closer coordination between Europe 2020 and 
Cohesion  Policy.  This  coordination  requires  clearer  guidance  at  the  European  level,  a  more 
strategic negotiation process between partners at local and regional level, the  Member  State 
and the European Commission, and a proper follow-up of progress made. The result should be 
a common sense that Europe 2020 is  driving policy at  all levels, that all have ownership of 
actions to be undertaken in partnership by EU, national and regional levels. 

Greater concentration and coherence  

To maximize the impact of cohesion spending in the future, it will be necessary to ensure that 
Member  States  and  regions  concentrate  EU  and  national  resources  on  agreed  EU  priorities. 
This can be achieved  by  identifying a limited  number of priorities  of  European importance, 
linked  through  the  Europe  2020  Strategy  to  sectoral  policy  objectives.  Such  a  "menu"  of 
thematic priorities directly linked to the Integrated Guidelines and flagship projects of Europe 
2020 would be presented in the legal instruments for cohesion,  reflecting also the ability of 
cohesion policy to address different needs (such as from large infrastructure in some regions 
to  small  community  led  projects  in  deprived  urban  areas).  Crosscutting  priorities,  such  as 
innovation,  would  be  obligatory.  More  developed  regions  could  be  required  to  allocate  the 
entirety  of  the  financial  allocation  available  to  two  or  three  priorities,  while  less  developed 
regions could devote their larger resources to a slightly wider range of priorities. 

Increased  coherence  and  coordination  with  other  EU  instruments  delivering  EU  policies  in 
areas including transport, communications, energy, agriculture, environment, and innovation 
would  be  essential.  Beneficiaries  of  EU  support  should  be  offered  a  consistent  set  of 
programmes  complementing  each  other  and  allowing  for  "smart  specialisation",  rather  than 
being  confronted  with  a  multitude  of  partially  overlapping  schemes  and  different  rules.  A 
greater  harmonization  of  eligibility  and  implementation  rules  would  be  an  important  step 
towards a more integrated delivery of EU policies on the ground. 

A common strategic framework 

In  order  to  strengthen  the  integration  of  EU  policies  for  the  delivery  of  the  Europe  2020 
strategy  and  in  accordance  with  the  Integrated  Guidelines,  the  Commission  could  adopt  a 
common Strategic Framework, outlining a comprehensive investment strategy translating the 
targets  and  objectives  of  Europe  2020  into  investment  priorities.  It  would  identify,  in 
particular, investment needs in relation to headline targets and flagship projects. It would also 
highlight  the  reforms  needed  to  maximise  the  impact  of  investment  supported  by  cohesion 
policy.  

Such a framework would replace the current approach of separate sets of strategic guidelines 
for  policies  and  would  ensure  greater  coordination  between  them.  It  would  encompass  the 
actions covered today by the Cohesion Fund, the European Regional Development Fund, the 
European Social Fund, the European Fisheries Fund and the European Agricultural Fund for 
Rural  Development.  The  framework  would  also  identify  linkages  and  coordination 
mechanisms with other EU instruments such as programmes for research, innovation, lifelong 
learning, and networks. 

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A Development and Investment Partnership Contract to focus on the results expected from 
EU support 

Based on the Strategic Framework, Member States would present their development strategy 
in  their  National  Reform  Programmes,  in  order  to  ensure  strong  ownership  of  EU  priorities 
and  national  and  regional  level.  This  strategy  would  identify  how  the  Member  State  and  its 
regions  seek  to  address  the  priorities  and  targets  established  in  Europe  2020,  the  Flagship 
projects and thematic and country-specific recommendations. It would also define the positive 
changes  they  aim  to  achieve  with  EU  support.  The  result  of  the  discussion  with  the 
Commission  would  be  a  Development  and  Investment  Partnership  Contract  between  the 
Commission  and  the  Member  State  reflecting  the  commitments  of  partners  at  national  and 
regional level.  

The  Contract  would  set  out  the  objectives  to  be  achieved,  how  progress  towards  the 
achievement of these objectives will be quantified and measured and the allocation of national 
and EU resources among priority areas and programmes. The Contract would also establish a 
limited number of conditionalities, linked to the reforms needed to ensure effective delivery. 
Where  relevant,  it  would  identify  strategic  projects  to  be  included  (e.g.  key  transport  and 
energy  interconnectors).  It  would  also  describe  the  coordination  between  EU  funds  to  be 
applied at national level. 

The  result  of  such  an  approach  would  be  to  link  the  initial  potential  allocation  of  resources 
between  Member  States  and  regions  –  a  political  choice  about  how  to  express  solidarity  – 
with an effective mechanism ensuring that the level of support is matched by the achievement 
of targets and objectives. 

Improving the quality of expenditure 

The institutional capacity of the public sector at national, regional and local level is key for 
successful  development,  implementation  and  monitoring  of  the  policies  needed  to  reach 
Europe  2020  objectives.  The  smooth  absorption  of  Community  resources  also  critically 
depends  on  the  technical  and  administrative  capacity  of  the  participating  public  authorities 
and  beneficiaries.  Strengthening  institutional  and  administrative  capacity  can  underpin 
structural  adjustments  and  foster  growth  and  jobs  –  and  in  turn  significantly  improve  the 
quality of public expenditure. The allocation of financial resources should therefore take into 
account the capacity of Member States and regions to effectively utilise these resources and 
the need to respect the principles of co-financing and additionality, as well as recognising the 
pressure on the national budgets. 

Cohesion policy can play an important role in this respect by financing institutional capacity 
measures, promoting administrative reform, and fostering a culture geared to performance and 
results.  This  could  be  deepened  through  focused  technical  assistance  facilities  to  support 
Member  States  and  regions  in  preparing,  implementing  and  monitoring  large  investment 
programmes in areas such as network infrastructure or environment. 

Another  technique  to  increase  the  quality  of  spending  would  be  to  introduce  some  form  of 
qualitative  competition  among  programmes  for  cohesion  funding.  This  could  mean  setting 
aside  a  limited  share  of  cohesion  funding  in  a  performance  reserve  open  to  all  eligible 
Member States and regions. It would be allocated on the basis on progress made by national 
and regional programmes towards Europe 2020 objectives.  

The right skills for tomorrow's workforce 

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A  workforce  with  more  and  better  skills  is  central  to  a  European  economy  built  on 
knowledge.  More  and  more  jobs  will  rely  on  higher  skills.  EU  action  should  therefore  be 
focused  on  securing  the  2020  objectives,  training  for  the  needs  of  tomorrow's  economy. 
Targeted investment can offer significant added value in encouraging adaptability and lifelong 
learning,  in  particular  by  assisting  national  strategies  for  reforming  education  and  training 
systems and for improving institutional capacity.  

The European Social Fund already supports training for some 9 million Europeans each year. 
It  reflects  a  balance  in  EU  economic  policies  –  a  practical  demonstration  of  how  the  EU 
actively promotes inclusion alongside growth. It uses cross-border experience to bring support 
to social groups or policy areas that would otherwise receive little or no support, as well as a 
special focus on innovative approaches to employment, training and social inclusion.  

The  European  Social  Fund  could  be  refocused  on  securing  the  2020  objectives.  A 
comprehensive  European  Employment  initiative  could  improve  skills,  mobility,  adaptability 
and participation in society through joint initiatives in the area of education, employment and 
integration. Another strand of direct importance to the EU is the integration of minorities such 
as  the  Roma  and  migrants,  where  action  to  ensure  social  inclusion  and  legal  rights  for 
migrants is closely linked to the EU approach to migration as a whole. At the same time, the 
importance of jobs and skills to the EU's vision for the economy points to the need for both 
greater  visibility  and  predictable  funding  volumes  within  the  common  strategic  cohesion 
framework described above.  

Supporting sectors put under pressure 

The scale and diverse profile of the EU economy means that inevitably, there are times when 
the benefits enjoyed by the many come at the cost of the few. An example might be a trade 
agreement  that  opens  up  significant  new  markets  for  EU  exports,  but  which  means  a 
significant  change  in  the  competitive  climate  for  particular  sectors.  The  European 
Globalisation Adjustment Fund has already provided a good example of how such localised 
negative effects can be tackled, and an extended fund could be put on a permanent footing to 
help cushion the impact of certain major disruptions on the workforce in a Member State. The 
functioning of this Fund needs also to be simplified  to  become  more  reactive  to  changes  of 
economic circumstances. 

3.4. 

Citizenship  

Many different EU spending programmes contribute in different ways to the consolidation of 
EU citizenship. Every time a citizen sees the concrete  effects  of  EU  action  –  from  mobility 
grants to the results of research to local cohesion projects – it helps to illustrate the vocation 
of the Union to serve its citizens. Programmes which support cultural diversity help to show 
how European integration can touch citizens in a huge variety of ways.  

EU action in this area also covers the "rights" dimension, such promoting fundamental rights 
and  EU  values.  Action  could  include  developing  the  EU  as  an  area  of  justice  to  eliminate 
obstacles for the good functioning of cross-border civil proceedings and business-to-consumer 
relations,  promoting  mutual  recognition  and  mutual  trust  in  criminal  proceedings,  and 
fostering access to justice throughout the EU. 

More  specific  cultural  and  citizenship  programmes  also  help  preparing  Europeans  to 
overcome  cultural  barriers  and  use  the  opportunities  of  the  European  space  to  the  full. 
Different  programmes  aiming  at  promoting  cultural  cooperation  and  Europe's  cultural 

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heritage, citizens' interaction and the involvement of young people in European society might 
be  integrated  into  one  visible  programme  promoting  European  unity  in  diversity  and  could 
benefit from joint management.  

The  responsibilities  of  the  EU  towards  its  citizens  are  also  shown  in  the  European  Union 
Solidarity  Fund.  This  has  allowed  the  EU  to  demonstrate  its  collective commitment  to  help 
respond  to  situations  of  crisis.  Since  2002,  the  EU  has  been  able  to  grant  more  than  € 2.1 
billion  to  support  Member  States  and  regions  hit  by  major  natural  disasters.  However, 
experience points to some important limitations and weaknesses in the operation of the Fund. 
The speed with which aid from the Fund is made available, the transparency of the criteria for 
mobilising the Fund and its limitation to disasters of natural origin are all issues to address. 
For example, the Fund is not funded on a permanent footing and cannot help follow all kinds 
of  major  disasters.  An  EU  budget  contribution  could  also  help  to  plug  gaps  in  the  system 
which prevent Member States' civil protection teams from being deployed quickly where they 
are needed, and help the development of an effective civil protection network – an example of 
EU cooperation that can make a real difference to those in need both inside and outside the 
EU.  

Another  important  area  of  direct  relevance  to  citizens  is  spending  on  policies  central  to  the 
delivery  of  freedom,  security  and  justice.  These are policies  where there is a clear common 
interest  in  successful  delivery.  Support  to  effective  border  management,  to  the  exchange  of 
information and expertise to apply justice effectively, or to implement policies on asylum and 
migration, benefits the Union as a whole. The emphasis in the next financing period will have 
to  be  on  management  of  external  borders  (including  SIS  II/VIS  and  the  future  entry/exit 
system),  return  policy,  asylum  and  integration  of  legal  immigrants.  On  these  issues,  burden 
sharing among Member States, support to the work of national administrations and pooling of 
resources with the EU budget are priorities in order to find cost-effective ways of ensuring the 
effective delivery of these policies.  

3.5. 

Pre-accession support 

Financial  support  for  closer  integration  through  the  enlargement  process  helps  the  EU  to 
achieve  its  objectives  in  a  number  of  areas  which  are  key  to  economic  recovery  and 
sustainable  growth,  including  energy,  network  infrastructures,  the  protection  of  the 
environment  and  efforts  to  address  climate  change.  It  also  helps  to  ensure  that  candidate 
countries and potential candidates are fully prepared for eventual accession, including through 
encouraging countries to consolidate EU priorities linked to Europe 2020 objectives into their 
national  priorities.  It  should  therefore  continue  to  be  one  of  the  tools  to  promote  successful 
enlargement. 

3.6 

Global Europe 

Europeans expect the EU to promote its interests and exert its influence on the international 
stage. Issues such as poverty alleviation, migration, competitiveness, climate change, energy, 
terrorism  and  organised  crime  can  only  be  tackled  in  an  international  context.  In  the  age  of 
globalisation, it is essential that the internal agenda of securing sustainable growth and jobs in 
Europe  is  complemented  with  an  external  agenda.  In  addition,  of  course,  solidarity  has  an 
external  dimension:  the  EU  is  rightly  proud  to  be  the  world's  largest  development  and 
humanitarian donor – with the EU and its Member States providing around 55% of the total 
worldwide  –  a  champion  of  the  fight  against  poverty,  and  is  acutely  conscious  of  the 

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importance of the Millennium Development Goals to the stability, security and well-being of 
large areas of the globe. 

The same rules apply to the effective use of EU resources internationally as inside the Union: 
an  intelligent  look  at  where  collective  action  can  deliver  better  value  than  a  collection  of 
national actions; coherence between spending programmes and key policies; and a fresh look 
at the delivery mechanisms and instruments being used. 

Applying this approach will be facilitated by the new structures for external relations under 
the  Lisbon  Treaty,  with  the  opportunity  to  use  the  different  tools  of  EU  external  policy 
creatively, and to work within a long-term strategic framework. 

Projecting the EU's values and interests globally 

The establishment of the EEAS gives the EU the tools it needs to improve the ability of the 
EU's  to  project  its  interests  across  the  world,  in  line  with  its  economic  and  political 
importance. The ability of the EU to target its instruments effectively needs a clear strategic 
overview,  the  right  relationship  with  third  country  partners,  and  well-designed  instruments. 
Instruments need to be sufficiently responsive to changing priorities and adapted to different 
circumstances.  Some  of  the  key  global  issues  faced  by  the  Union  today  need  particular 
attention.  For  example,  the  EU  and  its  Member  States  will  need  to  be  able  to  deliver  on 
climate finance commitments. This deserves a separate reflection which will be influenced by 
the  progress  of  negotiations  and  will  need  to  ensure  the  coherence  and  visibility  of  the  EU 
contribution  to  international  efforts;  effectiveness;  and  permit  economies  of  scale  in  the 
management  of  disbursements.  It  should  also  include  whether  the  role  of  the  EU  budget 
should  be  complemented  by  a  separate  instrument  to  bring  together  a  stable  and  visible 
collective EU contribution. Another example is migration, which faces the need to calibrate 
effectively action inside the EU and beyond its borders.  

Responding to crisis situations 

It is particularly important to improve the Union's ability to respond to large-scale conflicts or 
disasters.  The  EU's  essential  contribution  to  the  broader  security  dimension  of  external 
relations  points  to  a  need  to  build  on  current  tools  like  the  Instrument  for  Stability,  CFSP 
actions and Election Observation Missions. Speed of deployment, flexibility and the ability to 
modulate action in line with changing political circumstances are all essential components.  

The  EU's  humanitarian  aid  is  one  of  the  most  high-profile  and  effective  suppliers  of 
emergency  assistance.  However,  the  phase  of  emergency  aid  should  be  more  quickly  and 
substantially followed by development actions to rebuild from crisis situations and to develop 
more  resilience  for  the  future.  This  is  held  back  by  the  inflexibilities  in  the  budget.  The 
humanitarian  aid  budget  has  had  to  access  the  Emergency  Aid  Reserve  every  year  of  the 
present financing period, pointing to the heavy calls being made in this area of the budget. 

Poverty Alleviation 

As  a  Europe  built  on  values,  combating  global  poverty  is  one  of  the  EU’s  core  goals. 
Assistance to least developed countries makes a real impact on challenges like access to food, 
health, education and clean water, as well as adapting to the consequences of climate change. 
The EU is at the forefront of efforts to achieve the Millennium Development Goals by 2015. 
Its  collective  commitment  to  dedicate  0.7%  of  GNI  by  2015  to  official  development  aid 

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recognises  the  important  role  external  financial  action  plays  in  reaching  our  objectives.  It 
implies a substantial increase of the overall volume of development assistance. 

Since there is clear evidence that development policy at EU level can offer high value added, 
the  EU  level  should  play  its  part  in  this  increase.  EU  development  policy  already  offers  a 
global reach – compared to Member States' concentration on a limited number of partners – 
and  for  many  partner  countries,  it  is  the  only  significant  development  presence  to  be  seen. 
Through  its  action,  the  EU  is  able  to  implement  a  consistent  and  coherent  set  of  objectives 
across the world. So in terms of presence, scale and focus of operations and political weight 
EU intervention offers significant benefits over national action. It offers a big potential for a 
better  division  of  labour  between  donors,  promoting  important  economies  of  scale  and  a 
single contact point for beneficiaries. It also carries the weight and legitimacy associated with 
27 Member States acting together. 

Experience  shows  that  effective,  high  quality  delivery  needs  a  particular  effort  in  terms  of 
donor coordination and governance arrangements. The EU's role as the primary global donor 
gives  it  a  voice  on  issues  such  as  governance,  regional  cooperation,  economic  development 
and infrastructure not possible for Member States acting alone. Following the adoption of the 
European Consensus on Development in 20068, progress has been made in pooling resources 
from  all  European  aid  donors  to  prevent  overlaps  and  bring  concentration  where  necessary. 
But  fragmentation  of  aid  remains,  causing  inefficiencies  with  both  financial  and  political 
consequences.  Tackling  these  weaknesses  would  bring  both  substantial  efficiency  gains  for 
Member States – estimated at up to € 6 billion a year 9 – facilitate the work of partner country 
administrations, and help the EU to use its influence to the full. Other key priorities include 
the right balance between predictability in aid levels for partner countries and the need for an 
appropriate degree of flexibility, to adapt to changing situations such as major changes in food 
prices and the need to deliver effective post-disaster reconstruction programmes. 

EU  trust  funds  such  as  the  EU-Africa  Infrastructure  Trust  Fund  have  been  created,  which 
channel grant resources from the Commission and Member States in such a way that they can 
be  blended  with  the  lending  capacity  of  the  EIB  and  Member  State  development  banks  – 
bringing an important multiplier effect. These can be explored further. 

Additional  priorities  are  to  ensure  that  EU  development  policy  makes  a  strong  and  direct 
contribution  to  significantly  improving  governance  in  partner  countries  and  continuing  to 
improve the real impact of aid. This includes an increased focus on projects showing strong 
Community  added  value,  and  partnership  agreements  that  are  clear,  focused  and  result-
orientated.  The  experience  with  respect  to  the  different  financial  regimes  that  apply  to  the 
European  Development  Fund  and  the  Development  and  Cooperation  Instrument  today  has 
raised  important  issues  in  terms  of  efficiency,  flexibility  and  democratic  procedure,  which 
require further examination. 

In  addition,  the  EU  needs  to  consider  how  a  more  sophisticated  approach  to  the  changing 
nature  of  partners  can  be  developed,  such  as  middle-income  countries  and  emerging 
economies, where cooperation issues in areas including economic, environmental and social 
partnership are becoming increasingly important, alongside development ones. 

8 
9 

'The European Consensus" (OJ C 46, 24.2.2006, p. 1).  
"Aid  Effectiveness  Agenda:  Benefits  of  a  European  Approach"  (HTSPE  on  behalf  of  the  European 
Commission, October 2009). 

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Close and effective relations with the EU's closest neighbours 

The EU's neighbourhood, with some 300 million people, represents an important opportunity 
for the EU. To secure long-term prosperity and stability and to prove its ability to assume its 
responsibilities as a global player, the EU needs to effectively promote its values and support 
economic  development  close  to  its  borders.  Financial  support  can  be  an  important  lever  to 
deliver an effective neighbourhood policy. Here the emphasis should be on providing credible 
reform and cooperation incentives to the EU's neighbours, whether or not they have any long-
term  perspective  of  EU  accession.  Specific  support  should  in  particular  be  provided  in  the 
context of deep and comprehensive free trade agreements and the alignment with the single 
market  acquis.  Areas  close  to  the  acquis  and  to  the  EU's  own  strategic  priorities  –  such  as 
energy, migration and border controls, and environmental protection – should be prioritised, 
with a particular focus on capacity- and institution- building.  

The neighbourhood has already been one of the strongest examples where the EU budget and 
European Finance Institutions have worked together to leverage the maximum investment to 
social  and  economic  development.  A  € 117  million  commitment  from  the  EU  budget  to 
blending mechanisms has been followed by a €  7 billion investment from European Financial 
Institutions. This approach could be developed still further 

3.6. 

Administrative expenditure 

In the current financial framework 5.7% of the budget is used for administrative expenditure. 
This covers not only staff costs, IT and buildings for all the Institutions but also the costs of 
working  in  23  languages.  Now  that  the  different  Institutions  have  largely  completed 
recruitment  from  the  newer  Member  States,  staff  numbers  should  level  off.  Indeed,  since 
2007, the Commission has been operating a policy of zero growth, dealing with new priorities 
through redeployment of existing staff and asking for no extra staff beyond the consequences 
of  enlargement.  The  Council,  the  Parliament  and  other  institutions  have  requested  some 
additional  posts  linked  to  the  Lisbon  Treaty.  The  launch  of  the  EEAS  will  initially  require 
additional posts to support the recruitment of Member State diplomats although over time the 
whole process should seek to be neutral from a budgetary point of view. 

Part of the work to define the next financial framework package must be a rigorous search for 
increased  efficiency  and  performance  in  administrative  resources.  This  implies  examining 
how rationalisation and common use of procedures, tools and resources could limit the costs 
of action by the institutions and the agencies of the EU. For example, the Commission has just 
launched an important analysis of its use of IT, designed to enhance performance and produce 
economies. This could lead to common savings by developing common or shared IT systems 
for all the institutions. Similar inter-institutional cooperation could bring benefits in areas like 
translation  or  document  management.  Another  area  is  the  design  of  spending  programmes 
themselves, where administrative burden for both the Commission and for partners should be 
an important consideration. At the same time, the Commission will continue to redeploy staff 
to focus on priorities, reduce overheads and increase those working on front line policy. The 
Commission will review its administrative expenditure – and that of the agencies – as part of 
its preparation for the next financial framework to identify ways of meeting new challenges 
from  within  existing  resources,  including  finding  the  right  balance  between  delivering 
programmes effectively and holding down administrative costs. 

Overall,  a  strict  discipline  will  have  to  be  pursued  by  all  EU  institutions  to  ensure  that 
administrative expenditure is contained in the future. 

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4. 

A BUDGET DELIVERING RESULTS  

Well targeted spending is indispensable, but not enough. Spending also needs to be delivered 
in a way which is designed to bring results. If the public's investment in the EU budget is to 
pay  off,  the  next  generation  of  financial  programmes  needs  to  be  reworked  to  put 
effectiveness at the top of the agenda.  

4.1. 

Using the budget to leverage investment 

The  impact  of  the  EU  budget  can  be  magnified  the  more  it  can  be  used  to  leverage  both 
funding and financing to support strategic investments with the highest European added value. 
Innovative  financial  instruments  could  provide  an  important  new  financing  stream  for 
strategic investments. The  norm for  projects with long-term commercial potential should be 
that EU funds are used in partnership with the private and banking sectors, particularly via the 
European Investment Bank (EIB), but also with other partners including development banks 
in Member States and the European Bank for Reconstruction and Development (EBRD). This 
requires close upstream coordination between the technical expertise of both the Commission 
and  the  banks:  the  logic  of  such  an  approach  is  that  projects  are  supported  on  the  basis  of 
competitive application by the project promoters, with a focus on EU added value.  

The EIB has made a major contribution to the European response to the economic crisis. Now 
it  will  play  a  key  role  in  reforming  Europe's  economy  in  areas  like  green  technology, 
infrastructure and energy security. This may point to a need to optimize use of EIB capital, 
including  an  increased  use  of  risk  sharing  mechanisms  to  permit  a  higher  leverage  of  the 
Bank's  resources  and  enhance  the  Bank's  reach.  The  Commission  and  the  EIB  have  already 
successfully developed a number of common financial instruments. Blending between grants 
from  the  EU  budget  and  loans  from  the  EIB  and  other  financial  institutions  has  made  it 
possible to treble the financial impact of EU external spending by attracting huge multiples of 
investment from financial institutions. This should be extended to become the norm in areas 
of long-term commercial potential, with new rules to govern blended instruments.  

In general, spending programmes need to be both sensitive to the needs of private finance – 
such as in terms of lead time and burdensome procedures – precise as to what they want to 
achieve, and hard-headed about when the EU should step out of projects reaching commercial 
viability. The EU could be more open to looking at revenue streams collected from users of 
infrastructure such as tolls as a means to limit the long-term costs to taxpayers. Similarly, the 
more that external costs can be internalised, the more revenues can be generated to contribute 
to the investments needed to achieve strategic goals like accelerating the decarbonisation of 
the  economy.  Financial  instruments  should  be  focused  on  addressing  identifiable  market 
failures  taking  into  account  the  state  of  national  financial  markets,  the  legal  and  regulatory 
environment and the needs of final beneficiaries. 

The  new  financial  instruments  for  budget  delivery  must  be  smart,  integrated  and  flexible. 
They can address many different policy needs, but using consistent instruments. The laws of 
financing are essentially the same, regardless of the sector involved: companies and projects 
in different stages of development need equity, or debt, or a combination of both. The “tool-
kit” of EU budget financial instruments required is essentially twofold, and could be delivered 
through  two  general  mechanisms  to  be  used  by  the  different  spending  programmes,  an  EU 
Equity  Platform  Mechanism  and  an  EU  Risk  Sharing  Platform  Mechanism  (including 
guarantees).When looking at the option of loan guarantees as one of the options for innovative 
financial  instruments,  the  implications  of  leveraging  the  EU  budget  need  to  be  carefully 

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analysed  in  order  to  respect  the  own  resources  ceiling,  notably  in  the  light  of  existing 
guarantee schemes. A more general use of the EU budget as an instrument to guarantee loans 
and bonds would need to take proper account of the capacity to underwrite such guarantees. 

4.2. 

EU project bonds 

The  potential  of  innovative  financing  instruments  and  the  particular  circumstances  of  the 
European economy today come together in the idea of EU project bonds. The EU economy is 
heavily dependent on infrastructure, in areas like energy, transport and ICT. The Europe 2020 
objectives  for  modernisation  of  the  European  economy  will  require  huge  investment10.  The 
EU can already help such projects by providing a consistent strategic direction for investors 
taking decisions for many decades to come, and by providing the right regulatory framework. 
But  in  the  wake  of  the  financial  crisis,  investors  remain  reluctant.  Projects  of  key  strategic 
interest  for  the  EU  are  finding  it  impossible  to  secure  the  investment  required.  National 
budgets are not in a position to take over funding of such projects, and indeed are looking for 
alternative solutions to shoulder a greater responsibility for infrastructure. Delaying projects 
could  deprive  the  EU  of  the  economic  and  other  benefits  from  the  infrastructure,  and  risk 
higher-cost solutions in the future. 

EU project bonds would be designed to plug this gap, to give sufficient confidence to allow 
major  investment  projects  to  attract  the  support  they  need.  The  European  Investment  Bank 
and  other  major  financial  institutions  already  make  a  major  contribution  by  their  direct 
lending, and the EIB in particular has responded to the crisis with a major increase in the scale 
of  lending.  But  the  size  of  the  infrastructure  challenge  is  such  that  the  EU  needs  to  help  to 
unlock private finance. 

This could be achieved by using appropriations from the EU budget to support projects to the 
extent required to enhance their credit rating, and thereby attract financing by the EIB, other 
financial  institutions,  and  private  capital  market  investors  like  pension  funds  and  insurance 
companies. The EU and/or EIB guarantees would be issued in favour of special vehicles set 
up  by  the  private  sector  to  attract  capital  market  financing  for  the  project.  The  projects 
benefitting from such a facility would need to demonstrate an EU strategic interest, as well as 
meeting  certain  criteria  for  viability.  As  such  the  support  could  not  be  pre-allocated  across 
Member States or sectors but would flow to those projects that manage to attract appropriate 
private sector financing. The timescale for repayment would depend on an assessment of the 
length of time required for the project to reach viability.  

4.3. 

Large scale projects 

A particular issue arises for large scale projects requiring multi billion Euro contributions over 
long periods. The EU is gaining considerable experience of projects like Galileo, ITER, and 
GMES. These projects are acknowledged to have major strategic importance, and could have 
long-term  commercial  potential.  They  need  transnational  collaboration  to  work.  However, 
they are also subject to significant cost overruns and their governance is not well-suited to the 
direct management of the EU institutions. The budgetary uncertainties are hardly compatible 

10 

As  examples:  until  2020,  €500bn  is  estimated  to  be  needed  for  the  implementation  of  the  TEN-T 
programme and between €38-58bn and €181-268bn to achieve the Commission's broadband targets. In 
the  energy  sector,  €400bn  is  estimated  as  the  need  for  distribution  networks  and  smart  grids,  another 
€200bn  on  transmission  networks  and  storage,  and  €500bn  to  upgrade  existing  and  build  new 
generation capacity, particularly in renewable energy, between now and 2020. 

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with the way in which  the  EU  budget  is planned.  An alternative  approach  would be  for the 
project promoters to set up a support structure as a separate entity, with the active interest of 
the  EU  to  ensure  effective  governance,  and  to  which  the  EU  budget  would  make  a  stable 
contribution in the form of a fixed annual contribution with no assumption that the EU should 
make up any shortfalls. 

4.4. 

Incentivising the use of resources 

The EU budget can be a powerful agent for reform – as recognised in the current debate about 
using financial sanctions and incentives to ensure respect for the Stability and Growth Pact. 
So there is every reason to use this influence within programmes to ensure effective delivery. 
The ideas set out above in respect of cohesion policy could be applied in other contexts and 
spread to all areas of spending, defining a specific set of targets on which disbursement of the 
funds  would  depend.  Other  approaches  include  setting  aside  an  EU-wide  reserve  in  most 
programmes, or modulating co-financing rates to performance. In all these cases, it would be 
essential to assure fair treatment of all Member States, transparency and automaticity.  

This  requires  a  different  approach  and  different  tools.  Programmes  should  provide  for  the 
definition  of  specific,  measurable,  achievable,  relevant  and  timed  objectives  as  well  as  for 
appropriate  performance  indicators.  Clear  evaluation  criteria  are  needed  before  an  incentive 
system  can  work  fairly,  as  well  as  systematic  and  enhanced  evaluation.  Applied 
systematically and in good time, evaluations can play a pivotal role in the overall effort aimed 
at maximising the added value of EU spending.  

4.5. 

A structure to reflect priorities 

The structure of the budget is itself an important tool for communicating and delivering on the 
purpose  of  the  spending  and  the  objectives  to  be  reached.  There  is  an  obvious  benefit  in  a 
budget which in structure, as well as balance, reflects the EU's political priorities. The current 
structure made some progress in that direction, but a further step would be to either reduce the 
number of headings to the minimum or organise the budget around the Europe 2020 strategy. 
The  first  alternative  could  consist  of  3  headings:  Internal  expenditure,  External  expenditure 
and  Administrative  expenditure.  The  second  alternative  would  point  to  three  sub-headings 
replacing the current Headings I – III and covering policies where the centre of gravity falls 
under  the  three  strands  of  smart,  sustainable  and  inclusive  growth,  in  addition  to  a  fourth 
"internal"  sub-heading  on  citizenship  policies.  This  would  be  complemented  by  two  final 
headings,  one  covering  external  policies  (current  Heading  IV)  and  another  covering 
administration.  

4.6. 

The duration of the MFF 

A  multiannual  financial  framework  allows  long-term  consistency  and  predictability.  It  also 
guarantees budgetary discipline and the smooth functioning of the budgetary cycle. However, 
each  framework  is  the  fruit  of  political  decisions  which  need  to  reflect  changing  political 
preferences.  

The last three financial frameworks were concluded for a period of seven years. The European 
Parliament11 as well as some of the participants to the public consultation have taken the view 

11 

Resolution  of  25  March  2009  on  the  mid-term  review  of  the  2007-2013  financial  framework 
[INI/2008/2055 – P6_TA(2009)0174].  

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that  this  duration  should  be  brought  down  to  five  years.  A  major  reason  was  to  align  the 
duration  with  the  term  of  the  European  Parliament  and  Commission's  mandate.  A  five  year 
period  would  allow  each  Commission  to  propose  and  each  Parliament  to  negotiate  a 
framework, even if they would not see the framework implemented. A five year period would 
also  bring  some  advantages  in  terms  of  an  ability  to  reflect  new  needs,  and  some 
disadvantages in terms of planning lead-times: longer periods not only allow programmes to 
make deeper changes, they may also fit in better with the investment patterns of the private 
sector. Another option targeted on the specific dates in question would be a seven year period 
with  a  major  review  after  five  years,  to  allow  a  final  reallocation  targeted  specifically  on 
Europe 2020. This would explicitly avoid prejudging the future. 

However,  the  most  attractive  solution  may  be a ten year period, but with  a substantial mid-
term  review  ("5+5").  Under  this  approach,  there  would  be  an  opportunity  for  a  major  re-
prioritisation. Overall ceilings and the core legal instruments could be fixed for ten years. But 
the  distribution  of  resources  within  headings,  and  the  prioritisation  within  programmes  and 
instruments,  could  be  left  open  for  re-assessment.  One  approach  would  be  to  facilitate  this 
through the retention of substantial reserves and margins in all parts of the budget. 

4.7. 

Responding to changing circumstances 

One of the most difficult balances to strike in the budget is the balance between predictability 
and  flexibility.  But  it  is  clear  that  the  current  budget  has  proved  too  inflexible  to  meet  the 
pressure of events. Pressing needs for the EU to respond to external events from the tsunami 
and the Middle East, followed by the compelling need to react to the economic crisis, showed 
the  shortcomings  of  the  current  approach.  With  proper  targeting  so  crucial  to  effective 
spending, and changing circumstances imposing changing priorities, the rigidity of the budget 
clearly  damages  the  quality  of  spending.  It  is  right  for  the  European  Parliament  and  the 
Council to exercise proper scrutiny of changes in the direction of spending. But the extent of 
the  changes  possible,  and  the  procedures  by  which  this  scrutiny  are  exercised,  both  need 
reform.  Experience  suggests  that  the  obvious  solution  of  increased  margins  has  not  proved 
possible in the face of pressures to pre-allocate spending. Therefore a fixed percentage – such 
as 5%, could be agreed as an obligatory figure. Such a figure could also be set at a lower level 
for the first 5 years of the financial period and at a higher percentage for the remaining years 
of the financial period, or be set to increase year on year. This would give the possibility to 
take new priorities better into account at the occasion of the mid-term review. Other means to 
increase flexibility include:  

–  A  reallocation  flexibility  to  transfer  between  headings  in  a  given  year,  within  a  specific 

limit; 

–  A possibility to transfer unused margins from one year to another – again, within agreed 

limits; 

–  Freedom to front or backload spending within a heading's multi-annual envelope, to allow 

for countercyclical action and a meaningful response to major crises; 

–  Increasing  the  size,  or  widening  the  scope,  of  the  existing  Flexibility  Instrument  and 

Emergency Aid Reserve, and possibly merging them. 

The  current  0.03%  flexibility  arrangement  agreed  by  qualified  majority  should  also  be 
maintained  as  an  important  safety  valve  allowing  limited  deviations  from  the  foreseen 
ceilings. 

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All  these  changes  should  accompany  a  different  mindset.  The  emphasis  should  shift  from 
permanent  and  pre-determined  financial  allocations  to  using  the  scarce  EU  resources  for 
strategic investments of limited duration, and expecting that the receipt of funds is dependent 
on delivery.  

4.8. 

Simplifying and minimising unnecessary administrative burdens 

The  public  consultation  has  conveyed  a  clear  message  that  implementation  procedures  and 
control requirements are too complicated and can be a real disincentive to participation in EU 
programmes. The EU has a responsibility to ensure that funds are well spent, but it could also 
take a series of measures to reduce the administrative burden for recipients of funds, and to 
cut  EU  administrative  costs  –  allowing  more  of  the  resources  to  be  directed  at  the  end 
purpose: 

–  The  EU  has  common  financial  rules  in  its  Financial  Regulation.  But  implementing  rules 
and procedures may vary considerably from one policy instrument to another. A clear set 
of common principles should be agreed to reduce differences to the absolutely necessary. 
Linking different instruments together in a common implementation framework is a good 
way to help the interface of citizens, businesses, especially SMEs, and governments with 
the EU budget. 

–  The recent Commission proposal to revise the Financial Regulation contains bold measures 
to  put  in  place  simplified  financial  rules.  This  should  be  looked  at  further  to  allow  for 
lighter  procedures  for  smaller  grants  (thresholds  could  be  set  at  a  higher  level  for  such 
small  projects),  and  more  use  of  lump  sum  payments,  as  well  as  performance-based 
schemes. 

4.9. 

Ensuring sound financial management 

Public  spending  requires  effective,  efficient  and  proportionate  control.  It  must  provide  the 
necessary assurances for citizens and their representatives in the European Parliament and the 
Council  that  the  EU  budget  is  being  well  spent.  But  there  is  a  point  when  the  burden  of 
controls  negates  the  effectiveness  of  the  programme.  A  more  modulated  approach  to  the 
controls  required  in  different  Member  States,  and  a  common  understanding  of  the  tolerable 
risk of error for different policy areas, would both help to secure the right balance. 

In recent years, the Commission has devoted much attention to increasing the effectiveness of 
management and control systems, with an objective of achieving an unqualified Statement of 
Assurance by the European Court of Auditors. The results are positive but more can be done, 
in  particular  by  working  with  the  Member  States  who  implement  an  important  part  of  the 
budget  in  shared  management  with  the  Commission.  The  system  of  basing  payments  on  a 
declaration of payments by Member States, rather than on expenditure by beneficiaries – as 
used today for CAP expenditure – would make the process of controls more local and allow 
more alignment with existing national procedures. This would be a more straightforward and 
regular procedure than centralising controls at EU level. It could be linked to reliable national 
statements  of  assurance  to  underline  the  accountability  of  public  authorities  handling  EU 
resources.  

Increasing the amount of funds channelled through financial instruments will mean profound 
changes  in  the  way  the  Commission  manages  its  budget  expenditure.  The  Commission  will 

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increasingly  delegate  budget  implementation  tasks  and  cooperate  with  key  financial 
institutions such as the European Investment Bank (EIB)12. This creates a need to align core 
aspects  of  the  design  and  management  of  financial  instruments,  to  secure  the  right  balance 
between  a  common  approach  in  the  Commission’s  dealings  with  its  financing  partners, 
safeguarding 
the  flexibility  required  at 
implementation level to ensure that policies are delivered effectively. This would also secure 
higher  political  visibility,  administrative  efficiency  through  simplification,  streamlined 
reporting and monitoring, and finally easier evaluation across instruments.  

the  EU’s  financial 

interests,  and 

leaving 

5. 

THE EU BUDGET AS A TOOL TO SUPPORT ECONOMIC GOVERNANCE 

The drive for growth and jobs in the European Union requires a complete approach. That is at 
the heart of the Europe 2020 strategy. Macroeconomic stability and structural reforms are not 
alternatives,  but  dual  imperatives  which  also  reinforce  each  other.  It  is  therefore  natural  to 
make a connection between the EU budget and the reinforcement of economic governance.  

The Commission has set out a variety of measures to reform economic governance and make 
it more effective13. It will take these issues forward in the context of the debate on economic 
governance following the October European Council.  

6. 

TAKING ACCOUNT OF ENLARGEMENT 

Future  enlargements  will  inevitably  have  an  impact  on  the  EU  budget,  in  terms  of  both 
potential increases in revenue and in spending commitments. While new Member States will 
increase the cumulated GDP and create new opportunities for economic expansion, they will 
also become eligible for structural and other funds. The timing of accessions is dependent on 
the speed with which candidates can meet the necessary criteria. In this context, the December 
2006 European Council committed to refrain from setting any target dates for accession until 
negotiations are close to completion. Consequently, the new financial framework should not 
pre-empt  any  political  decision  on  future  enlargements  which  will  be  based  on  a  country's 
readiness  for  membership.  Once  accessions  are  agreed  and  dates  confirmed,  the  financial 
framework should be adjusted to take account of the expenditure requirements resulting from 
the outcome of accession negotiations.  

7. 

REFORM OF EU FINANCING  

Just  like  the  expenditure  side  of  the  budget,  the  structure  of  the  financing  side  has  evolved 
considerably over time. The GNI-based contribution has taken on a growing importance and 
now  represents  three-quarters  of  the  budget.  A  large  number  of  corrections  and  special 
arrangements have been introduced over time, both on the revenue and expenditure side of the 
budget  (some  of  these  mechanisms  end  automatically  in  2013).  Budget  negotiations  have 
recently been heavily influenced by Member States' focus on the notion of net positions with 
the  consequence  of  favoring  instruments  with  geographically  pre-allocated  financial 
envelopes, rather than those with the greatest EU added value.  

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13 

Financial instruments will not be implemented exclusively through the EIB, but the EIB will play a key 
catalytic role in attracting other public and private sources of finance. 
Enhancing  economic  policy  coordination  for  stability,  growth  and  jobs  –  Tools  for  stronger  EU 
economic governance - COM(2010) 367. 

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The consultation on the budget review has shown that stakeholders are very critical about the 
current system of financing the EU budget. The current system is perceived as opaque and too 
complex,  lacking  fairness  –  notably  with  regard  to  corrections  –  and  relying  excessively  on 
resources which are perceived as expenditures to be minimized by the Member States. With 
the exception of customs duties stemming from the customs union, existing resources display 
no clear link to EU policies.  

It should be underlined that this is not an argument about the size of the budget – it is a debate 
about the right mix of resources. The progressive introduction of a new resource would open 
the door for other resources to be reduced, phased out or dropped.  

Proposals for a reform of the financing side have been made by academics, governments, non-
governmental organisations and the European Parliament. The Parliament adopted a report in 
2007 analysing the current system of own resources and suggesting a whole range of possible 
new own resources14. 

The introduction of a new phase in the evolution of EU financing could include three closely 
linked  dimensions  –  the  simplification  of  Member  States'  contributions,  the  introduction  of 
one  or  several  new  own  resources  and  the  progressive  phasing-out  of  all  correction 
mechanisms.  As  changes  were  phased  in,  essential  elements  of  the  EU  financing  system 
should be retained: a stable and sufficient financing of the EU budget, respect for budgetary 
discipline and a mechanism to ensure a balanced budget.  

Simplifying the contributions from Member States 

Compared  to  the  GNI-based  own  resource,  the  current  VAT-based  own  resource  has  little 
added  value.  To  re-create  a  comparable  tax  base,  it  results  from  a  mathematical  calculation 
rather  than  passing  directly  from  the  citizen  to  the  EU.  As  such  it  contributes  to  the 
complexity and the opacity of the contributions. Ending the VAT-based resource in its current 
form  would  simplify  the  system  of  contributions  in  parallel  with  the  introduction  of  a  new 
own resource.  

Progressively introducing one or several policy-driven own resources:  

New  own  resources  could  fully  replace  the  existing  VAT-based  own  resource  as  well  as 
reducing  the  scale  of  the  GNI-based  resource,  taken  directly  from  national  treasuries.  The 
introduction of new own resources would mirror the progressive shift of the budget structure 
towards policies closer to EU citizens and aiming at delivering European public goods and a 
higher  EU  added  value.  It  could  support  –  and  be  closely  linked  to  –  the  achievement  of 
important  EU  or  international  policy  objectives,  for  instance  in  relation  to  development, 
climate change or the financial markets.  

The following criteria seem pertinent when looking at possible new own resources: 

–  They should be more closely linked to the acquis and the objectives of the EU to increase 
the  coherence  and  effectiveness  of  the  entire  budget  in  the  achievement  of  EU  policy 
priorities. In this respect it is important to keep in mind Article 2.2 of the Own Resources 

14 

European  Parliament,  Report  on  the  future  of  the  European  Union's  own  resources  (2006/2205(INI) 
Rapporteur A. Lamassoure). 

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Decision15 which states that "revenue deriving from any new charges introduced within the 
framework of a common policy shall also constitute own resources entered in the general 
budget of the European Union." 

–  They  should  be  cross-border  in  nature,  based  on  a  system  covering  the  whole  internal 

market. 

–  They  should  have  a  harmonised  base  to  ensure  an  equal  application  of  the  resource 

throughout the Union.  

–  If feasible, the proceeds of a new resource should be collected directly by the EU outside 

national budgets. 

–  They  should  be  applied  in  an  equitable  and  fair  way,  and  not  exacerbate  the  question  of 

corrections.  

–  The cumulative impact on particular sectors should be taken into account. 

–  They should seek to avoid a heavy new administrative responsibility for the EU in terms of 

collection. 

The Commission considers that the following non-exclusive list of financing means could be 
possible candidates for own resources to gradually displace national contributions, leaving a 
lesser burden on national treasuries: 

–  EU taxation of the financial sector 

–  EU revenues from auctioning under the greenhouse gas Emissions Trading System  

–  EU charge related to air transport  

–  EU VAT 

–  EU energy tax 

–  EU corporate income tax. 

Each of these financing means has its particular characteristics and presents advantages and 
disadvantages16. In the light of the comments received, the Commission will submit proposals 
as part of its overall proposals on the next Multiannual Financial Framework.  

Tackling the correction mechanisms 

The 1984 Fontainebleau European Council set out the core principles behind the system: that 
"expenditure  policy  is  ultimately  the  essential  means  of  resolving  the  question  of  budgetary 
imbalances", and that "any member State sustaining a budgetary burden which is excessive in 
relation  to  its  relative  prosperity  may  benefit  from  a  correction  at  the  appropriate  time." 
Reinforced spending for growth and jobs, energy, climate change and the external projection 
of  Europe's  interest  would  reduce  the  need  to  maintain  correction  mechanisms.  The 

15 
16 

Council decision 2007/436/EC, Euratom (7 June 2007). 
See Staff Working Document. 

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composition of expenditure of the next Multiannual Financial Framework and other reforms 
of  the  own  resources  system  will  determine  whether  correction  mechanisms  are  justified  in 
the future. 

8. 

CONCLUSIONS AND NEXT STEPS 

This Budget Review sets out the Commission's ideas on the architecture and purpose of the 
EU budget. It sets out a vision of a reformed budget committed to making a real difference: 
this  will  be  the  Commission's  ambition  for  the  proposals  it  will  make  for  the  new  financial 
framework next year. These ideas are based on the conviction that by 2020 the EU must have 
taken  decisive  steps  help  the  EU  become  a  smart,  sustainable  and  inclusive  society.  To  do 
this,  we  need  to  put  the  European  economy  on  the  right  track,  to  take  the  big  decisions  to 
reshape  our  infrastructure,  to  give  us  the  skills  we  need  for  the  future,  to  assert  our  global 
leadership, and to prevent increasing divergences in our societies from undermining its long-
term stability. The budget of the Union must be seen as one of the common tools we have at 
the service of common objectives. At a time of intense pressure on public finances, EU and 
national budgets cannot be seen as in competition, but as pursuing the same objectives at the 
levels which can deliver to best effect.  

Tomorrow's  budgets  must  therefore  be  focused  on  making  a  real  impact  on  realising  our 
goals.  They  must  recognise  the  need  to  adapt  to  a  rapidly-changing  world.  They  must  be 
disciplined  in  their  concentration  on  results.  They  must  reflect  the  need  for  solidarity  in 
pursuing  our  common  agenda.  And  they  must  be  resourced  in  ways  which  our  citizens  can 
understand and recognise as rational and fair.  

The  way  in  which  the  EU  budget  is  delivered  can  be  simplified  and  made  more  effective. 
There  is  a  need  for  greater  flexibility  so  that  the  budget  can  respond  to  changing 
circumstances, while at the same time supporting long term investments. At a time of fiscal 
constraint more innovative financial instruments can be used to make the budget go further, 
and to increase the impact and range of high priority EU projects that can be realised. 

The modernisation of the EU budget must therefore be about targeting, about maximising the 
benefits from every euro spent, and about setting the budget firmly in the context of the other 
ways in which the European Union, its institutions and its Member States, can put Europe on 
the path to growth and jobs for the future.  

In  the  coming  months  the  Commission  will  translate  the  ideas  and  options  set  out  in  this 
Budget  Review  into  concrete  proposals.  The  Commission  looks  forward  to  a  dialogue  with 
the other Institutions and with stakeholders on the ideas and options outlined in this Review. 
These  discussions  will  feed  into  proposals  in  June  2011  for  a  new  Multiannual  Financial 
Framework covering the period after 2013. This will include a proposal for a regulation laying 
down  the  Multiannual  Financial  Framework  and  a  draft  decision  on  own  resources.  In  the 
second  half  of  2011,  the  Commission  will  make  the  legislative  proposals  required  to 
implement  the  policies  and  programmes  needed  to  drive  forward  the  European  Union's 
ambitions for the years ahead.  

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