The European Commission proposes a 6.8% increase in payments in the 2013 EU budget compared to this year (+€8.8 billion). The executive justifies the sharp rise in draft EU expenditure, adopted on 25 April, by explaining that it corresponds to growth-enhancing measures and contractual obligations taken by Council and Parliament in previous years. The United Kingdom blasted the proposal as “unreasonable” and called for the Union to tighten its belt further. Net contributors are expected to stick to the same line as in the previous two years by requesting that the EU budget be increased only in line with the rate of inflation. The European Parliament, on the other hand, appears ready to back the Commission’s proposal, saying that the increase is “sufficient” despite being below its estimates.

REAL-TERMS FREEZE IN COMMITMENTS

The draft budget for 2013 foresees a total of €137.9 billion in payment appropriations, or 1.03% of the EU’s gross national income (GNI), and €150.9 billion in commitments, ie a 2% bump compared to 2012 and 1.13% of GNI. “Payments are yesterday’s voted commitments,” said Budget Commissioner Janusz Lewandowski to explain the sharp rise in payments and present the real-terms freeze in commitments as a promise of future savings. Highlighting that this corresponds to repeated requests from member states which recognise that austerity is not enough to exit the crisis, Commission President José Manuel Barroso added that the increase is allocated mainly to invest in growth and jobs.

The member states, which have to foot the bulk of the bill, will focus their attention mostly on payments. “Generally speaking, payments shouldn’t increase by more than inflation,” said one EU diplomat. A similar argument should be put forward by net contributors calling for a decrease in the Commission’s proposal for the 2014-2020 multiannual financial framework (MFF) and signatories of the ‘better spending’ non-paper, such as Germany, France, Italy, the Netherlands, Sweden, Finland and Austria (see separate article). In the past two years, payments in the EU annual budget have each time been frozen in real terms, according to the wishes of these member states, increasing only by the rate of inflation.

The Parliament, the other arm of the budgetary authority, should call for a more ambitious budget, particularly in terms of commitments. The EP’s rapporteur, Giovanni La Via (EPP, Italy), described the Commission’s proposal in terms of payments as “sufficient even though it is below our estimates”. The Italian MEP was more critical of the proposed level of commitments. “To emerge from the crisis, I am convinced we need ‘more Europe’ and not ‘less Europe’. Therefore I am not happy. We need a stronger commitment to find ways to create growth and jobs,” he stated.

The most important increase in payments corresponds to Cohesion and Structural Funds (Heading 1b), which were bolstered by €5.13 billion (+11.7%) up to €48.98 billion. The Commission explains that this is due to the fact that it expects the number of bills it receives from completed projects to increase significantly seeing as 2013 is the last year of the current multiannual financial framework (MFF). In addition, the EU executive is compensating for the fact that in the context of budgetary discipline, member states, with Parliament’s green light, have been slashing the Commission’s assessment of payment needs in the last couple of years creating cashflow problems.

The other marked increase is in agricultural funds (Heading 2): they are boosted €0.93 billion in payments and €0.33 billion in commitments, to reach €57.96 billion and €60.31 billion, respectively. The above-inflation increase in administrative expenditure (Heading 5) will most likely be criticised by member states. Despite efforts to reduce staff, the EU executive puts forward a 2.6% rise in both payments and commitments (+€268 million and +€265 million, respectively). It must be noted that the cost of the possible accession of Croatia to the EU is only imputed in the administrative budget.

The portion of the budget allocated to external actions (Heading 4) is boosted by 5.1% in payments up to €7.31 billion but only 0.7% in commitments (+€61 million). Heading 3 (citizenship, freedom, security and justice), the smallest one in terms of volume, gets an extra €72 million in payments (+4.8%) and is cut back by €2 million in commitments.

Under a deal between EP and Council, an additional €360 million was to be made available for ITER (International Thermonuclear Experimental Reactor) in the 2013 budget without resorting to increasing MFF ceilings. This means savings had to be found in underperforming programmes in Heading 1a (competitiveness), under which ITER is financed. The EU’s research programmes under the Seventh Framework Programme (FP7) took the brunt of the cuts: minus €351 million. Other performance savings were found in non-research programmes to the tune of €180 million, will the TEN-T infrastructure programme being slashed by €118 million.

An all important element that will influence the preparation of the 2013 EU budget is the 2014-2020 MFF. The arm-wrestling between those favouring a limited budget against those pushing for an ambitious one - in both the annual and the long-term budget - cannot be fully separated. Thus the level of payments and commitments set for the final year of the current multiannual financial framework will certainly have an influence on the ceilings for the next MFF. Both Council and Parliament are bound to have that in the back of their minds as they attempt to find common ground and agree on final figures for payments and commitments in 2013. In that respect, EP President Martin Schulz said that “the debate about the budget is a debate about the direction in which we want Europe to move”.

The Council is scheduled to adopt its position in July and Parliament in October or November. Then both institutions will have a conciliation period of 21 days to find a common ground with regard to the total level of spending and the allocation of the budget to specific priorities. If this were to fail, as it happened over the 2011 EU budget, then the Commission would have to present a new draft budget.

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