REPORT on the Interinstitutional Agreement on budgetary discipline and sound financial management

27.4.2006 - (2004/2099(ACI))

Committee on Budgets
Rapporteur: Reimer Böge

PROPOSAL FOR A EUROPEAN PARLIAMENT DECISION

on the Interinstitutional Agreement on budgetary discipline and sound financial management

(2004/2099(ACI))

The European Parliament,

–   having regard to the EC Treaty, and in particular Article 272 thereof,

–   having regard to the Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure[1], and in particular point 26 thereof,

–   having regard to its resolution of 8 June 2005 on Policy Challenges and Budgetary Means of the enlarged Union 2007-2013[2],

–   having regard to its resolution of 1 December 2005 on the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure[3],

–   having regard to its resolution of 18 January 2006 on the European Council's position on the Financial Perspective and the renewal of the Interinstitutional Agreement 2007-2013[4],

–    having regard to the Commission working document: Proposal for renewal of the Interinstitutional agreement on budgetary discipline and improvement of the budgetary procedure (COM(2004)0498),

–    having regard to the Commission working document: Contribution to the Interinstitutional negotiations on the proposal for renewal of the Interinstitutional agreement on budgetary discipline and improvement of the budgetary procedure (COM(2006)0075),

–    having regard to the Commission working document: Revised proposal for renewal of the Interinstitutional agreement on budgetary discipline and improvement of the budgetary procedure (COM(2006)0036),

–    having regard to the Communications from the Commission to the Council and the European Parliament of 26 February 2004 entitled "Building our common future: Policy challenges and budgetary means of the Enlarged Union 2007-2013" (COM(2004)0101) and of 14 July 2004 entitled "Financial Perspectives 2007-2013" (COM(2004)0487) and to the Commission working document of 12 April 2005 entitled "Technical adjustments to the Commission proposal for the multiannual financial framework 2007-2013" (SEC(2005)0494),

– having regard to the joint declaration on guidelines for legislative proposals related to the 2007-2013 multi-annual financial framework agreed on 18 October 2005,

– having regard to the conclusions of the European Council of 15-16 December 2005 (CADREFIN 268),

– having regard to the trialogues of 23 January 2006, 21 February 2006, 21 March 2006 and 4 April 2006,

– having regard to the report of the Committee on Budgets and the opinions of the Committee on Foreign Affairs, the Committee on Development, the Committee on Budgetary Control, the Committee on Regional Development, the Committee on Agriculture and Rural Development, the Committee on Fisheries, the Committee on Culture and Education and the Committee on Civil Liberties, Justice and Home Affairs (A6-0150/2006),

A.     whereas, in accordance with point 26 of the Interinstitutional Agreement of 6 May 1999, the Commission initiated the process of preparing the new Financial Perspective and the new Interinstitutional Agreement by presenting proposals on 10 February and 14 July 2004,

B.     whereas, following the adoption by Parliament of its negotiating position on 8 June 2005 and following the agreement achieved by the Member States in December 2005, the Commission has presented a revised proposal for the new Interinstitutional Agreement and technical documents on the impact of the European Council conclusions, allowing the negotiations to start on a fair basis,

C.     whereas Parliament was determined to achieve a sustainable multi-annual financial framework reflecting adequate means for policy requirements for the years to come and appropriate instruments and reforms to improve implementation,

D.     whereas implementation of the multi-annual programmes to their full amounts is conditional upon an accurately timed conclusion of the Interinstitutional Agreement and the Financial Perspective,

E.     whereas Parliament was the only institution which developed an overall strategy and carried out a complete and in-depth analysis of the needs in order to identify political priorities compared to the Council's approach based on ceilings and percentages,

1.      Recalls that for the first time, since the Financial Perspective has come into existence, Parliament has carried out over eight months of deliberations within a temporary committee set up for this purpose and adopted a comprehensive negotiating position based on three pillars aimed at:

- matching political priorities and financial needs;

- modernising the budget structure;

- improving the quality of implementation of the EU budget;

2.      Recalls that it rejected the European Council's conclusions of December 2005 in their current form, considering that they do not provide the EU with the quantitative and qualitative means to face future challenges, and called on the Council to secure a real mandate to negotiate with Parliament;

3.      Recalls its disappointment at the manner in which the agreement in the European Council was achieved, with individual national interests becoming the central point of negotiations rather than the common European objectives;

4.      Points out that it indicated on many occasions its willingness to enter into constructive negotiations with the Council on the basis of respective positions with a view to reaching an agreement based on acceptable quantitative and qualitative improvements within a realistic timeframe;

5.      Considers that the agreement reached by the three institutions on 4 April 2006 was the only possible compromise that Parliament could achieve, within the magnitude of the negotiations, for a multi-annual Budget with a view to guaranteeing the continuity of EU legislation, ensuring sound financial management of EU funding and maintaining Parliament's legislative and budgetary powers over the next period;

6.      Welcomes the agreement reached, and in particular the progress achieved under the three pillars of its negotiating position:

Matching political priorities and financial needs through:

- an increase of EUR 4 billion for policies agreed by the European Council of December 2005, to be directly allocated to programmes in Headings 1a, 1b, 2, 3b and 4,

- a substantial increase in the EIB reserve of EUR 2,5 billion to be made available by the Member States under a new scheme of co-financing between the EIB and the EU Budget with a view to reinforcing the leverage effect of the EU budget in the areas of Research and Development, TENs and SMEs up to a total of EUR 60 billion,

- the financing of non-programmed needs such as the Emergency Aid Reserve (EUR 1,5 billion) and the EU Solidarity Fund (up to EUR 7 billion) outside the financial framework by supplementary resources called from the Member States, if needed,

- the financing of the European Globalisation Adjustment Fund (up to EUR 3,5 billion) by re-use of cancelled appropriations, outside the financial framework;

Improving the budget structure through more flexibility through:

- maintenance of an overall amount of EUR 1,4 billion for flexibility over the period, financed, in case of utilisation, by supplementary resources to be called from the Member States, with the possibility to carry over the annual amount (EUR 200 million) in case of non-utilisation to the next two years and a new possibility to use the Instrument for the same needs for more than one year,

- the possibility for the newly elected Parliament to assess the functioning of the Interinstitutional Agreement and the Financial Perspective by the end of 2009 on the basis of a report which the Commission unilaterally undertook to present, accompanied where necessary by proposals;

Improving the quality of implementation of EU funding and preserving Parliament's prerogatives through:

- inclusion of principles of proportionality and user-friendly procedures in the revised Financial Regulation, the responsibility of Member States in shared management activities for a better internal control of EU funding, the necessity to introduce a co-financing mechanism with the EIB to reinforce the leverage effect of EU policies, the involvement of Parliament in the financial programming and the financing of new agencies without prejudicing operational programmes,

- the full participation of Parliament in the wide-ranging review, an increased participation of Parliament in the CFSP decision-making process and more democratic scrutiny in external actions;

7.      Is nevertheless aware of the fact that a number of deficits are still unresolved in the outcome of the negotiations; considers that these deficits should be addressed in the 2008-2009 review and, where possible, in the course of the annual budgetary procedures; points out that in particular the system of own resources as well as the expenditure side need to be reformed urgently in order to avoid the same painful experience of national bargaining for the next financial perspective;

8.      Recalls that its position, as laid down in its aforementioned resolution of 8 June 2005, remains the objective which would guarantee an optimal level of funding and further reforms in order to fulfil the ambitions of the European Union;

9.      Expects the reforms set down in the next Interinstitutional Agreement to have a rapid effect on the qualitative implementation of the Budget, including the reduction of the administrative burden, as well as a visible impact for European citizens by facilitating their access to EU funding;

10.    Accepts the budgetary and financial implications of the new Interinstitutional Agreement;

11.    Stresses that the opinions of the specialised committees have provided useful support during the negotiations; considers that the IIA as agreed addresses most of the requests of the specialised committees in qualitative and/or quantitative terms;

12.    Instructs its President to forward this decision to the Council and Commission, for information.

ANNEX TO THE DECISION:

DRAFT TEXT OF THE INTERINSTITUTIONAL AGREEMENT

Draft INTERINSTITUTIONAL AGREEMENT BETWEEN THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COMMISSION ON BUDGETARY DISCIPLINE AND SOUND FINANCIAL MANAGEMENT

THE EUROPEAN PARLIAMENT, THE COUNCIL OF THE EUROPEAN UNION AND THE COMMISSION OF THE EUROPEAN COMMUNITIES,   hereinafter referred to as the 'institutions',   HAVE AGREED AS FOLLOWS:       1. The purpose of this Agreement is to implement budgetary discipline and to improve the functioning of the annual budgetary procedure and cooperation between the institutions on budgetary matters as well as to ensure sound financial management.

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

3. This Agreement does not alter the respective budgetary powers of the institutions, as laid down in the Treaties. Where reference is made to this Point, the Council will act by a qualified majority and the European Parliament by a majority of its members and three fifths of the votes cast, in compliance with the voting rules laid down in the fifth subparagraph of Article 272(9) of the Treaty establishing the European Community (hereinafter referred to as the 'EC Treaty').

4. Should a Treaty revision with budgetary implications occur during the multiannual financial framework 2007 to 2013 (hereinafter referred to as 'the financial framework'), the necessary adjustments will be made accordingly.

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

6. This Agreement is in three parts: – Part I contains a definition and implementing provisions for the financial framework and applies for the duration of that financial framework. – Part II relates to improvement of interinstitutional collaboration during the budgetary procedure. – Part III contains provisions related to sound financial management of EU funds.

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

8. This Agreement enters into force on 1 January 2007 and replaces: – the Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and improvement of the budgetary procedure[5], – the Interinstitutional Agreement of 7 November 2002 between the European Parliament, the Council and the Commission on the financing of the European Union Solidarity Fund supplementing the Interinstitutional Agreement of 6 May 1999 on budgetary discipline and improvement of the budgetary procedure[6].

PART I – FINANCIAL FRAMEWORK: DEFINITION AND IMPLEMENTING PROVISIONS   A. Contents and scope of the financial framework 9. The financial framework is set out in Annex I. It constitutes the reference framework for interinstitutional budgetary discipline.

10. The financial framework is intended to ensure that, in the medium term, European Union expenditure, broken down by broad category, develops in an orderly manner and within the limits of own resources.

11. The financial framework establishes, for each of the years 2007 to 2013 and for each heading or subheading, amounts of expenditure in terms of appropriations for commitments. Overall annual totals of expenditure are also shown in terms of both appropriations for commitments and appropriations for payments.   All those amounts are expressed in 2004 prices.   The financial framework does not take account of budget items financed by revenue earmarked within the meaning of Article 18 of the Financial Regulation of 25 June 2002 applicable to the general budget of the European Communities[7], hereinafter referred to as the 'Financial Regulation'.   Information relating to operations not included in the general budget of the European Union and the foreseeable development of the various categories of Community own resources is set out, by way of indication, in separate tables. This information will be updated annually when the technical adjustment is made to the financial framework.

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

13. By concluding this Agreement, the two arms of the budgetary authority agree to accept the rates of increase for non-compulsory expenditure deriving from the budgets established within the ceilings set by the financial framework for its entire duration.   Except in sub-heading 1B 'Cohesion for growth and employment' of the financial framework, for the purposes of sound financial management, the institutions will ensure as far as possible during the budgetary procedure and at the time of the budget's adoption that sufficient margins are left available beneath the ceilings for the various headings.

14. No act adopted under the co-decision procedure by the European Parliament and the Council nor any act adopted by the Council which involves exceeding the appropriations available in the budget or the allocations available in the financial framework in accordance with Point 12 may be implemented in financial terms until the budget has been amended and, if necessary, the financial framework has been appropriately revised in accordance with the relevant procedure for each of these cases.

15. For each of the years covered by the financial framework, the total appropriations for payments required, after annual adjustment and taking account of any other adjustments or revisions, must not be such as to produce a call-in rate for own resources that exceeds the own resources ceiling.   If need be, the two arms of the budgetary authority will decide, in accordance with Point 3, to lower the ceilings set in the financial framework in order to ensure compliance with the own resources ceiling.

B. Annual adjustments of the financial framework Technical adjustments 16. Each year the Commission, acting ahead of the budgetary procedure for year n+1, will make the following technical adjustments to the financial framework: (a) revaluation, at year n+1 prices, of the ceilings and of the overall figures for appropriations for commitments and appropriations for payments; (b) calculation of the margin available under the own resources ceiling. The Commission will make those technical adjustments on the basis of a fixed deflator of 2% a year.   The results of those technical adjustments and the underlying economic forecasts will be communicated to the two arms of the budgetary authority.   No further technical adjustments will be made in respect of the year concerned, either during the year or as ex-post corrections during subsequent years.

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

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

Updating of forecasts for payment appropriations after 2013 19. In 2010, the Commission will update the forecasts for payment appropriations after 2013. That update will take into account the real implementation of budget appropriations for commitments and budget appropriations for payments, as well as the implementation forecasts. It will also consider the rules defined to ensure that payment appropriations develop in an orderly manner compared to commitment appropriations and the growth forecasts of the European Union Gross National Income (GNI).

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

C. Revision of the financial framework 21. In addition to the regular technical adjustments and adjustments in line with the conditions of implementation, in the event of unforeseen circumstances the financial framework may, on a proposal from the Commission, be revised in compliance with the own resources ceiling .

22. As a general rule, any proposal for revision under Point 21 must be presented and adopted before the start of the budgetary procedure for the year or the first of the years concerned.   Any decision to revise the financial framework by up to 0,03% of the European Union GNI within the margin for unforeseen expenditure will be taken jointly by the two arms of the budgetary authority acting in accordance with Point 3.   Any revision of the financial framework above 0,03% of the European Union GNI within the margin for unforeseen expenditure will be taken jointly by the two arms of the budgetary authority, with the Council acting unanimously.

23. Without prejudice to Point 40, the institutions will examine the scope for reallocating expenditure between the programmes covered by the heading concerned by the revision, with particular reference to any expected under-utilisation of appropriations. The objective should be that a significant amount, in absolute terms and as a percentage of the new expenditure planned, should be within the existing ceiling for the heading.   The institutions will examine the scope for offsetting any raising of the ceiling for one heading by the lowering of the ceiling for another.   Any revision of the compulsory expenditure in the financial framework must not lead to a reduction in the amount available for non-compulsory expenditure.   Any revision must maintain an appropriate relationship between commitments and payments.

D. Consequences of the absence of a joint decision on the adjustment or revision of the financial framework 24. If the European Parliament and the Council fail to agree on any adjustment or revision of the financial framework proposed by the Commission, the amounts set previously will, after the annual technical adjustment, continue to apply as the expenditure ceilings for the year in question.

E. Emergency Aid Reserve 25. The Emergency Aid Reserve is intended to allow a rapid response to the specific aid requirements of third countries following events which could not be foreseen when the budget was established, first and foremost for humanitarian operations, but also for civil crisis management and protection where circumstances so require. The annual amount of the Reserve is fixed at EUR 221 million for the duration of the financial framework, in constant prices.   The Reserve is entered in the general budget of the European Union as a provision. The corresponding commitment appropriations will be entered in the budget, if necessary, over and above the ceilings laid down in Annex I.   When the Commission considers that the Reserve needs to be called on, it will present to the two arms of the budgetary authority a proposal for a transfer from the Reserve to the corresponding budgetary lines.   Any Commission proposal for a transfer to draw on the Reserve must, however, be preceded by an examination of the scope for reallocating appropriations.   At the same time as it presents its proposal for a transfer, the Commission will initiate a trilogue procedure, if necessary in a simplified form, to secure agreement of the two arms of the budgetary authority on the need to use the Reserve and on the amount required. The transfers will be made in accordance with Article 26 of the Financial Regulation.

F. European Union Solidarity Fund 26. The European Union Solidarity Fund is intended to allow rapid financial assistance in the event of major disasters occurring on the territory of a Member State or of a candidate country, as defined in the relevant basic act. There will be a ceiling on the annual amount available for the Fund of EUR 1 billion (current prices). On 1 October each year, at least one quarter of the annual amount will remain available in order to cover needs arising until the end of the year. The portion of the annual amount not entered in the budget may not be rolled over in the following years.   In exceptional cases and if the remaining financial resources available in the Fund in the year of occurrence of the disaster, as defined in the relevant basic act, are not sufficient to cover the amount of assistance considered necessary by the budgetary authority, the Commission may propose that the difference be financed through the annual amounts available for the following year. The annual amount of the Fund to be budgeted in each year may not, under any circumstances, exceed EUR 1 billion.   When the conditions for mobilising the Fund as set out in the relevant basic act are met, the Commission will make a proposal to deploy it. Where there is scope for reallocating appropriations under the heading requiring additional expenditure, the Commission shall take this into account when making the necessary proposal, in accordance with the Financial Regulation, by means of the appropriate budgetary instrument. The decision to deploy the Fund will be taken jointly by the two arms of the budgetary authority in accordance with Point 3.   The corresponding commitment appropriations will be entered in the budget, if necessary, over and above the ceilings of the relevant headings laid down in Annex I.   At the same time as it presents its proposal for a decision to deploy the Fund, the Commission will initiate a trilogue procedure, if necessary in a simplified form, to secure agreement of the two arms of the budgetary authority on the need to use the Fund and on the amount required.

G. Flexibility Instrument 27. The Flexibility Instrument with an annual ceiling of EUR 200 million (current prices) is intended to allow the financing, for a given financial year and up to the amount indicated, of clearly identified expenditure which could not be financed within the limits of the ceilings available for one or more other headings.   The portion of the annual amount which is not used may be carried over up to year n+2. If the Flexibility Instrument is mobilised, any carryovers will be drawn on first, in order of age. The portion of the annual amount from year n which is not used in year n+2 will lapse.   The Commission will make a proposal for the Flexibility Instrument to be used after it has examined all possibilities for re-allocating appropriations under the heading requiring additional expenditure.   The proposal will concern the principle of making use of the Flexibility Instrument and will identify the needs to be covered and the amount. It may be presented, for any given financial year, during the budgetary procedure. The Commission proposal will be included in the preliminary draft budget or accompanied, in accordance with the Financial Regulation, by the appropriate budgetary instrument.   The decision to deploy the Flexibility Instrument will be taken jointly by the two arms of the budgetary authority in accordance with Point 3. Agreement will be reached by means of the conciliation procedure provided for in Annex II, Part C.

H. European Globalisation Adjustment Fund 28. The European Globalisation Adjustment Fund is intended to provide additional support for workers who suffer from the consequences of major structural changes in world trade patterns, to assist them with their reintegration into the labour market.   The Fund may not exceed a maximum annual amount of EUR 500 million (current prices) which can be drawn from any margin existing under the global expenditure ceiling of the previous year, and/or from cancelled commitment appropriations from the previous two years, excluding those related to heading 1B of the financial framework.   The appropriations will be entered in the general budget of the European Union as a provision through the normal budgetary procedure as soon as the Commission has identified the sufficient margins and/or cancelled commitments, in accordance with the second paragraph.   When the conditions for mobilising the Fund, as set out in the relevant basic act, are met, the Commission will make a proposal to deploy it. The decision to deploy the Fund will be taken jointly by the two arms of the budgetary authority in accordance with Point 3.   At the same time as it presents its proposal for a decision to deploy the Fund, the Commission will initiate a trilogue procedure, if necessary in a simplified form, to secure agreement of the two arms of the budgetary authority on the need to use the Fund and on the amount required, and will present to the two arms of the budgetary authority a proposal for a transfer to the relevant budgetary lines.   Transfers related to the Fund will be made in accordance with Article 24(4) of the Financial Regulation.   The corresponding commitment appropriations will be entered in the budget under the relevant heading, if necessary over and above the ceilings laid down in Annex I.

I. Adjustment of the financial framework to cater for enlargement 29. If new Member States accede to the European Union during the period covered by the financial framework, the European Parliament and the Council, acting on a proposal from the Commission and in accordance with Point 3, will jointly adjust the financial framework to take account of the expenditure requirements resulting from the outcome of the accession negotiations.

J. Duration of the financial framework and consequences of the absence of a financial framework 30. Before 1 July 2011, the Commission will present proposals for a new medium-term financial framework.   Should the two arms of the budgetary authority fail to agree on a new financial framework, and unless the existing financial framework is expressly terminated by one of the institutions, the ceilings for the last year covered by the existing financial framework will be adjusted in accordance with Point 16 so that the 2013 ceilings are maintained in constant prices. If new Member States accede to the European Union after 2013, and if deemed necessary, the extended financial framework will be adjusted in order to take into account the results of accession negotiations.

PART II – IMPROVEMENT OF INTERINSTITUTIONAL COLLABORATION DURING THE BUDGETARY PROCEDURE A. The interinstitutional collaboration procedure 31. The institutions agree to set up a procedure for interinstitutional collaboration in budgetary matters. The details of this collaboration are set out in Annex II.

B. Establishment of the budget   32. The Commission will present each year a preliminary draft budget showing the Community's actual financing requirements.   It will take into account: (a) forecasts in relation to the Structural Funds provided by the Member States, (b) the capacity for utilising appropriations, endeavouring to maintain a strict relationship between appropriations for commitments and appropriations for payments, (c ) the possibilities for starting up new policies through pilot projects and/or new preparatory actions or continuing multiannual actions which are coming to an end, after assessing whether it will be possible to secure a basic act, within the meaning of Article 49 of the Financial Regulation (definition of a basic act, necessity of a basic act for implementation and exceptions), (d) the need to ensure that any change in expenditure in relation to the previous year is in accordance with the constraints of budgetary discipline. The preliminary draft budget will be accompanied by Activity Statements including such information as required under Article 27(3) and Article 33(2)(d) of the Financial Regulation (objectives, indicators and evaluation information).

33. The institutions will, as far as possible, avoid entering items in the budget involving insignificant amounts of expenditure on operations.   The two arms of the budgetary authority also undertake to bear in mind the assessment of the possibilities for implementing the budget made by the Commission in its preliminary drafts and in connection with implementation of the current budget.   Before the Council's second reading, the Commission will send a letter to the Chairman of the European Parliament's Committee on Budgets, with a copy to the other arm of the budgetary authority, containing its comments on the executability of the amendments to the draft budget adopted by the European Parliament at first reading.   The two arms of the budgetary authority will take those comments into account in the context of the conciliation procedure provided for in Annex II, Part C.   In the interest of sound financial management and owing to the effect of major changes in the budget nomenclature in the titles and chapters on the management reporting responsibilities of Commission departments, the two arms of the budgetary authority undertake to discuss any such major changes with the Commission during the conciliation procedure.

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

35. The preliminary draft budget is to contain a proposal for the classification of each new budget item and of each budget item with an amended legal base.   If they do not accept the classification proposed in the preliminary draft budget, the European Parliament and the Council will examine the classification of the budget item concerned on the basis of Annex III. Agreement will be sought by means of the conciliation procedure provided for in Annex II, Part C.

D. Maximum rate of increase of non-compulsory expenditure in the absence of a financial framework 36. Without prejudice to the first paragraph of Point 13, the institutions agree on the following provisions: (a) the European Parliament's autonomous margin for manoeuvre for the purposes of the fourth subparagraph of Article 272(9) of the EC Treaty – which is to be half the maximum rate – applies as from the establishment of the draft budget by the Council at first reading, including any letters of amendment. The maximum rate is to be observed in respect of the annual budget, including amending budgets. Without prejudice to the setting of a new rate, any portion of the maximum rate which has not been utilised will remain available for use and may be used when draft amending budgets are considered; (b) without prejudice to paragraph (a), if it appears in the course of the budgetary procedure that completion of the procedure might require agreement on the setting of a new rate of increase for non-compulsory expenditure to apply to appropriations for payments and/or a new rate to apply to appropriations for commitments (the latter rate may be at a level different from the former), the institutions will endeavour to secure agreement between the two arms of the budgetary authority by means of the conciliation procedure provided for in Annex II, Part C.

E. Incorporation of financial provisions in legislative acts 37. Each legislative act concerning a multiannual programme adopted under the co-decision procedure will contain a provision in which the legislative authority lays down the financial envelope for the programme. That amount will constitute the prime reference for the budgetary authority during the annual budgetary procedure.   The budgetary authority and the Commission, when it draws up the preliminary draft budget, undertake not to depart by more than 5% from that amount for the entire duration of the programme concerned, unless new, objective, long-term circumstances arise for which explicit and precise reasons are given, with account being taken of the results obtained from implementing the programme, in particular on the basis of assessments. Any increase resulting from such variation must remain within the existing ceiling for the heading concerned, without prejudice to the use of instruments mentioned in this Agreement.   This Point does not apply to appropriations for cohesion adopted under the co-decision procedure and pre-allocated by Member States which contain a financial envelope for the entire duration of the programme.

38. Legislative acts concerning multiannual programmes not subject to the co-decision procedure will not contain an 'amount deemed necessary'.   Should the Council wish to include a financial reference, this will be taken as illustrating the will of the legislative authority and will not affect the powers of the budgetary authority as defined by the EC Treaty. This provision will be mentioned in all legislative acts which include such a financial reference.   If the amount concerned has been the subject of an agreement pursuant to the conciliation procedure provided for in the Joint Declaration of the European Parliament, the Council and the Commission of 4 March 1975[8], it will be considered a reference amount within the meaning of Point 37 of this Agreement.

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

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

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

G. Financing of the common foreign and security policy (CFSP) 42. As regards CFSP expenditure which is charged to the general budget of the European Communities in accordance with Article 28 of the Treaty on European Union, the institutions will endeavour, in the conciliation procedure provided for in Annex II, Part C, and on the basis of the preliminary draft budget established by the Commission, to secure agreement each year on the amount of the operating expenditure to be charged to the Community budget and on the distribution of this amount between the articles of the CFSP budget chapter suggested in the fourth paragraph of this Point. In the absence of agreement, it is understood that the European Parliament and the Council will enter in the budget the amount contained in the previous budget or the amount proposed in the preliminary draft budget, whichever is the lower.   The total amount of operating CFSP expenditure will be entered entirely in one budget chapter (CFSP) and distributed between the articles of that chapter as suggested in the fourth paragraph of this Point. That amount is to cover the real predictable needs, assessed in the framework of the establishment of the preliminary draft budget, on the basis of forecasts drawn up annually by the Council, and a reasonable margin for unforeseen actions. No funds will be entered in a reserve. Each article will cover instruments already adopted, instruments which are foreseen but not yet adopted and all future - that is unforeseen - instruments to be adopted by the Council during the financial year concerned. Since, under the Financial Regulation, the Commission has the authority to transfer appropriations autonomously between articles within the CFSP budget chapter, the flexibility deemed necessary for speedy implementation of CFSP actions will accordingly be assured. In the event of the amount of the CFSP budget chapter during the financial year being insufficient to cover the necessary expenses, the European Parliament and the Council will seek a solution as a matter of urgency, on a proposal from the Commission, taking into account Point 25.   Within the CFSP budget chapter, the articles into which the CFSP actions are to be entered could read along the following lines: - crisis management operations, conflict prevention, resolution and stabilisation, monitoring and implementation of peace and security processes, – non-proliferation and disarmament, – emergency measures, – preparatory and follow-up measures, – European Union Special Representatives. The institutions agree that at least EUR 1 740 million will be available for the CFSP over the period 2007-2013 and that the amount for measures entered under the article mentioned in the third indent may not exceed 20 % of the overall amount of the CFSP budget chapter.

43. Each year, the Council Presidency will consult the European Parliament on a forward-looking Council document, which will be transmitted by June 15 for the year in question, setting out the main aspects and basic choices of the CFSP, including the financial implications for the general budget of the European Union and an evaluation of the measures launched in the year n-1. Furthermore, the Council Presidency will keep the European Parliament informed by holding joint consultation meetings at least five times a year, in the framework of the regular political dialogue on the CFSP, to be agreed at the latest at the conciliation meeting to be held before the Council's second reading. Participation in these meetings shall be as follows: - European Parliament: the bureaux of the two Committees concerned - Council: Ambassador (Chairman of the Political and Security Committee). The Commission will be associated and participate at these meetings.   Whenever it adopts a decision in the field of the CFSP entailing expenditure, the Council will immediately, and in any event no later than five working days following the final decision, send the European Parliament an estimate of the costs envisaged ('financial statement'), in particular those regarding time-frame, staff employed, use of premises and other infrastructure, transport facilities, training requirements and security arrangements.   Once a quarter the Commission will inform the budgetary authority about the implementation of CFSP actions and the financial forecasts for the remaining period of the year.

PART III – SOUND FINANCIAL MANAGEMENT OF EU FUNDS

A. Ensuring effective and integrated internal control of Community funds 44. The institutions agree on the importance of strengthening internal control without adding to the administrative burden for which the simplification of the underlying legislation is a prerequisite. In this context, priority will be given to sound financial management aiming at a positive Statement of Assurance, for funds under shared management. Provisions to this end could be laid down, as appropriate, in the basic legislative acts concerned. As part of their enhanced responsibilities for structural funds and in accordance with national constitutional requirements, the relevant audit authorities in Member States will produce an assessment concerning the compliance of management and control systems with the regulations of the Community. Member States therefore undertake to produce an annual summary at the appropriate national level of the available audits and declarations.

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

C. Financial Programming 46. The Commission will submit twice a year, the first time in May/June (together with the documents accompanying the preliminary draft budget) and the second time in December/January (after the adoption of the budget), a complete financial programming for Headings 1A, 2 (for environment and fisheries), 3A, 3B and 4 of the financial framework. This document, structured by heading, policy area and budget line, should identify: (a)    the legislation in force, with a distinction being drawn between multiannual programmes and annual actions: - for multiannual programmes the Commission should indicate the procedure under which they were adopted (co-decision and consultation), their duration, the reference amounts, the share allocated to administrative expenditure; - for annual actions (pilot projects, preparatory actions, Agencies) and actions financed under the prerogatives of the Commission, the Commission should provide multiannual estimates and (for pilot projects and preparatory actions) the margins left under the authorised ceilings fixed in Annex II, Part D; (b)    pending legislative proposals: ongoing Commission proposals referenced by budget line (lower level), chapter and policy area. A mechanism should be found to update the tables each time a new proposal is adopted in order to evaluate the financial consequences. The Commission should consider ways of cross-referencing the financial programming with its legislative programming to provide more precise and reliable forecasts. For each legislative proposal, the Commission should indicate whether or not it is included in the May-December programme. The budgetary authority should in particular be informed of: (a)    all new legislative acts adopted but not included in the May-December document (with the corresponding amounts); (b)    all pending legislative proposals presented but not included in the May-December document (with the corresponding amounts); (c)    legislation foreseen in the Commission's annual legislative work programme with an indication of actions likely to have a financial impact (yes/no). Whenever necessary, the Commission should indicate the reprogramming entailed by new legislative proposals. On the basis of the data supplied by the Commission, stocktaking should be carried out at each trilogue as provided for in this Agreement.

D. Agencies and European Schools 47. When drawing up its proposal for the creation of any new agency, the Commission will assess the budgetary implications for the expenditure heading concerned. On the basis of that information and without prejudice to the legislative procedures governing the setting up of the agency, the two arms of the budgetary authority commit themselves, in the framework of budgetary cooperation, to arrive at a timely agreement on the financing of the agency. A similar procedure is to be applied when the creation of a new European school is envisaged.

E. Adjustment of Structural Funds, Cohesion Fund, Rural Development and the European Fund for Fisheries in the light of the circumstances of their implementation 48. In the event of the adoption after 1 January 2007 of new rules or programmes governing the Structural Funds, the Cohesion Fund, Rural Development and the European Fund for Fisheries, the two arms of the budgetary authority undertake to authorise, on a proposal from the Commission, the transfer to subsequent years, in excess of the corresponding expenditure ceilings, of allocations not used in 2007.   The European Parliament and the Council will take decisions on Commission proposals concerning the transfer of unused allocations for the year 2007 before 1 May 2008, in accordance with Point 3.

F. New financial instruments 49. The institutions agree that the introduction of co-financing mechanisms is necessary to reinforce the leverage effect of the European Union budget by increasing the funding incentive.   They agree to encourage the development of appropriate multiannual financial instruments acting as catalysts for public and private investors.   When presenting the preliminary draft budget, the Commission will report to the budgetary authority on the activities financed by the European Investment Bank, the European Investment Fund and the European Bank for Reconstruction and Development to support investment in research and development, trans-European networks and small and medium-sized enterprises.

ANNEX I

2007 TO 2013 FINANCIAL FRAMEWORK

ANNEX II INTERINSTITUTIONAL COLLABORATION IN THE BUDGETARY SECTOR

Part A. After the technical adjustment of the financial framework for the forthcoming financial year, taking into account the Annual Policy Strategy presented by the Commission and prior to its decision on the preliminary draft budget, a meeting of the trilogue will be convened to discuss the possible priorities for the budget of that year. Due account will be taken of the institutions' powers as well as the foreseeable development of the needs for the financial year to come and for the following years covered by the financial framework. Account will also be taken of new elements which have arisen since the establishment of the initial financial framework and which are likely to have a significant and lasting financial impact on the budget of the European Union.

Part B. As regards compulsory expenditure, the Commission, in presenting its preliminary draft budget, will identify: (a) appropriations connected with new or planned legislation; (b) appropriations arising from the application of legislation existing when the previous budget was adopted.   The Commission will make a careful estimate of the financial implications of the Community's obligations based on the rules. If necessary, it will update its estimates in the course of the budgetary procedure. It will supply the budgetary authority with all the duly justified reasons it may require.   If it considers it necessary, the Commission may present to the two arms of the budgetary authority an ad hoc letter of amendment to update the figures underlying the estimate of agricultural expenditure in the preliminary draft budget and/or to correct, on the basis of the most recent information available concerning fisheries agreements in force on 1 January of the financial year concerned, the amounts and their breakdown between the appropriations entered in the operational items for international fisheries agreements and those entered in reserve.   That letter of amendment must be sent to the budgetary authority before the end of October.   If it is presented to the Council less than one month before the European Parliament's first reading, the Council will, as a rule, consider the ad hoc letter of amendment when giving the draft budget its second reading.   As a consequence, before the Council's second reading of the budget, the two arms of the budgetary authority will try to meet the conditions necessary for the letter of amendment to be adopted on a single reading by each of the institutions concerned.

Part C. 1. A conciliation procedure is set up for all expenditure. 2. The purpose of the conciliation procedure is to: (a) continue discussions on the general trend of expenditure and, in this framework, on the broad lines of the budget for the coming year in the light of the Commission's preliminary draft budget; (b) secure agreement between the two arms of the budgetary authority on: – the appropriations referred to in Points (a) and (b) of Part B, including those proposed in the ad hoc letter of amendment referred to that Part, – the amounts to be entered in the budget for non-compulsory expenditure, in accordance with Point 40 of this Agreement, and, –in particular, matters for which reference to this procedure is made in this Agreement.   3. The procedure will begin with a trilogue meeting convened in time to allow the institutions to seek an agreement by no later than the date set by the Council for establishing its draft budget. There will be conciliation on the results of this trilogue between the Council and a European Parliament delegation, with the Commission also taking part. Unless decided otherwise during the trilogue, the conciliation meeting will be held at the traditional meeting between the same participants on the date set by the Council for establishing the draft budget.   4. If necessary, a new trilogue meeting could be held before the European Parliament's first reading on a written proposal by the Commission or a written request by either the chairman of the European Parliament's Committee on Budgets or the President of the Council (Budgets). The decision whether to hold this trilogue will be agreed between the institutions after the adoption of the Council draft budget and prior to the vote on the amendments at first reading by the European Parliament's Committee on Budgets.   5. The institutions will continue the conciliation after the first reading of the budget by each of the two arms of the budgetary authority in order to secure agreement on compulsory and non-compulsory expenditure and, in particular, to discuss the ad hoc letter of amendment referred to in Part B. A trilogue meeting will be held for this purpose after the European Parliament's first reading. The results of the trilogue will be discussed at a second conciliation meeting to be held on the day of the Council's second reading. If necessary, the institutions will continue their discussions on non-compulsory expenditure after the Council's second reading. 6. At those trilogue meetings, the institutions' delegations will be led by the President of the Council (Budgets), the Chairman of the European Parliament Committee's on Budgets and the Member of the Commission responsible for the budget.   7. Each arm of the budgetary authority will take whatever steps are required to ensure that the results which may be secured in the conciliation process are respected throughout the budgetary procedure.

Part D. In order for the Commission to be able to assess in due time the implementability of amendments envisaged by the budgetary authority which create new preparatory actions/pilot projects or prolong existing ones, both arms of the budgetary authority will inform the Commission by mid-June of their intentions in this regard, so that a first discussion may already take place at the conciliation meeting of the Council's first reading. The next steps of the conciliation procedure provided for in Part C will also apply, as well as the provisions on implementability mentioned in Point 36 of this Agreement. Furthermore, the institutions agree to limit the total amount of appropriations for pilot schemes to EUR 40 million in any budget year. They also agree to limit to EUR 50 million the total amount of appropriations for new preparatory actions in any budget year, and to EUR 100 million the total amount of appropriations actually committed for preparatory actions.

ANNEX III

CLASSIFICATION OF EXPENDITURE

HEADING 1	Sustainable growth
1A	Competitiveness for growth and employment	Non-compulsory expenditure (NCE)
1B	Cohesion for growth and employment	NCE
HEADING 2	Preservation and management of natural resources	NCE
	Except:
	Expenditure of the common agricultural policy concerning market measures and direct aids, including market measures for fisheries and fisheries agreements concluded with third parties	Compulsory expenditure (CE)
HEADING 3	Citizenship, freedom, security and justice	NCE
3A	Freedom, Security and Justice	NCE
3B	Citizenship	NCE
HEADING 4	EU as a global player	NCE
	Except:
	Expenditure resulting from international agreements which the European Union concluded with third parties	CE
	Contributions to international organisations or institutions	CE
	Contributions provisioning the loan guarantee fund	CE
HEADING 5	Administration	NCE
	Except:
	Pensions and severance grants	CE
	Allowances and miscellaneous contributions on termination of service	CE
	Legal expenses	CE
	Damages	CE
HEADING 6	Compensations	CE

ANNEX IV FINANCING OF EXPENDITURE DERIVING FROM FISHERIES AGREEMENTS

Part A. Expenditure relating to fisheries agreements is financed by two items belonging to the 'fisheries' policy area (by reference to the activity based budget nomenclature): (a) international fisheries agreements (11 03 01); (b) contributions to international organisations (11 03 02). All the amounts relating to agreements and protocols which are in force on 1 January of the year in question will be entered under heading 11 03 01. Amounts relating to all new or renewable agreements which come into force after 1 January of the year in question will be assigned to heading 40 02 41 02 – Reserves/Differentiated appropriations (compulsory expenditure).

Part B. In the conciliation procedure provided for in Annex II, Part C, the European Parliament and the Council will seek to agree on the amount to be entered in the budget headings and in the reserve on the basis of the proposal made by the Commission.

Part C. The Commission undertakes to keep the European Parliament regularly informed about the preparation and conduct of the negotiations, including the budgetary implications. In the course of the legislative process relating to fisheries agreements, the institutions undertake to make every effort to ensure that all procedures are carried out as quickly as possible. If appropriations relating to fisheries agreements (including the reserve) prove insufficient, the Commission will provide the budgetary authority with the necessary information for an exchange of views in the form of a trilogue, possibly simplified, on the causes of the situation, and on the measures which might be adopted under established procedures. Where necessary, the Commission will propose appropriate measures. Each quarter the Commission will present to the budgetary authority detailed information about the implementation of agreements in force and financial forecasts for the remainder of the year.

DECLARATIONS

1. Declaration of the Commission on the assessment of the functioning of the Interinstitutional Agreement In relation to Point 7 of the Interinstitutional Agreement, the Commission will prepare a report on the functioning of the Interinstitutional Agreement by the end of 2009 accompanied, if necessary, by relevant proposals.

2. Declaration on Point 27 of the Interinstitutional Agreement Within the framework of the annual budgetary procedure, the Commission will inform the budgetary authority of the amount available for the Flexibility Instrument referred to in Point 27 of the Interinstitutional Agreement. Any decision to mobilise the Flexibility Instrument for an amount exceeding EUR 200 million will imply a carry-forward decision.

3. Declaration on the review of the financial framework 1. In accordance with the conclusions of the European Council, the Commission has been invited to undertake a full, wide-ranging review covering all aspects of EU spending, including the Common Agricultural Policy, and of resources, including the United Kingdom rebate, and to report in 2008/2009. That review should be accompanied by an assessment of the functioning of the Interinstitutional Agreement. The European Parliament will be associated with the review at all stages of the procedure on the basis of the following provisions: - during the examination phase following the presentation of the review by the Commission, it will be ensured that appropriate discussions take place with the European Parliament on the basis of the normal political dialogue between the institutions and that the positions of the European Parliament are duly taken into account; - in accordance with its conclusions of December 2005, the European Council "can take decisions on all the subjects covered by the review". The European Parliament will be part of any formal follow-up steps, in accordance with the relevant procedures and in full respect of its established rights. 2.     The Commission undertakes, as part of the process of consultation and reflection leading up to the establishment of the review, to draw on the in-depth exchange of views it will conduct with European Parliament when analysing the situation. The Commission also takes note of the European Parliament's intention to call for a conference involving the European Parliament and the national parliaments to review the own-resources system. It will consider the outcome of any such conference as a contribution in the framework of that consultation process. It is understood that the Commission's proposals will be put forward entirely under its own responsibility.

4. Declaration on democratic scrutiny and coherence of external actions The European Parliament, the Council and the Commission acknowledge the need for rationalisation of the various instruments for external actions. They agree that such rationalisation of instruments, while enhancing the coherence and the responsiveness of European Union action, should not affect the powers of either the legislative authority - notably in its political control of strategic choices - or the budgetary authority. The text of the relevant regulations should reflect those principles and include where appropriate the necessary policy content and an indicative breakdown of resources and, where necessary, a review clause aiming at evaluating the implementation of the regulation, after three years at the latest. Under the basic legislative acts adopted under the co-decision procedure, the Commission will systematically inform and consult the European Parliament and the Council by sending draft country, regional and thematic strategy papers.   Where the Council decides on the transition of potential candidates to pre-accession status during the period covered by the Interinstitutional Agreement, the Commission will revise and communicate to the European Parliament and the Council an indicative multi-annual framework according to Article 4 of the Regulation establishing an Instrument for Pre-Accession Assistance (IPA) to take account of the expenditure requirements resulting from such a transition.   The Commission will provide in the preliminary draft budget a nomenclature which ensures the prerogatives of the budgetary authority for external actions.

5. Declaration of the Commission on the democratic scrutiny and coherence of external actions   The Commission undertakes to enter into a regular dialogue with the European Parliament on the content of the draft country, regional and thematic strategy papers and to take due account of the position of the European Parliament when implementing the strategies.   That dialogue will include a discussion on the transition of potential candidates to pre-accession status during the period covered by the Interinstitutional Agreement.

6. Declaration on the revision of the Financial Regulation Within the framework of the revision of the Financial Regulation the institutions commit themselves to improve implementation of the budget and increase the visibility and the benefit of Community funding towards the citizens without calling in question the progress achieved in the 2002 recasting of the Financial Regulation. They will also seek, as far as possible, during the final stage of the negotiations on the revision of the Financial Regulation and its Implementing Rules, the right balance between the protection of financial interests, the principle of proportionality of administrative costs, and user-friendly procedures.   The revision of the Financial Regulation will be carried out on the basis of a modified proposal from the Commission in accordance with the conciliation procedure established by the Joint Declaration of the European Parliament, the Council and the Commission of 4 March 1975, in the spirit which enabled agreement in 2002. The institutions will also seek close and constructive interinstitutional cooperation for the swift adoption of the Implementing Rules in order to simplify procedures for funding whilst ensuring a high level of protection of the Community's financial interests.   The European Parliament and the Council are firmly committed to concluding the negotiations on the Financial Regulation so as to allow its entry into force, if possible, on 1 January 2007.

7. Declaration of the Commission on the revision of the Financial Regulation   Within the framework of revision of the Financial Regulation, the Commission commits itself:   - to inform the European Parliament and the Council if, in a proposal for a legal act, it considers it necessary to depart from the provisions of the Financial Regulation, and to state the specific reasons for it;   - to ensure that regular legislative impact assessments, having due regard to the principles of subsidiarity and proportionality, are conducted on important legislative proposals and any substantive amendments thereof.

8. Declaration on new financial instruments The European Parliament and the Council invite the Commission and the European Investment Bank (EIB), in their respective spheres of competence, to make proposals: - in accordance with the conclusions of the European Council of December 2005, to increase the EIB's capacity for research and development loans and guarantees up to EUR 10 billion in the period 2007-2013, with an EIB contribution of up to EUR 1 billion from reserves for risk-sharing financing; - to reinforce the instruments in favour of Trans-European Networks (TENs) and Small and Medium-sized Enterprises up to an approximate amount of loans and guarantees of EUR 20 billion and EUR 30 billion, respectively, with an EIB contribution of up to EUR 0,5 billion from reserves (TENs) and up to EUR 1 billion (Competitiveness and Innovation) respectively.

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

10. Declaration of the Commission on voluntary modulation The Commission takes note of Point 62 of the conclusions of the European Council of December 2005 whereby Member States may transfer additional sums from market-related expenditure and direct payments of the Common Agricultural Policy to Rural Development up to a maximum of 20% of the amounts that accrue to them from market-related expenditure and direct payments.   When laying down the modalities of this modulation in the relevant legal acts, the Commission will endeavour to make voluntary modulation possible whilst making all efforts to ensure that such a mechanism reflects as closely as possible the basic rules governing the rural development policy.

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

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

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

• [1]  OJ C 172, 18.6.1999, p. 1. Agreement as last amended by Decision 2005/708/EC of the European Parliament and of the Council (OJ L 269, 14.10.2005, p. 24).
• [2]  Texts Adopted, 8.6.2005, P6_TA(2005)0224.
• [3]  Texts Adopted, 1.12.2005, P6_TA(2005)0453.
• [4]  Texts Adopted, 18.1.2006, P6_TA(2006)0010.
• [5]               OJ C 172, 18.6.1999, p. 1.
• [6]               OJ C 283, 20.11.2002, p.1
• [7]               OJ L 248, 16.9.2002, p. 1.
• [8]               OJ C 89, 22.4.1975, p.1.

EXPLANATORY STATEMENT

24.4.2006

Before setting out the results of the negotiations between Parliament and Council on a new Interinstitutional Agreement (IIA) and a multi-annual framework (MFF), the rapporteur would like to remind the main steps of the procedure which over the last two years have paved the way to the final agreement.

Apart from the outcome of the negotiations, he is convinced that the European Parliament's working method and political determination have contributed to improving its credibility and strengthened its role in the inter-institutional context.

· For the first time, the EP has adopted a negotiating position prior to Council's conclusions. It has set up a specific temporary committee where all committees and political groups were represented, which lead to a consensual vote of EP's position on 8 June 2005.

· The EP has set out a global three-pillar strategy matching political priorities and financial needs, modernising the budget structure and improving the quality of implementation of the EU budget.

· The EP had given the newly appointed Commission a chance to revise its initial proposals in view of reflecting more realistic and updated political priorities. The EP has clearly indicated on many occasions that it expects the Commission to play its role of "honest broker" between the Parliament and the Council and certainly contributed to rectifying the Commission's tendency to play in favour of the Council.

· The EP has formally rejected the Council conclusions in their current form because they did not provide the Union with the means to assume its responsibilities.

· The EP has insisted on negotiating the qualitative elements and the further development of the budget structure despite the Council's reluctance in order to secure the improvement of the quality of the implementation of the EU budget.

· The EP has opposed the Council's approach on ceilings and percentages and focussed on an approach based on programmes and has obtained that the additional amount be allocated to its priorities and directly to programmes.

Considering the difficulties encountered by the European Council in June and December 2005, the result at the end of the negotiations represents the maximum which could be obtained in the logic of reaching an agreement.

The rapporteur is fully aware that the new IIA and the financial framework do not fully meet all expectations and that unsolved shortcomings and weaknesses remain in certain areas.

However, the rapporteur considers it as fully justified to give a positive recommendation for the vote on the IIA and the MFF resulting from the agreement reached on 4 April 2006 between the Parliament, the Council and the Commission following intense negotiations which started in January and ended on 4 April 2006.

At the May 2006 plenary session, the European Parliament will vote on the renewal of the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure (IIA) including the next multi-annual framework 2007-2013.

In accordance with the Rules of Procedure (article 120), two reports will be adopted:

- the report of the Committee on Budgets presented by Mr Böge with a recommendation on the budgetary content of the IIA

- the report of the Committee on Constitutional Affairs presented by Mr Sousa Pinto with a recommendation regarding the consistency of the IIA with the principles laid down in the EC Treaty.

Why this agreement can be approved? 12 reasons to say yes

1. It allows continuity of the EU legislative process: 90% of Community programmes are terminating at the end of 2006. The functioning of the programmes is guaranteed, even if the level of expenditure is far below the request of the Commission, in principle supported by the EP. The level agreed guarantees a moderate increase over the period for all the programmes with the exception of Agriculture, including Rural Development and Fisheries.

2. It represents a tangible achievement of enlargement by offering the first financial framework for 27 Member States for the coming seven years. It secures an orderly evolution of EU expenditure over a mid-term period.

3. It maintains a fair balance of powers between the Institutions and consolidates the principle of co-decision for budgetary matters.

4. It provides for realistic resources to allow the development of EU policies and foresees appropriate instruments to mobilise additional means if necessary.

5. It guarantees room for manoeuvre within the annual budgetary procedures. This was one of the aims of Parliament. The financial perspectives should not establish a rigid budget for seven years but leave the possibility each year to assess the functioning of the programmes, the financial margin to launch new initiatives, the possibility to respond to new challenges, the capacity to respond to humanitarian, natural and economic emergencies. Margins exist in all headings although their level is particularly low for heading 2 and heading 3b.

6. It ensures a review on the basis of the Commission's assessment of the current IIA in 2009 and a full involvement of Parliament in the wide-ranging mid-term review according to its established rights.

7. It contributes to answer EP's requests made in its position of 8 June 2005 for improving the quality of implementation of the budget (Financial Regulation, internal control, agencies, financial programming).

8. It introduces an active use of new financial instruments through co-financing with the EIB in the budget management of the Union.

9. It safeguards Parliament's budgetary and legislative prerogatives and strengthens the democratic scrutiny in external programmes and CFSP.

10. It guarantees support for emergencies events even if it will be financed mostly outside the financial framework (Emergency aid for third countries, Solidarity Fund and Globalisation Fund within the EU). There is no change in the legislation these emergencies will continue to be financed by the EU budget as now.

11. It guarantees flexibility: With the same mechanism of the current IIA reintroducing the possibility of carrying over the not used appropriations of the previous two years that the Commission had suppressed in its proposal (against a higher annual amount).

12. It introduces legislative flexibility: It is one of the most relevant achievements of the new agreement. The EP can now play its role to determine more easily priorities between the different programs and the Commission should be ready to demonstrate the efficiency of each program; an amount in the legal act is no more a full guarantee but this mechanism will favour a better monitoring of the programmes.

What has been achieved?

The European Parliament's negotiating position of 8 June 2005 contained qualitative and quantitative elements including the strengthening of Parliament's prerogatives over the next generation of policies.

Concerning the quantitative aspects, the final result remains far behind the June resolution which, he wishes to recall, was a negotiating position and remains an objective. He is aware that the reductions made by the European Council on the Commission proposals have only been partially compensated.

At the end of the negotiations, the rapporteur considers that most qualitative elements are reflected in the new IIA and represent a real opportunity to improve the quality of EU spending and to create indirect positive effects and quantitative results. He is also aware that some weaknesses and shortcomings subsist in the formulations, but he is convinced that the new IIA is better than the current one without losing the existing "acquis".

It is worthwhile to remind that already in June 2005, the EP considered the Commission proposal as not realistic. Therefore, a reduction was made on the proposal. On the other side, the Commission proposal set the reference for the interinstitutional debate.

However, it was clear that after the decision of the European Council the margin for manoeuvre was very limited. Nonetheless, the result of the negotiations represents a success for Parliament.

Quantitative elements

Overall amount

After the agreement of 4 April last, the financial framework will pass from EUR 862 billion to 864.3 billion, while the net increase of the overall ceiling is EUR 4 billion.

Amounts outside the MFF will be financed through additional appropriations.

As indicated in the table above, this has been achieved by two operations:

· The Emergency Aid Reserve (EUR 1.5 billion) in Heading 4 has been placed outside the financial framework. As is the case with the Solidarity Fund, the Emergency Aid Reserve outside the financial framework will not decrease its financing and operability. Once needs arise, the Commission will present the appropriate budgetary instrument (reallocation or supplementary appropriations and after the decision of the budgetary authority, the resources will be paid by the Member States. These amounts will be over and above the ceilings agreed in the Financial Perspective.

In fact, these two instruments: the Solidarity Fund (within the EU) and the Emergency Aid Reserve (outside the EU) are entered into the budget with a p.m., but outside the financial framework, without reducing the operability of these instruments. The mobilisation of these Funds will be financed by additional money from the Member States.

The rapporteur wishes to recall that this is consistent with the EP's negotiating position which placed these Funds outside the FP to create more space for the programmed activities.

· Regarding administrative expenditure, the ceiling of Heading 5 has been reduced by EUR 500 million but the pensions paid by staff will be allocated directly to administrative expenditure - up to a compensating level of EUR 500 million. .

The rapporteur wishes to recall that the "footnote" solution for pensions had already been applied in 1999 for the current Financial Perspective. Moreover, he underlines that the outcome of the negotiations, which maintains a separate heading for administrative expenditure of all institutions (including the Commission's) is consistent with the EP's negotiating position. The overall reduction operated by the Council on heading 5 will concern all the institutions, while in the June resolution Parliament had reduced the Commission administrative expenditure by 10%.

Instruments financed outside the Financial Perspective

· Emergency Aid Reserve: The annual amount is fixed at EUR 221 mio. (current prices), i.e. EUR 1.4 bn. over the period.

· EU Solidarity Fund: The annual amount is fixed at EUR 1 bn. (current prices), i.e. up to EUR 7 bn. over the period.

· Instrument of flexibility: It remains at the current level of EUR 200 mio. per year (current prices), i.e. EUR 1.4 bn. over the period, with the possibility to carry over the unused appropriations during two years (i.e. in case of non-utilization of the flexibility instrument during 2 years the amount will be EUR 600 mio.).

· European Globalisation Adjustment Fund: The annual amount may not exceed EUR 500 mio., i.e. EUR 3.5 bn. over the period. The creation of this Fund was proposed by the December Council conclusions to provide additional support to workers who suffer from the consequences of globalisation. It will be financed by the existing margins and/or cancelled appropriations from the previous two years excluding those related to heading 1B.

The rapporteur wishes to recall that all the above instruments were also placed outside the financial framework by the EP negotiating position.

Specific mechanism for the Agencies and European Schools

This is also a novelty of the next IIA with a direct impact on the ceilings. In its negotiating position, Parliament had asked for a binding ceiling for agencies in order to preserve the operational programmes within the policy areas. Despite Council's strong reluctance, a new procedure has been set up for new Agencies (point D of part III). This procedure foresees that prior to the creation of a new Agency an assessment is made by the Commission to evaluate how it can be financed. A specific agreement of the budgetary authority will be necessary to allow the financing. This procedure will avoid that Agencies are financed through reprogramming or by using the margins. A similar procedure applies to the creation of new European Schools within heading 5.

In other terms, it means that new Agencies (or new European Schools) need a specific decision of financing and they will not automatically be covered by the FP.

Pilot projects and Preparatory Actions

The annual ceiling for Pilot Projects is increased from EUR 32 mio. to EUR 40 mio.. The annual ceiling for Preparatory Actions is increased from EUR 75 mio. to EUR 100 mio., of which 50 mio. for new actions.

Co-financing with the European Investment Bank (EIB)

The mechanism set in place (point 49 and declaration) can be described as follows:

According to the principle of co-financing, both the EU budget and the EIB will be investing appropriations in the same activity.

As result of the trialogue, from the EIB side, a supplementary share will be invested in the co-financing scheme, EUR 1 billion for Research (FP 7), 1 billion for Competitiveness and Innovation (CIP) and 0.5 billion for TEN-T projects,. The shareholders have to confirm the decision (proposal by the Board of Directors to the Board of Governors composed of the Finance Ministers) to allocate an equivalent amount from the Bank’s reserves into these programmes.

The EU budget will contribute with an equivalent amount, as foreseen in the programmes.

The leverage effect which is expected at the end of the period from this co-financing is estimated to be on average 5 times for Research, 20 times for TEN-T projects and 15 times for CIP financial instruments, providing respectively approximate financing amounts of EUR 10 billion for Research, 20 billion for TEN-T projects and 30 billion for SMEs. These figures are objectives and not funding.

Qualitative elements

The title and the scope of the next IIA have been modified to reflect the introduction of EP's requests for qualitative reforms. The rapporteur stresses that much determination has been necessary to overcome Council's approach. Finally, it accepted to widen the scope of the IIA and to change is title into "Interinstitutional Agreement on Budgetary Discipline and Sound Financial Management".

The new IIA presents significant progress in this area.

Review

The European Council conclusions of December 2005 foresee a wide-ranging review of EU resources and expenditure before the end of 2009. There will be a newly elected Parliament in June 2009 and a new Commission which will take office in the same year.

The June resolution recalls that for democratic reasons, the newly elected Parliament and the newly appointed Commission should have a say on the next mid-term political priorities. Therefore, the EP delegation requested the right for Parliament to participate in the review.

Despite strong opposition from the Council, the outcome of the negotiations foresees:

· the commitment of the Commission to present a report on the functioning of the IIA whenever it deems necessary, and at all events by the end of 2009 (article 7 and declaration);

· the assurance for the newly elected Parliament to be fully involved in the wide-ranging review according to its established rights.

The combination of the two elements will give the EP the possibility to be involved in the review. This represents a real progress for Parliament's prerogatives in the decision-making process of the multi-annual financial framework.

CFSP

A better participation of Parliament through a structured political dialog with Council and financial control for the CFSP action and expenditure (art. 42 and 43). These texts consolidate the progress made over the last years and set a framework with a specific procedure along the year and moreover ensure a forward looking reporting as requested by Parliament.

Such meetings will be planned jointly between AFET/BUDG and the Presidencies, possibly for the all year. This procedure enhances Parliament's political involvement in and financial control over CFSP.

Freedom, Security and Justice

It is worthwhile to mention that the EP would have preferred to have a parallel procedure for the third pillar - Justice and Home Affairs – as for CSFP but the Council was not open to introduce a detailed procedure for this policy. However, at the same time Council and Commission accept a unilateral EP declaration to discuss this specific issue at each trialogue foreseen in the framework of ordinary budgetary cooperation (4 times a year). It will for the LIBE and BUDG committees to jointly ensure the establishment of such a procedure.

External relations

The progress in this sector has a particular relevance for the institutional role of the EP and the democratic scrutiny. It is necessary to clarify that the declarations need to be implemented in concrete terms in the legislative procedures and in the dialogue agreed between Commission and Parliament, and this should improve the quality of implementation.

The institutional novelty introduced in the IIA, through this two declarations are the following:

· The Commission commits itself to introduce policy contents into the regulations and to undertake a review after 3years at the latest.

· Parliament will be consulted on the draft strategy documents and the Commission commits to take into account EP's opinion in the course of implementation.

The rapporteur is convinced that what has been achieved is a real institutional progress for a better democratic control over implementation.

It will be up to the legislative committees to monitor the respect of such commitments but the budgetary procedure will offer to EP the concrete tools to evaluate whether they are respected.

Certification (internal control)

The text of point 44 (part III) is - even if far from what the European Parliament asked for in its 2003 discharge resolution (Mr Wynn) as well as in its 2004 discharge resolution (Mr Mulder) - is nevertheless a decisive step forward towards ensuring sound financial management of EU funds.

It is well known that approximately 80% of the budget is implemented by the Member States. For the first time we now have a text in the Inter-Institutional Agreement which will open the door for underlining Member States' responsibility.

Having regard to the resistance from many Member States to have this text included in the Interinstitional Agreement, the rapporteur believes that the outcome is satisfactory. However, it is of great importance to continue the debate and discussion on the matter.

Financial Regulation

Council and Commission, at Parliament's request, have accepted to include in the IIA a reference to principles that should inspire the implementation of the budget: principles that should simplify the access to the EU funds for potential beneficiaries and respect the proportionality of administrative costs.. The new IIA establishes as well that Financial Regulation will be adopted following a conciliation procedure, foreseen by the joint declaration of March 1975 in the spirit which enabled the agreement in 2002.

The rapporteur considers that on the basis of art. 45 and the joint declaration the EP will have the possibility to improve and simplify the implementation of the budget.

Financial programming

The joint declaration of July 2000 is now integrated in the IIA (part III). It foresees a regular stocktaking at each trialogue (i.e. 4 times a year). It will allow the Committee on Budgets to follow-up with more accuracy the impact of the legislation in force, the pending legislation and the foreseen legislation on the various headings. It will also allow to develop useful tools to evaluate the compatibility of the financial envelopes with the ceilings of the next financial framework in view of preserving EP's political priorities.

Lessons of the past and objectives for the future

Like in every negotiation, there are leftovers. Therefore, in some areas of major concern for the EP, unilateral declarations have been adopted and will be full part of the IIA.

Some of them are the following:

· Voluntary modulation (point 62 of the December conclusions) up to 20% from the first pillar of CAP to Rural development, which contradicts some basic principles and policies of the Union as well as the in-depth CAP reform of 2003.

Two declarations will be attached to the IIA: one unilateral declaration where the Commission commits to ensure to remain as close as possible to the current rules and one by the EP reserving its position at legislative level and in the context of the review.

· Natura 2000, the objectives of which are put in danger by the reduced amounts for Rural Development. Parliament's unilateral declaration also reserves the EP's position at legislative level with the view to compensate the damaging effect.

· Private co-financing and VAT: The unilateral declaration by Parliament which will be attached to the IIA aims to compensate the effect of the December European Council conclusions (points 57 and 58). The rapporteur is willing to stick to the June resolution by considering that provisions such as the eligibility of VAT, of co-financing or the N+3 rule should remain transitional.

For those aspects which have found no solutions as well as for the shortages still existing in many policies, the rapporteur considers that they could be improved in the context of the legislative procedures which will be finalised in the course of the year 2006 (most of them are co-decisions).

The 2007 budgetary procedure can also offer possibilities for adjustments or fine-tuning and finally the assessment of the functioning of the IIA in the context of the 2009 review will offer to the Parliament appropriate means to propose amendments.

The final result lags behind the EP's own position of June, although mainly for the quantitative aspects. It does not fully repair either the "damaging effects" of the reductions operated by the European Council in December 2005. It brings no direct solutions to some specific requests expressed by the sectoral committees during the different rapporteurs' meetings.

However, the rapporteur considers that the global result of the negotiations in qualitative and quantitative terms is a success. Further improvements must be aimed at in the context of the review in 2009.

ANNEXES TO THE EXPLANATORY STATEMENT

WORKING DOCUMENT No 1 ON THE INTER-INSTITUTIONAL AGREEMENT ON BUDGETARY DISCIPLINE AND IMPROVEMENT OF THE BUDGETARY PROCEDURE

17.11.2005

I. The relation between budget and legislation

Some Background

1.  The Treaty itself contains the elements of conflict which opposed the European Parliament and the Council over the years 1975-1982 when the legislative powers belonged exclusively to Council, while the budgetary powers were shared between Council and Parliament.

2.  As long as the Council - as sole legislator - exerted the budgetary power alone (until 1975), there was a 'concentration' on one institution of the two powers, which avoided significant conflicts. When acceding to more budgetary power, the Parliament developed the principle that the Budget should represent on its own a sufficient basis to execute the appropriations entered into it. On the basis of the 1975 Treaty, it started to create new budgetary lines which in many cases developed into major actions over consecutive annual budgets.

3.  During the 1980's the Council developed the practice to enter into the legislative acts it adopted maximum amounts for the corresponding spending.[1] The Parliament argued that such a practice contributed to reduce its budgetary power on non-compulsory expenditure entrusted to it by the Treaty. The joint declaration of 30 June 1982 aimed to find a compromise to overcome such confrontation:

"In order that the full importance of the budget procedure may be preserved, the fixing of maximum amounts by regulation must be avoided."[2]

At the same time, the Parliament, the Council and the Commission acknowledge the necessity of a legal basis for "significant actions".

4.  The implementation of these two points proved to be unsatisfactory.

"Maximum amounts" were replaced by "amounts deemed necessary" in the multi-annual programmes and systematically entered by the Council in all multi-annual programmes as ceilings, while there were considered purely 'indicative' by the Parliament and increased or reduced in the annual budgets according to its priorities.

Concerning the aspect of legal basis, the definition of "significant action" as opposed to "specific action" created confusion in the annual budgets.

5.  With the introduction of the co-decision procedure by the Amsterdam Treaty (May 1999) and the new balance of legislative competences between European Parliament and Council, the problem "amounts deemed necessary" was formalised in the Joint Declaration of 1995 on the Incorporation of Financial Provisions in legislative acts. In 1999, this declaration, with a few modifications, was included in the current Inter-institutional Agreement (IIA) of 6 May 1999 (articles 33 and 34)[3].

6.  The Court ruling of 12 May 1998[4] imposes the necessity for all budget lines entered in the budget to have a legal basis; it recalls the link between budget and legislation. In its conclusions, the Court confirms the independence of the legislative and budgetary procedures and at the same time strengthens the link between the two although neither of the two should impose to the other.

7.  The Nice Treaty, which entered into force on in February 2003, has increased the scope of co-decision in several areas (freedom, justice and security, and external actions). Over the next period, there will be additional programmes with multi-annual envelopes.

8.  The Constitutional Treaty for Europe, initially due to enter into force in November 2006, incorporates the Financial Perspective into the Treaty (article I.55 and III.402), graving in stone the multi-annual character of EU spending.

State of Play

9.  In accordance with article 26 of the Inter-institutional Agreement of 6 May 1999, the Commission presented fresh proposals for a new medium-term financial perspective in February 2004, followed by the related legislative proposals. It should be recalled that most of the Community multi-annual programmes terminate at the end of 2006, which implies that 90% of the legislation with financial implications has to be renewed in the context of the new financial perspective. Legislative proposals have already been adopted by the Commission and submitted to the European Parliament and the Council for examination.

10.  On 8 June 2005, the European Parliament adopted a negotiating position based on the report of the Temporary Committee on Policy Challenges and Budgetary Means of the Enlarged Union 2007-2013 (Böge report), in which it sets up its proposal for the global level of expenditure and its political priorities. On 16-17 June 2005, the European Council did not succeed in agreeing on a common position based on the Luxembourg presidency compromise.

The sectoral committees have started to examine the legislative proposals. At this stage 17 have already been adopted.

11.  In order to facilitate the conclusion of the legislative authority on the new programmes and until an agreement is reached on the Financial Perspective, actions have been taken on the procedure at institutional level. At the trialogue of 18 October, the institutions have agreed on a joint declaration "Guidelines for legislative proposals related to the 2007-2013 multi-annual financial framework". It allows the EP and Council to proceed to the legislative work pending an agreement on the IIA for the period 2007-2013 as follows:

The EP and Council therefore undertake as follows:

12. the EP will take forward its consideration of individual programmes and, endeavour to complete its first reading;

13. the Council will endeavour to reach partial political agreement on the proposal excluding the budget figures and articles related to financial provisions

14. the two Institutions on the basis of their respective position will start, where appropriate, preliminary discussions on the legislative proposals, with the exception of the articles relating to the budget, financial statements, and other financial provisions in view of reaching a common understanding;

15. after agreement on the IIA, the EP and Council, on the basis of proposals from the Commission, will agree on the individual legislative proposals, including their financial envelopes, pending before the EP and Council and proceed to their final adoption.

16. At its meeting of 27 October, the European Council took note of the "Five proposals to relaunch negotiations".

     At the General Affairs Council of 7 November, the Presidency presented a document where it considers that the last compromise presented by the Luxembourg Presidency "continues to enjoy widespread support towards the agreement in December", although three key issues have to be deepened:

- the structure of EU spending, namely an earmarking from headings 1b and 2, a Globalisation Fund and heading 2

-  modernising the budget notably setting up a timetable and scope for review

-  own resources: proposals should be based on the principle of fair treatment of Member States of comparable levels of prosperity.

17. On 15 November, the Presidency foresees to make a new proposal including a table with figures in view of a discussion in Coreper and at the 21 November General Affairs Council.

On 15/16 December, the Financial Perspective will be on the agenda of the European Council for a possible decision.

18. At EP level, the Conference of Presidents decided on 29 September that financial matters related to the legislative procedures "should be based on, and be compatible with, the figures and guidelines set out in the European Parliament's resolution on Policy Challenges and Budgetary Means of the enlarged Union 2007-2013 (adopted on 8 June 2005)".

19. On 20 October 2005, the President of the Commission sent a letter to the President of the European Parliament, the President-in-Office of the Council and to the Heads of State setting out "some ideas to help launch the final phase of negotiations".

II. Legislation in absence of a Financial Perspective

Back to the Treaty

20. The EU budget has developed within a multi-annual framework since 1988. Part I of the Inter-institutional Agreement contains the table on Financial Perspective which is soft law compared to the EC Treaty (primary law). In absence of FP/IIA, the provisions of the Treaty (articles 270-273) apply with regard to the budgetary procedure.

21. The absence of a Financial Perspective will occur if no agreement can be found either within Council or between EP and Council. There can be no Financial Perspective without EP's agreement. The rapporteur wishes to stress that no agreement between EP and Council on figures will be possible until there is an agreement on the IIA.

22. The present FP/IIA are in force until the end of 2006. Article 26 of the IIA[5] provides for the prolongation of the existing Financial Perspective (see below) unless it is denounced by one of the parties:

Estimation of the evolution of expenditures under art. 26 IIA (commitment appropriations)

EU-GNI at 2004 prices

	2007	2008	2009	2010	2011	2012	2013
% estimation tot. budget over GNI (with CE)	1.07%	1.05%	1.02%	1.00%	0.98%	0.95%	0.93%
Non-compulsory expenditure (NCE)	72 611	72 334	72 075	71 832	71 608	71 400	71 211

23. According to article 26:

a.  the use of this automatic mechanism over the years leads to a reduction of the NCE,

b.  the structure of the current FP is not adequate to highlight the priorities identified by the Commission and shared by the Parliament (i.e. Lisbon strategy),

c.  EP cannot use the appropriations of heading 7 (pre-accession),

d.  the starting point for the prolongation - FP for the year 2006 – is based on EU 25 while the FP for 2007 onwards will be for EU 27.

The rapporteur considers that this alternative is not acceptable as such unless the Council can indicate its openness to find ad hoc solutions to overcome the problems mentioned above.

24. In respect of the procedure set down by the Treaty (art. 272), the non-compulsory expenditure (NCE) is established:

– by Parliament within the Maximum Rate of Increase (MRI) of non compulsory expenditure[6], established on an annual basis by the Commission according to macro-economic data.

– by Parliament and Council that can jointly fix a new MRI to finance the budget.

25. The Treaty scenarios based on an estimated MRI would be a more favourable option for the EP than the strict application of article 26 of the IIA.

Estimation of the evolution of expenditures under art. 272 TUE (commitment appropriations)[7]

EUR mio. in 2004 prices

	2007	2008	2009	2010	2011	2012	2013
% estimation tot. budget over GNI (with CE)	1.11%	1.11%	1.10%	1.08%	1.07%	1.06%	1.05%
total NCE MRI+ BG/RO (commitments)	73 732	75 104	76 473	82 797	84 273	85 822	87 399
total NCE (payments)	65 145	66 357	67 567	73 236	74 541	75 911	77 306

26. As provided by the Financial Regulation, the EU Budget can only be implemented on an existing legal basis, apart from some exceptions.[8] Should the legislative authority (Council or EP and Council) include a certain amount in the legal basis, the budgetary authority should endeavour not to depart from this decision, unless there are justified reasons. In practical terms the respect of the multi-annual envelopes has a limited effect in the annual budget (only the last year of implementation of a programme). In fact, the budgetary authority can adjust the share of the envelope over the period, according to the annual priorities.

Multi-annual programmes and annual budgets

27. As set out above, legislation and budget have over the past 20 years progressively developed under a dependent multi-annual context.

In his working document N° 4 presented to the Temporary Committee on Policy Challenges and Budgetary Means of the enlarged Union 2007-2013[9], the rapporteur had already pointed out the consequences for legislation should no agreement on the financial Perspectives 2007-2013 be reached (point 19): He noted that the multi-annual programming foreseen by the Commission would be possible, but with indicative amounts fixed by the legislative authority and confirmed in the annual budgetary procedure.

28. The rapporteur is fully aware of the advantages obtained by Parliament over the last years through the budgetary cooperation setup in the IIA. However, in case that by mid-2006 (in reality by April 2006 when the Commission needs to prepare the preliminary draft budget for 2007) no agreement is reached on the next Financial Perspective, the rapporteur believes that new ways of institutional co-operation should be found to guarantee the functioning of the EU, the respect of legislation, and EP's political priorities.

29. The rapporteur considers that the financing of multi-annual programmes is not contradictory to annual budgets, provided that the annual envelopes fit within the MRI. This margin could be used in total (3.6% increase per year) for all programmes or it could be used on a more selective basis, according to Parliament's priorities. Currently, the MRI could be exceeded with Council's agreement to adjust the needs at the end of the period of programming if necessary or for unforeseen needs (e.g. CFSP, Tsunami).

30. In each annual budgetary decision, Parliament could guarantee the financing of multi-annual programmes within the MRI and identify the legislative programmes, new legislation, unforeseen events, to be financed by increasing the MRI. An agreement between the Parliament and Council to fix a new MRI is necessary to finance such activities.

31. In a less restricted way, the procedure under art. 272 does not differ too much from the budgetary procedure under the IIA. The legislative authority can continue to include a financial reference in the multi-annual programmes, as long as this annual increase can be financed within the annual MRI there is no problem.

32. The automatic application of the MRI over seven years on the basis of a 3.6% increase per year would guarantee roughly 25% of increase over the period. As an example, research is supposed to increase by 300% in the Commission (and European Parliament) proposals for the period 2007-2013 while Progress increases by 5%, civic participation by 80% respectively.

33. In the event that the legislative authority decides an increase that could be difficult to finance within the MRI (i.e. Research + 300 % in the Commission proposal, CFSP) or to establish a target of expenditure (i.e. Structural Funds), the budgetary authority should agree on a procedure to finance those actions with a new MRI. This possibility could be limited to the last year (or last two years) of application of such programmes.

34. It should not be underestimated that the amount of MRI is established every year on various parameters and is therefore variable.

35. The rapporteur considers that even within article 272 procedure, Parliament could guarantee the financing of all policies (Structural Funds, competitiveness (Lisbon) citizenship, external actions etc.) either within the MRI or through a specific agreement with Council fixing a new MRI. Programmes with fixed amounts would be unalterable while the ones with indicative amounts could be increased or reduced on the basis of political priorities.

III. Conclusions

· Although the institutions will certainly make all efforts to find an agreement on the next Financial Perspective and Inter-institutional Agreement, the possibility of an absence of FP/IIA should be envisaged and the consequences mainly for legislation, anticipated.

· The Treaty provisions (article 272) are more favourable for the European Parliament than the option of prolonging the FP/IIA (article 26).

· Annual budgets and multi-annual programmes are not contradictory.

· Even under the Treaty provisions, a progressive increase based on the limit of the MRI can be ensured for Community legislation and room exists for financing EU legislation.

· In the absence of agreement on the FP/IIA, Parliament and Council, in their double responsibility as legislative and budgetary authorities, could find ad hoc solutions to finance some specific programmes and to "Ring Fence" major policies.

WORKING DOCUMENT No 2 ON THE COMMISSION'S NEW PROPOSALS ON THE FINANCIAL PERSPECTIVE 2007-2013: FIRST COMMENTS

18.11.2005

Introduction

In view of the discussions at the informal summit at Hampton Court (27 October), President Barroso sent a letter dated 20 October to President Borrell, Mr Blair and the Heads of State and Government with "some proposals to help the final phase of negotiations" on the next Financial Perspective 2007-2013. The fact that this letter was sent to Mr Borrell in his capacity of President of the European Parliament confirms the acknowledgement of Parliament's role in this inter- institutional process. President Barroso also presented his ideas before the Conference of Presidents of the European Parliament at its meeting of 20 October.

Since last June, the failure of the European Council to reach an agreement has been a major concern within the Commission. Following the vote of the European Parliament of 8 June, the Commission's initial proposals dated February 2004 seem far beyond reality in terms of contents and timing. Commission's desire for reaching an agreement under the UK Presidency is explicitly stressed in the letter: The possibility of no agreement before March/April 2006 under the Austrian Presidency could endanger the next generation of Community programmes (90% of EU legislation with financial consequences is expiring at the end of 2006), and render more efficient the preparation of PDB for 2007. For the same reason, the Commission asked for the joint declaration "Guidelines for legislative proposals related to the 2007-2013 multi-annual financial framework", in order to accelerate, where possible, the legislative procedure.

The Commission's 'ideas' focus on five topics[10]:

· Increasing resources for growth and jobs

· Meeting the challenge of globalisation: a shock absorber

· Consolidating the current agricultural reforms

· Modernising the budget: a roadmap for review

· Increasing democratic scrutiny and coherence of our external action

The Commission's proposals could be interpreted as taking some distance from the "Prodi package" with a more realistic approach. Some limitative aspects could be interpreted as a positive move towards the EP's negotiating position (Böge report), to which a reference is made in the second paragraph of the introduction.

However, the rapporteur notes that the Commission is not ready to take on board neither Parliament's qualitative nor quantitative requests.

As a general comment even if most of the points have been stressed in the EP resolution, the insistence on the absolute necessity to reach an agreement in December (even at low cost) is probably overstated. President Borrell and the rapporteur Mr. Böge have often expressed the idea that

- from a budgetary point of view, the Treaty will guarantee the adoption of annual budgets,

- an agreement in the European Council is not sufficient to reach an agreement with Parliament,

- no Financial Perspective/Inter-institutional Agreement will be in place without EP agreement, and that

- no agreement on figures will occur without an agreement on the IIA.

The intention of the letter to improve elements accompanying the financial framework points in the direction of Parliament's negotiation position. However, those ideas are trailing behind Parliament's requests, including those to improve the quality of the expenditure.

At its meeting of 7 November, the General Affairs Council examined President Barroso's 'ideas'. The general approach of most delegations was rather sceptical. Another meeting was foreseen for 16 November.

I. Increasing Resources for growth and jobs[11]

1. Commission proposal

"The Union’s core priority is growth and jobs.

Cohesion policy must promote economic modernisation and create growth and jobs. A new approach is needed to the way these policies boost growth.

§ A specific earmarking of funds from cohesion spending would reinforce the drive for growth and jobs. The first step is to identify and ring fence the investment provided under cohesion policy for competitiveness, in particular through research and innovation, human capital, business services, major European infrastructures, improvement of energy efficiency and renewable energies.

§ This contribution should increase in line with the acceleration of the Lisbon strategy. Each Member State should set a target to increase the proportion of cohesion spending devoted directly to competitiveness. This target should be set by Member States above an average minimum of 60% of total cohesion spending.

§ In the run-up to the Spring European Council each year, Member States would report on this spending to the Council and the European Parliament, as an integral part of the reporting mechanisms to comply with the agreed objectives for growth and jobs.

§ A similar mechanism would be established in respect of rural development.

The result of this earmarking would be to increase the share of spending linked to the new Lisbon strategy to at least a third of the EU budget."

2. European Parliament's negotiating position

Paragraph 15, 21 and 52 of the Böge resolution read as follows:

15.  [...] underlines the importance of cohesion policy in achieving the Lisbon goals and helping to bridge the gap between the different territories of the European Union; insists that all resources allocated to cohesion policy should be spent for this purpose;

21.  Considers that the restructuring of the Common Agricultural Policy (CAP) needs to be accompanied by a substantial increase in rural development funds to address the problems of employment and competitiveness in rural areas, in particular in the new Member States; [...] is of the opinion that the Commission's proposal for the budget of the new Rural Development Fund is extremely tight and therefore constitutes an absolute minimum;

52.  Remains concerned that previous innovation and competitiveness programmes have failed to deliver the necessary link between fundamental and applied research and industrial innovation partly due to the fact that the financial resources were rather limited; believes that the support of the European public is indispensable for realising the Lisbon goals; considers that the Commission should propose a simplification of its financial procedures with a view to facilitating the implementation of research policy; considers that financial instruments need to be rethought in a more fine-tuned, targeted way and that the establishment of an ambitious programme for competitiveness and innovation endowed with adequate financial resources is vital for supporting a "prosperity" oriented industrial policy, notably for SMEs, that would successfully capitalise on research through industrial applications, such as technology transfer from universities and research centres into industrial application; [...]

3. Rapporteur's Comments

The Lisbon Strategy has been emphasised and mainly research, innovation and infrastructures. An earmarking of 60% of the overall envelope dedicated to the Cohesion Policy (Heading 1b) would be reserved for competitiveness actions and mainly research but also infrastructure, motorways and airports. Currently about 50% of the funding is already allocated to structural linked to competitiveness.

It is not clear whether all the instruments of the new cohesion policy: convergence, regional competitiveness and employment, European territorial cooperation and the Cohesion Fund, would be concerned or only some of them.

This idea goes in the direction expressed by EP to reinforce the support for the Lisbon strategy. The rapporteur underlines the need to extend the EIB facilities for encouraging growth and competitiveness as clearly stressed in the EP's negotiating position (para.50, last indent) Moreover, this idea has been taken up by President Chirac in his statement before the informal Council of 28 October 2005.

However, the proposal raises some questions: Can it be considered as a substantive change or only as a "window dressing" initiative? Will this measure be compulsory? Will there be a mechanism to suspend the aid to Member States which do not respect this target? How can the economic efficiency of this measure be guaranteed?

The same mechanism should apply to Rural Development with a target percentage of 30% earmarking. This would not be in contradiction to EP's negotiating position, which is in favour of increasing Rural Development, although without earmarking (see para. 21 above):

II. Meeting the challenge of globalisation: a shock absorber

1. Commission Proposal

"A Globalisation Adjustment Fund would offer a European response to help those adjusting to the consequences of globalisation: a sign of solidarity for the many who benefit from openness to the few who face the sudden shock of losing their job. It would provide a swift answer to one-off, clearly defined problems resulting from restructuring. No new bureaucracy is needed: existing instruments and networks could be used, but access to extra resources is necessary.

The Fund would cover training, relocation of workers, outplacement: the costs of action to help find a new job. Clear criteria on the nature of the crisis and the scale of the eligible costs will be set out. Not all restructuring would qualify: this would be a crisis mechanism to be used only to address significant economic and social shocks related to globalisation. It should only intervene if a threshold is reached, defined in terms of the proportion of workers hit by redundancy in the sector and the region concerned, and the local jobless rate. To be cost-effective, this instrument will be delivered through existing Structural Fund instruments and using the same rules.

This resource would lie outside the financial framework (as already the case for the EU Solidarity Fund) and would be mobilised only when needed. Needless to say, the decision on whether to use this option would rest with Parliament and Council."

2. European Parliament's negotiating position

The European Parliament's resolution (see par. 46 in annex) foresees different kinds of flexibilities to cover different needs (Reserve for Competitiveness, Reserve for Cohesion, Emergency Aid Reserve, Solidarity Reserve, Reserve for Loans Guarantee and Flexibility Reserve). All of them are to be mobilised after decision by EP and Council and are to be financed, when necessary, outside the ceiling of the Financial Perspective by an increase in funding and based on budgetary discipline (see par. 45 in Annex).

3. Rapporteur's Comments

The new proposal by the Commission is apparently replacing the initial Growth Adjustment Fund which was to be financed from unused appropriations and has given another scope to the new instrument.

The rapporteur can share the objective expressed by the Commission to provide for a flexibility mechanism, although he disagrees with the limitation to one heading (1b). The European Parliament will certainly not accept an Inter-institutional Agreement with a flexibility mechanism reduced to one heading, especially if combined with a restrictive financial framework.

III. Consolidating the current agricultural reforms

1. Commission Proposal

"In 2002, an agreement was reached on a budget for the Common Agricultural Policy until 2013, going hand in hand with a fundamental reform of agricultural policy, which is still being implemented and spread to the full range of sectors. This agreement should be fully respected.

One of the key reforms was to introduce more dynamism into agricultural spending by shifting funds from direct aids for farmers to rural development. Increasing the pace of these shifts by 1 per cent a year from 2009 would release extra funds to have a direct impact on growth and jobs in rural communities. It would also boost the funding for the Union’s innovative conservation network, NATURA 2000."

2. European Parliament's negotiating position

The EP negotiating position is also very clear concerning the respect of the 2002 agreement. It can be reminded that the EP resolution has proposed the possibility to cover the cost for agriculture for Bulgaria and Romania within the so called "Brussels ceiling". Par. 49, 1st indent reads as follows:

49.  [...]; is concerned that, in the absence of political and financial agreement, the funding of market-related measures and direct payments for Bulgaria and Romania above the ceiling agreed by the Council in 2002 for EU-25 remains in doubt, and proposes therefore that, in order to guarantee the level of support set by the decision of the European Council of October 2002, the possibility of a phasing-in process of compulsory co-financing should be initiated within EU-15 if the needs exceed the forecasts;

This proposal is not contradictory with EP's negotiating position in favour of ring-fencing the funding for Natura 2000. Par. 22 reads as follows:

22.  [...] insists in this context on a legally binding mechanism which guarantees proper implementation and EU funding for Natura 2000 at the level of the EU's estimated contribution to the envisaged overall amount, which is approximately EUR 6.1 billion for the EU-25 per year; insists that an amount of EUR 21 billion for Natura 2000 should therefore be earmarked ("ring-fenced") in the Financial Perspective within the respective areas; calls for the funding of measures to implement Natura 2000 under Heading 2 of the Financial Perspective; calls for the funding of Natura 2000 activities and management which cannot be financed by other instruments within the Life+ programme; calls on the Commission in this context to examine the possible integration of Natura 2000 in other funds;

3. Rapporteur's Comments

The acceleration of the modulation (shift between market measures and income support and rural development), even if it will have a limited effect on financial terms, will increase the part of co-financing of agriculture but at the same time it will reduce the direct support to farmers. The rapporteur agrees on the fact that the Lisbon strategy should not be limited to heading 1a and 1b. However, he considers that, as stressed in the EP's negotiating position, without additional co-financing, the Commission's proposal would imply a reduction of revenue for the EU farmers.

This measure appears to be a stealth method of reneging on the 2002 agreement.

IV. Modernising the budget: a roadmap for review

1. Commission proposal

"There is a broad consensus on the need for a fundamental review of the EU budget. This will take time, but it also needs to be carefully planned: the European Council should set out the precise parameters and the timetable for this review.

There is already a built-in agenda of sectoral reviews pre-programmed for the coming years: for the operation of the CAP in 2008, and for the Lisbon strategy in the same year. But a more over-arching review is also needed.

The Union should commit itself to carrying out a comprehensive review of all aspects of the organisation of the EU budget – expenditure, revenue and structure – with a view to ensuring that the budget is equipped to respond to the challenges of the future. The review would be launched by a White Paper on modernisation of spending and revenue to be put forward by the Commission early in 2009."

2. European Parliament's negotiating position

Several reviews are foreseen during the period for agriculture, for Lisbon. The Commission considers that a global review should take place in two phases and without involving the Member States:

a.  early 2009: presentation of a White Paper followed by a debate in the institutions (EP and Council)

b.  2010-2013: Second phase for implementation under the mandates of a newly elected European Parliament and newly appointed Commission.

This proposal does not contradict the European Parliament's negotiating position.

Par. 33 reads as follows:

33.  Notes that the Commission has proposed a financial framework of 7 years' duration; reiterates, for reasons of democratic responsibility and accountability, its position in favour of a parallelism between the duration of the Financial Perspective and the five-year mandates of the European Parliament and of the Commission, and recalls that the Constitution provides for a duration for the future MFF of a minimum of five years, which would allow for co-ordination with the terms of office of the Commission and of the European Parliament; points out that the duration of the legislative proposals could remain independent from the timeframe of the Financial Perspective

3. Rapporteur's Comments

The rapporteur underlines that such a proposal which would allow the new Commission to propose some adjustments in the White Paper and the newly elected Parliament to have a say on the current Financial Perspective would have no effect on the Financial Perspective.

The proposed review is an ineffective tool to be able to re-orient or adjust the FP if necessary. EP would prefer a genuine revision clause or a shorter period.

At the same time this proposal will reduce the credibility of the Financial Perspective after 2010. This could therefore open a reflection, coherent with par. 33 of the EP resolution, on the possibility to shorten the period of FP even if part of the legislation could be adopted until 2013 and by way of example, with specific provisions for agricultural cohesion and research.

V. Increasing democratic scrutiny and coherence of our external action

1. Commission Proposal

"In the past weeks the Union has made a series of bold commitments to promote the Millennium Development Goals. These commitments have a price and we have decided to pay the bill. Now it will be for the Union to deliver. The level discussed in the European Council are not sufficient to meet these commitments. On the other hand, it cannot be envisaged to withdraw our commitments, or delay their implementation, especially regarding the poorest countries.

The split in EU spending between mainstream budget spending and the European Development Fund (EDF) is detrimental to the coherence of the EU external action. 'Budgetisation' of the EDF remains the best option. If this proves impossible, a step towards it would be to integrate the EDF into the traditional mechanisms for external spending, while retaining a separate repartition key during a transitional period. Such a compromise would require that appropriate provisions would guarantee the European Parliament’s rights in this area.

In order to preserve the proper role of the European Parliament in the simplification and enhanced effectiveness of the Union’s external action, a specific inter-institutional agreement should be agreed to ensure a proper role for Parliament in policy definition for external spending"

2. European Parliament's negotiating position

Concerning EDF, the European Parliament's position is in favour of 'budgetisation' but not to the detriment of other (including new) policies. Para. 49 reads:

49   [...] recalls that the European Parliament has strongly supported the integration of the EDF into the general budget on the basis of the principle of the unity of the budget and for reasons of transparency, but observes that, in financial terms, the budgetisation should not jeopardise other policies; [...]

The Commission seems to support EP's position for more money and greater EP involvement, as requested by EP in par. 28 and 30. The rapporteur has often mentioned that the link between the two should be a strong point for the negotiations.

28.  Insists on a level of funding for external actions sufficient to enable the EU to become a real "global partner" in the world and to provide it with the means for its political ambitions and its international commitments; [...]

30.  Calls for coherence between the provisions of proposed legislative instruments and the likely forthcoming provisions of the Constitution, enhancing in all cases effective democratic participation of the European Parliament in decision-making, including the adoption and revision of multi-annual strategic frameworks; points to the particular need for greater participation of the European Parliament in decisions on CFSP actions, especially where these have budgetary implications; in this regard, considers it indispensable to develop further the current practices for information and consultation of Parliament in the context of CFSP; considers that allocation of funding should fall under the "normal" EU budget and thus under the discharge authority of the EP;

3. Rapporteur's Comments

The shortage of appropriations of the Council's last compromise is put in evidence. The EDF should be budgetised: some instruments giving more power (control) to the EP on implementation will be proposed for the Inter-institutional Agreement.

Parliament has emphasised that the reduction of the number of instruments for external actions from 38 to 4 combined with the non-entry into force of the Constitution, which would extend EP's powers in this area, is not acceptable. The rapporteur has often raised the need for a sort of call-back clause and an Inter-institutional Agreement to make the new presentation of external instruments acceptable for EP. The negotiating position could be: 'more money, more power'.

Conclusions

The Commission proposals could be considered as a positive move towards the European Parliament's negotiating position on a limitative number of aspects, notably, the need for flexibility, for revision and for ensuring EP's rights over external programmes, although they still trail behind that of the EP.

They are not taking into account the different flexibility reserves for covering unforeseen needs nor of the qualitative conditions proposed by Parliament (par. 46 and 50, see annex) such as the Financial Regulation, simplification of administrative burden, certification by Member States, simplification of the new instruments of financing and co-financing.

The rapporteur recalls that these elements are a non-negotiable part of the overall agreement on the Financial Perspective/Inter-institutional Agreement.

The rapporteur regrets that until now it has been impossible to open the negotiations on figures and the provisions of the IIA which will certainly not facilitate the agreement with the European Parliament. Both the Commission and the Council should be aware that there can be no agreement on the next FP/IIA without agreement with the European Parliament, and that EP agreement will be conditional on its agreement on the IIA, which should take on board qualitative elements as well.

The rapporteur already mentioned that the Commission could propose a revised version of the IIA to facilitate the negotiations.

ANNEX

European Parliament resolution on Policy Challenges and Budgetary Means of the enlarged Union 2007-2013 (2004/2209(INI)) of 8 June 2005[12]

45.                 Stresses that the principle of creating reserves for flexibility is a non-negotiable part of the overall agreement on the financial framework; considers that the level of flexibility should be closely linked to the global ceiling of the financial framework and that the amounts devoted to unforeseen needs should:

- be placed outside the financial framework,

- be mobilised pursuant to a Commission proposal by a decision of the budgetary authority,

- be financed:

· through re-programming within the headings,

· through the redeployment of unused appropriations within and across headings,

· through new appropriations in the event that the first two means are insufficient;

Asks that in the event of new appropriations, the funds should be called from Members States only after the decision has been taken, reducing to an absolute minimum the burden for taxpayers; proposes that the budgetary authority should agree on a simplified procedure to speed up the implementation of each decision;

46.          Considers that this overall flexibility should represent 0.03% of GNI (in line with point 20 of the Interinstitutional Agreement of 6 May 1999) and should be used for attainment of the following objectives:

-              Reserve for competitiveness (up to a maximum of EUR 7 billion):

new instrument replacing the Growth Adjustment Fund, proposed by the Commission, to be mobilised to boost growth and competitiveness and to allow the Union to react to economic changes;

-              Reserve for cohesion (up to a maximum of EUR 3 billion):

new instrument aiming to develop a mechanism to be mobilised to react to economic shocks and abrupt changes in EU regions and Member States eligible under Heading 1b) even through the reprogramming of unused appropriations;

-              Reserve: Emergency Aid (up to a maximum of EUR 1.5 billion):

existing instrument to be placed outside the Financial Perspective;

-              Reserve: Solidarity Fund (up to a maximum of EUR 6.2 billion)

existing instrument that is already outside the Financial Perspective and that the Commission proposes to budget under the ceiling;

-              Reserve for loans guarantee (up to a maximum of EUR 3.0 billion):

part of this reserve existed under Heading 4; the principle should be extended to guarantee the financing of transport and infrastructure projects; this instrument should be placed outside the Financial Perspective;

-              Reserve for flexibility (up to a maximum of EUR 3.5 billion):

               existing instrument already placed outside the Financial Perspective and with an increased amount of EUR 500 million;

50.          Believes that the negotiations should not only focus on percentages and figures but should also introduce other elements such as the principles of equity and gradualness which are fundamental to the EU, with a view to striking a balance which can meet the expectations of both Member States and citizens; calls on the Commission and the Council to consider these elements as sine qua non conditions for reaching an agreement with the European Parliament; states in this regard that it:

               -              Aspects linked to the Constitution:

               is determined to reject any legal commitment which would have a negative binding effect once the Constitution is in force; therefore urges the Council and the Commission to conclude a gentleman's agreement to safeguard the legislative powers of Parliament and to introduce a revision clause for legislative acts for which the procedure will change with the entry into force of the Constitution, increasing the role of the European Parliament; urges the Commission and the Council to agree on such a commitment in the next Interinstitutional Agreement,

               -              Financial Regulation:

               is convinced that the principles of sound management contained in the Financial Regulation and its implementing rules need to be reviewed to facilitate implementation and accelerate repayments (or reimbursements) to Member States; urges the Commission and the Council to agree on a recasting of the provisions which must facilitate implementation and simplify procedures,

-              Administrative Burden:

stresses that the Commission should take action to simplify and improve the effectiveness of administrative management with regard to the implementation of Community programmes for its own services, Member States and final beneficiaries, especially as regards small scale projects; considers that a thorough analysis of the effectiveness of the administrative management of Community legislation should be made on each of these four levels, thus identifying the possibilities for increasing the effectiveness and efficiency of the use of administrative costs; proposes that this analysis should apply globally to the whole budget;

               -              Certification by Member States:

considers that the European Parliament, as part of the budgetary authority, has a responsibility to optimise the implementation of funding allocated by the Member States to the EU budget; is determined to improve the implementation of the programmes to be financed under the next financial framework; urges the Member States to provide a certification of their financial commitments for all policies run under shared competencies through a formal ex-ante disclosure swatement and an annual ex-post declaration of assurance, made by the Member States' highest political and managing authority (Finance Minister); in consequence, asks the Commission to introduce the appropriate mechanisms to suspend payments in the event of non-compliance with this request; is not ready to propose any significant increases in funding to programmes without guarantees by the Member States that they will commit the appropriations; considers the acceptance of the concept of "disclosure statements" to be a condition for the European Parliament's consent to a new Interinstitutional Agreement on the Financial Perspective;

               -              Own resources and correction mechanism:

               endorses the conclusions of the European Council of December 2004 that the negotiations on the European Union's expenditure must be seen in an overall context including the question of own resources, the correction mechanism and the examination of a possible simplification of the system; calls for a revision of the own resources system which leads in the short term to a fairer distribution of net burdens and establishes, before the end of the next Financial Perspective, an independent EU funding system; proposes that the work of preparing such a new system should be conferred on an interparliamentary conference, involving the European Parliament and the national parliaments, in keeping with the spirit of the protocol to the Constitution on the role of the national parliaments,

               -              Financial instruments and co-financing

asks the Commission to make proposals to accompany the implementation of all common policies with new financial instruments and co-financing mechanisms; these instruments should address market failures and act as catalysts for private investors; budget optimisation and a high leverage effect should be key objectives, to be achieved, in particular, by SME guarantee instruments, but also by targeted venture capital support, including to business angels networks and technology transfer;

WORKING DOCUMENT No 3 ON EP KEY POINTS FOR THE NEGOTIATIONS WITH THE COUNCIL BASED ON THE EUROPEAN PARLIAMENT'S NEGOTIATING POSITION OF 8 JUNE 2005

24.1.2006

At the European Council of 15-16 December 2005, the European Council finally reached an agreement on the next Financial Perspective.

Para. 7 of the conclusions of the European Council of 15-16 December 2005 reads as follows:

"Building on the institutional dialogue to date, the European Council calls on the Council, on the basis of a common position and subject to acceptable terms being attainable, to reach agreement with the European Parliament and Commission on a new IIA reflecting the outcome of these conclusions. In this context, the European Council takes note that the Commission will make concrete proposals in order to increase the flexibility of the financial framework."

On 18 January 2006, the European Parliament adopted a resolution, of which the following points summarise the spirit for the negotiations:

"Rejects the European Council’s conclusions in their current form, because they do not guarantee an EU budget which will enhance prosperity, competitiveness, solidarity, cohesion and security in the future, in compliance with policies already decided by the Council itself; …"

"Underlines the importance it attaches to a higher degree of flexibility;"

"Is willing to enter into constructive negotiations with the Council on the basis of respective positions provided the Austrian Presidency is entrusted with a real negotiating mandate; is determined to defend the quantitative, structural and qualitative elements of its negotiating position and to enhance the European dimension of agricultural, internal and external policies;"

On 18 January 2006 also, President Borrell, President Barroso and Chancellor Schüssel officially opened the negotiations between the three institutions. The first trialogue took place on 23 January.

At his preliminary stage, the rapporteur has found it useful outline the major issues of EP's negotiating position (Part I), as well as present a list of key points for the new Interinstitutional Agreement (Part II).

Part I: A negotiating position based on three pillars

1. Matching political priorities and financial needs

The political priorities jointly defined by the institutions for the period of the next financial framework 2007-2013 must be sufficiently financed. The policies dedicated to fostering growth, employment and competitiveness (Lisbon agenda, research and development, lifelong learning), internal security and citizenship and the policies allowing the Union to comply with its international role (ENPI, IPA, DCECI) are as important as those ensuring cohesion and reflecting the solidarity between the Member states. These policies stand for prosperity, solidarity and security and reflect the modernisation of the EU-budget.

2. Improving the budget structure through more flexibility

a. Ensuring the Union's capacity to react to new needs and challenges in a fast developing world

It is of utmost importance to establish an effective multi-annual flexibility mechanism allowing the Union to mobilise additional funds, provided that this is decided jointly by the Council and the Parliament. Such a mechanism must be financed outside the financial framework and be applicable to different purposes e.g. as a reaction to economic developments, disasters and crises inside and outside the EU, or new unforeseen external responsibilities. The tighter the financial framework, the greater the need to equip the Union with such tools.

b. Introducing new financial instruments

Funding incentives should be increased through EIB-EIF facilities for TEN's. The introduction of new or the variation of existing co-financing mechanisms should be envisaged to fine-tune the balance between Member states and to gain some additional margin of manoeuvre in the budget.

c. Setting up an effective framework for a revision

It must be ensured that any revision or review mechanism for the period 2007-2013 is based on a positive, binding decision of both arms of the budgetary authority with effect to this period. Such a mechanism must contain a general clause of withdrawal for both institutions. Without a binding mechanism, the duration of the financial framework must end in 2011.

3. Improving the quality of implementation of the budget, the access to Community programmes and democratic decision making

a. Better execution of EU-programmes and the EU-budget

Without access to the Community programmes and a more userfriendly execution of the budget, the Union will not reach the people and many policies will not have the expected effects. The key to an easier access to Community programmes and a simpler budget execution lies with the reform of the Financial Regulation, the manual how to run the Union's programmes and budget. A full conciliation procedure and a calendar for the revision of the Financial Regulation must be established.

b. Ensuring a democratic decision making in the external programmes

The new generation of programmes in the external policies now consists of 6 instead of more than 40 multi-annual programmes, of which many were co-decided by the Council and the Parliament. The Parliament insists on being fully involved in the legislative process both in the framework regulation and in the multi-annual indicative framework (MIF). The involvement of the Parliament in the adoption of strategy papers and multi-annual indicative programmes including a call back right for the Parliament should be subject to an inter-institutional agreement .

c. Strengthening the responsibility of Member States

80% of the budget is spent by the Member States. The EP as discharge authority demands that the national/local authorities "certify" the management of Community funds.

A procedure and a timetable to improve the modalities of certification by Member States for the implementation of policies run under shared competence (declaration of assurance) has to be defined.

Part II: Key points for the Interinstitutional Agreement

In its resolution of 1 December 2005, the European Parliament:

"Invites the Commission to submit a formal revised proposal of the Interinstitutional Agreement which would incorporate its proposals on reserves and flexibility and other qualitative points..."

The Commission will present a revised version of the IIA on 1 February 2006. The list of points below aims to facilitate the Commission to identify the priorities and requests of the Parliament.

1. Flexibility

EP negotiating position

46.          Considers that this overall flexibility should represent 0.03% of GNI (in line with point 20 of the Interinstitutional Agreement of 6 May 1999) and should be used for attainment of the following objectives:

-              Reserve for competitiveness (up to a maximum of EUR 7 billion):
new instrument replacing the Growth Adjustment Fund, proposed by the Commission, to be mobilised to boost growth and competitiveness and to allow the Union to react to economic changes;

-              Reserve for cohesion (up to a maximum of EUR 3 billion):
new instrument aiming to develop a mechanism to be mobilised to react to economic shocks and abrupt changes in EU regions and Member States eligible under Heading 1b) even through the reprogramming of unused appropriations;

-              Reserve: Emergency Aid (up to a maximum of EUR 1.5 billion):
existing instrument to be placed outside the Financial Perspective;

-              Reserve: Solidarity Fund (up to a maximum of EUR 6.2 billion)
existing instrument that is already outside the Financial Perspective and that the Commission proposes to budget under the ceiling;

-              Reserve for loans guarantee (up to a maximum of EUR 3.0 billion):
part of this reserve existed under Heading 4; the principle should be extended to guarantee the financing of transport and infrastructure projects; this instrument should be placed outside the Financial Perspective;

-              Reserve for flexibility (up to a maximum of EUR 3.5 billion):
existing instrument already placed outside the Financial Perspective and with an increased amount of EUR 500 million;

Rapporteur's proposal

The creation of reserves for flexibility should be an integral part of the overall Interinstitutional Agreement.. The reserves for flexibility are placed outside the financial framework. The global amount for flexibility should represent up to 0.03% of EU cumulated GNI over a seven years period

The different flexibility reserves are created as follows:

§ reserve for competitiveness: up to a maximum of EUR 7 billion under heading 1a);

§ reserve for cohesion: up to a maximum of EUR 3 billion under heading 1b);

§ reserve for the Solidarity Fund up to a maximum of EUR 6.2 billion under heading 3;

§ reserve for emergency aid: up to a maximum of EUR 1.5 billion under heading 4;

§ reserve for loans guarantee: up to a maximum of EUR 3 billion under heading 4.

In addition to those reserves, a non allocated reserve for flexibility up to a maximum of EUR 3.5 billion is created for non-programmed actions and unforeseen events.

The decision to mobilise a reserve for flexibility will be taken jointly by the two arms of the budgetary authority.

2. Financial Regulation

EP negotiating position

50.      […]- Financial Regulation:
is convinced that the principles of sound management contained in the Financial Regulation and its implementing rules need to be reviewed to facilitate implementation and accelerate repayments (or reimbursements) to Member States; urges the Commission and the Council to agree on a recasting of the provisions which must facilitate implementation and simplify procedures,

Rapporteur's proposal

The Interinstitutional Agreement is used as a mean to secure the conciliation procedure and to guarantee a number of key elements with the aim of facilitating the implementation of the Budget.

Council should agree to proceed according to the conciliation procedure foreseen by the joint 1975 declaration already used for the 2002 revision in order to involve the two arms of the budgetary authority on an equal footing.

3. Certification by Member States

EP negotiating position

50.          […]

- Certification by Member States:

considers that the European Parliament, as part of the budgetary authority, has a responsibility to optimise the implementation of funding allocated by the Member States to the EU budget; is determined to improve the implementation of the programmes to be financed under the next financial framework; urges the Member States to provide a certification of their financial commitments for all policies run under shared competencies through a formal ex-ante disclosure statement and an annual ex-post declaration of assurance, made by the Member States' highest political and managing authority (Finance Minister); in consequence, asks the Commission to introduce the appropriate mechanisms to suspend payments in the event of non-compliance with this request; is not ready to propose any significant increases in funding to programmes without guarantees by the Member States that they will commit the appropriations; considers the acceptance of the concept of "disclosure statements" to be a condition for the European Parliament's consent to a new Interinstitutional Agreement on the Financial Perspective;

Rapporteur's proposal

The Interinstitutional Agreement is used as a mean to secure the procedure and the timetable.

The Commission has presented an action plan (COM(2006)009) which could be a step in the right direction. Members States should identify the national bodies to be responsible and accountable for national declarations of funds from the EU budget spent for policies run under shared competences.

4. New financial instruments

EP negotiating position

50.          […]

- Financial instruments and co-financing

asks the Commission to make proposals to accompany the implementation of all common policies with new financial instruments and co-financing mechanisms; these instruments should address market failures and act as catalysts for private investors; budget optimisation and a high leverage effect should be key objectives, to be achieved, in particular, by SME guarantee instruments, but also by targeted venture capital support, including to business angels networks and technology transfer;

Rapporteur's proposal

The institutions agree to encourage all types of financial instruments acting as catalysts for public and private investors. The Commission should make appropriate proposals, in line with point 11 of the conclusions.

EIB loans represent in general about one third of actual investments by catalysing other resources of the public and private sector. The EIB financial support combined with EU budget in areas such as competitiveness, SMEs, TENs or Research and Innovation could create an important leverage effect by boosting investments.

5. Review clause

EP negotiating position

33.          […]
- Duration

Points out that the duration of the legislative proposals could remain independent from the timeframe of the Financial Perspective; therefore requests its delegation negotiating the Interinstitutional Agreement to insist that the future Interinstitutional Agreement include provisions guaranteeing a longer (up to 7 years) duration for multi-annual programmes, compared to the duration of the future financial perspective, in particular for major policies such as agricultural policy, structural and cohesion policy and research;

Rapporteur's proposal

The IIA, including the annex (table on Financial Perspective) should be subject to a revision clause to make the necessary adjustment in a fast developing environment and to redeploy the spending priorities if needed.

On a mid-term basis, the Commission undertake a full, wide-ranging review covering all aspects of the Financial Perspective, own resources and expenditure with a clearly defined role for the European Parliament, as indicated by the European Council.

6. Reforming the system of own resources

EP negotiating position

50.          […]

- Own resources and correction mechanism:

endorses the conclusions of the European Council of December 2004 that the negotiations on the European Union's expenditure must be seen in an overall context including the question of own resources, the correction mechanism and the examination of a possible simplification of the system; calls for a revision of the own resources system which leads in the short term to a fairer distribution of net burdens and establishes, before the end of the next Financial Perspective, an independent EU funding system; proposes that the work of preparing such a new system should be conferred on an interparliamentary conference, involving the European Parliament and the national parliaments, in keeping with the spirit of the protocol to the Constitution on the role of the national parliaments,

Rapporteur's proposal

The European Union should have a transparent and independent own resources system to replace the existing one. The preparatory work for setting up such a system should be conferred to a conference involving the European Parliament and the national parliaments.

7. Agencies 

EP negotiating position

39.          […]

- Agencies:

Calls for an approach similar to that requested for the Commission's administrative expenditure, based on the establishment of a binding ceiling for the agencies, outside the Financial Perspective table, which can be increased only by a decision of the budgetary authority using all means offered by the future interinstitutional agreement; intends by these means to improve control and transparency over the agencies without adverse effects on the programmes;

Rapporteur's proposal

A binding ceiling should be created for the agencies under each heading concerned as a reference outside the table of the financial framework to ringfence the agencies and the Community programmes. In this way, the increase of funds for the agencies (expansion or creation of new agencies) will not reduce operational programmes.

8. Administrative expenditure

EP negotiating position

38.          Is willing to maintain a structure which facilitates control by the budgetary authority over the Commission's administrative expenditure and is therefore against the proposal to remove this expenditure from Heading 5; considers nevertheless that the Activity-Based Budgeting (ABB) system introduced for the budgetary nomenclature should be preserved and further developed; is therefore in favour of leaving the Commission's administrative expenditure within each policy area but of establishing a binding ceiling outside the Financial Perspective table, with the possibility for this ceiling to be increased only by a decision of the budgetary authority, using any means offered by the future Interinstitutional Agreement; stresses that budgetary rigour should be upheld by all the EU institutions;

Rapporteur's proposal

Administrative expenditure should be maintained in heading 5. A specific heading for all administrative expenditure is created for reasons of transparency, but the ABB approach should be maintained.

9. Democratic scrutiny and EP's legislative powers

EP negotiating position

30.          […]

- External Programmes:

Calls for coherence between the provisions of proposed legislative instruments and the likely forthcoming provisions of the Constitutional Treaty, enhancing in all cases effective democratic participation of the European Parliament in decision-making, including the adoption and revision of multi-annual strategic framework

Rapporteur's proposal

The restructuring of the external instruments should not reduce the European Parliament's prerogatives notably on the establishment of a multi-annual indicative framework (MIF) and the strategy papers.

EP's legislative powers should not be jeopardised by pre-allocated funds under cohesion.

A new procedure (trialogues twice a year) is established to ensure that the European Parliament is involved in setting up priorities and appropriate resources in the area of Freedom, Security and Justice.

10. EDF

EP negotiating position

49.          - European Development Fund (EDF):

recalls that the European Parliament has strongly supported the integration of the EDF into the general budget on the basis of the principle of the unity of the budget and for reasons of transparency, but observes that, in financial terms, the budgetisation should not jeopardise other policies; underlines therefore that the budgetisation is only acceptable if the overall ceiling of the financial framework brings additional resources into the general budget; points out that the appropriations budgeted should be ring-fenced to avoid any negative effect on the ACP countries; stresses that the principle of partnership with the ACP countries must be respected when the EDF is integrated into the general budget,

Rapporteur's proposal

The budgetisation of the European Development Fund could be an element of the negotiations. The ceiling of the financial framework should be adjusted accordingly.

11. Consolidation of budgetary discipline

Rapporteur's proposal

The renewal of the Interinstitutional Agreement should maintain all existing provisions on budgetary discipline such as the procedure on CFSP and the joint agreement on financial programming.

WORKING DOCUMENT N° 4: ON FIRST REACTION TO THE REVISED VERSION OF THE INTERINSTITUTIONAL AGREEMENT PROPOSED BY THE COMMISSION ON 1 FEBRUARY 2006

2.2.2006

INTRODUCTION

Following the request made by the European Parliament in its resolution voted on 1 December 2005, the Commission has adopted a revised version of the Interinstitutional Agreement on 1 February 2006. This document was accompanied by a letter from President Barroso to President Borrell and to Chancellor Schüssel.

With a view to facilitating the negotiations on the Interinstitutional Agreement, the rapporteur in his working document no 3[13], has presented 11 key points reflecting the Parliament's political priorities based on its negotiating position. In the same document, the rapporteur has also recalled that the European Parliament's priorities for the next FP-IIA are both of a quantitative and qualitative nature. The 'key points' for the IIA are of fundamental importance in terms of the global agreement the European Parliament wants to achieve.

These points are only a part of the European Parliament's requests. The European Parliament will have other amendments on the text of the agreement. The rapporteur is mindful that the whole Interinstitutional Agreement is a complement of the Financial Perspective. The more the financial framework is limited the more the European Parliament must insist on effectiveness of the procedures and contents of the IIA. The approach that the parts of the IIA which are not changed would be automatically accepted, will not be supported by the European Parliament.

Out of 11 key points relating to major quantitative and qualitative elements, the revised draft IIA[14] has taken on board only two of them in partial form:

· flexibility: the annual amount of which is increased from 200 to 700 million per year over the period and a broader scope covering unforeseen needs but also multi-annual requirements (4,9 billion over the period). This amount is far from what the European Parliament had proposed.

No mention is made regarding facilitation of the heavy mobilisation procedure. Such flexibility instruments will not enable to implement systematically underfinanced programmes.

· the Solidarity Fund (up to 1 billion per year) has been taken out of the financial framework. The Globalisation Fund (up to 500 million per year) which is a request from the Council also remains outside.

Concerning the other 'key points', they are not reflected in the revised version of the IIA.

Most of them are mentioned in the letter referred to in the opening paragraph with a rather weak formulation and no clear commitment by the Commission in favour of Parliament's requests or prerogatives compared to Council's priorities.

This also applies to the review clause which will take the form of a White Paper to be presented by the Commission in 2008-2009 covering all aspects of EU spending and resources. No mention is made of the European Parliament's role in the decision of extension, modification or confirmation of the provisions in place. Furthermore no mention is made of a binding roadmap.

In this regard, the rapporteur considers that the Commission revised proposal cannot serve as the basis for fair negotiations between the European Parliament and Council. The rapporteur is of the opinion that the Commission did not show sufficient leadership concerning the IIA.

Mindful of the need to avoid any delay in the preparatory work for the negotiations, the rapporteur gives indications on how, in his opinion, the 'key points' should be treated in the IIA to reflect the European Parliament's priorities. A full revised version of the IIA, covering all points, will be presented as a second step on time for the next trialogue.

1. Flexibility

The Institutions acknowledge that flexibility mechanisms are necessary to face unforeseen needs and unexpected crises during the next financial period, as well as to finance non-programmed actions. The creation of reserves for flexibility is an integral part of the overall Interinstitutional Agreement. The reserves for flexibility are placed outside the financial framework. The global amount for flexibility should represent up to 0.03% of EU cumulated GNI over a seven years period.

Should the need for financing an unforeseen event or a new initiative occur, the Commission will indicate whether it is feasible for either a re-programming within the headings, or to redeploy unused appropriations within and across all headings. In case the first two possibilities prove to be insufficient the Commission will propose to call new appropriations, through the mobilization of the reserve for flexibility.

The different flexibility reserves are created as follows:

· reserve for competitiveness: up to a maximum of EUR 7 billion under heading 1a);

· reserve for cohesion: up to a maximum of EUR 3 billion under heading 1b);

· reserve for the Solidarity Fund up to a maximum of EUR 6.2 billion under heading 3;

· reserve for emergency aid: up to a maximum of EUR 1.5 billion under heading 4;

· reserve for loans guarantee: up to a maximum of EUR 3 billion under heading 4.

In addition to those reserves, a non allocated reserve for flexibility up to a maximum of EUR 3.5 billion is created for non-programmed actions and unforeseen events.

The Commission will make the proposal for the mobilisation of the flexibility reserves after it has examined the following possibilities:

- re-programming within the heading concerned

- redeployment of unused appropriations within and across headings

- new appropriations if the first two possibilities are insufficient

In case of a mobilization of the Flexibility Instrument below an amount of 200 million per annum and in case of non agreement of the two arms of the budgetary authority, the Council may, acting by qualified majority, decide on compulsory expenditures and the European Parliament on non compulsory expenditure, following the procedures defined in Art. 272 of the Treaty.

2. Financial Regulation

The Institutions acknowledge the responsibility to ensure a better implementation of the Budget and to improve the visibility and the benefit of EU funding towards the citizens without putting in question the progress achieved in the last recasting. They undertake a deep review of the regulations in force[15], both the principles and their implementing rules, in view of simplifying the procedures and facilitating the implementation of the Budget.

The Institutions agree on the aforementioned elements in the IIA and agree to proceed with further legislative procedure, according to a real conciliation procedure which puts the two arms of the budgetary authority on an equal footing.

3. Certification by Member States

Before September 2006 the Commission will present the list of the national bodies that could be entrusted to give a certification on behalf of the Member States on the European funds spent for policies run under shared competences.

Before December 2006 the Court of Auditors will give an opinion on the national bodies indicated by the Commission.

The European Parliament and the Council will give their opinion on the Commission list by April 2007.

On the basis of the different opinions, the budgetary authority will define, in concert with the Commission and the Court of Auditors, the procedure to be followed by Member States to give certification of the accounts to the Commission and to the Court of Auditors.

4. New financial instruments

The Institutions agree that the introduction of co-financing mechanisms is necessary to reinforce the leverage effect of the EU budget by increasing the funding incentive. They agree to encourage all types of financial instruments acting as catalysts for public and private investors. On this basis the Commission should make appropriate proposals.

EIB risk capital will be increased up to EUR 10 billion over the period 2007-2013. The Commission will report back to the budgetary authority about the activities financed by the EIB-EIF to support investments related to EU programmes (mainly TENs, Research and SMEs).

5. Review clause

The present agreement, including the annex (with the table on Financial Perspective) is subject to a revision clause to make the necessary adjustment in a fast developing environment and to redeploy the spending priorities if needed.

By the end of 2008, the Commission takes the firm commitment to undertake a full, wide-ranging review covering all aspects of the Financial Perspective, own resources and expenditure with a clearly defined role for the European Parliament.

An ad hoc working group composed by representatives of the budgetary authority is created to keep the Budgetary Authority informed of the progress achieved in this review and where appropriate to get its opinion, a progress report should be presented to the Budgetary Authority every year before the July Conciliation.

Both arms of the budgetary authority should decide on the confirmation, modification or rejection of the review and of the IIA at the latest by March 2010.

6. Reforming the system of own resources

The Institutions acknowledge the need to give the European Union transparent and independent own resources to replace the existing system. They agree that the preparatory work for setting up such a system should be conferred to a conference involving the European Parliament and the national parliaments. The conference should deliver orientations in view of Commission proposals to be presented by the end of 2008.

7. Agencies

The Institutions agree to create binding ceilings for the agencies outside the table of the financial framework for reasons of transparency between the agencies and the Community programmes. The ceilings of the specific heading can only be modified by a decision of the budgetary authority through the provisions set up by article xx of the IIA (flexibility).

8. Administrative expenditure

The Institutions agree to maintain a specific heading for all administrative expenditure for reasons of transparency. The Commission will make appropriate proposals for a binding ceiling which preserves the system of Activity Based Budgeting.

9. Democratic scrutiny and coherence of external actions

The Institutions acknowledge the need for a rationalisation of the various instruments for external actions. However they agree that such a rationalisation of instruments and concentration of programmes for management facilities should not reduce the powers of the legislative authority. A specific procedure is established to secure the rights of Parliament over the multiannual indicative framework and strategy papers through a prior consultation of the European Parliament and Council by the Commission (deadlines to be defined) which commits to withdraw the proposal if one of the two arms of the budgetary authority so requires.

The Institutions recognize that the restructuring of the external instruments should not reduce the European Parliament's prerogatives notably on the establishment of a multi-annual indicative framework (MIF) and the strategy papers.

10. EDF

The European Development Fund, as a result of the negotiations, is budgetised. The ceiling of the financial framework is adjusted accordingly.

11. Other issues on budgetary discipline

All the existing provisions on budgetary discipline (CFSP, financial programming) are maintained.

WORKING DOCUMENT No 5 ON THE INTERINSTITUTIONAL AGREEMENT ON SOUND FINANCIAL MANAGEMENT, PART III REFORMS - RAPPORTEUR'S COMMENTS ON THE COMMISSION WORKING DOCUMENT COM(2006)75

20.2.2006

General remarks

1.  The letter of 1 February sent by President Barroso to the President of the European Parliament and to the President of the European Council which accompanied the Commission revised proposal of the Interinstitutional Agreement had raised a common feeling of disappointment and discontent among the Members of the Committee on Budgets at its meeting of 2 February.

2.  The reason lies in the weakness of the Commission’s commitment towards the European Parliament’s requests. The manner in which these requests have been considered is not reflected in the Interinstitutional Agreement itself and the endorsement of the European Council conclusions on the other hand.

3.  Following high level contacts, the Commission has apparently overcome some internal resistance and has adopted on 14 February, by written procedure, a working document "Contribution to the interinstitutional negotiations on the Proposal for renewal of the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure" (COM(2006)75 final). This additional document aims to communicate in a more formal way the issues contained in the letter from President Barroso and it can also facilitate the negotiations.

4.  The rapporteur welcomes the Commission's change of attitude as an acceptance of a broader agenda and as a legitimation of its approach towards the European Parliament. It indicates that:

- the Commission is willing to adjust its institutional role by finally putting Parliament’s requests on a more equal footing with those of the Council;

- Parliament’s requests were reasonable and justified since they have been endorsed by the College.

5.  The rapporteur believes that the negotiations on the FP-IIA which will enter into an active phase with the second trialogue of 21 February, can now take place on a fair basis. It is up to the Council to take into account the main components of the negotiations on the IIA which are:

- EP’s negotiating position of 8 June 2005

- Council’s common position of 15-16 December 2005

- Commission revised proposal of the IIA of 1 February and Commission working document on Contributions to the negotiations of 14 February

- Fiches 94[16] and 95[17].

6.  As recalled in his working document n° 3, Parliament’s negotiating position is composed of three pillars:

- matching political priorities and financial needs

- improving the structure and the flexibility of the budgets

- improving the quality of implementation through reforms to preserve the rights of the European Parliament.

7.  According to the rapporteur, these main elements are “communicating channels” for the negotiations. The tighter the global ceiling will be, the more flexibility that will be required; the less flexibility proposed, the simpler the mobilisation procedure should be;

8.  The European Parliament's requests for reforms should be an integral part of the IIA and therefore, the future IIA should have a broader dimension than the current one. This is reflected in the title proposed by the rapporteur "Interinstitutional Agreement on sound financial management" and in the structure of the third part of the IIA should be dedicated to reform.

9.  The rapporteur invites the Commission and the Council to consider that the next IIA should convey a message of modernisation to the European citizens and tax payers and not only elements of budgetary discipline aiming to reassure the governments and satisfy the European institutions. It should also enable the EU to respond to the new challenges the EU will face over the coming period through better allocation of funding for political priorities, more appropriate tools and better implementation as well as reduction of the administrative burden.

Specific comments on the key points

10.  The rapporteur is of the opinion that the contents of the Commission’s last document reflects in principle Parliament's main points for reforms as indicated in his working documents n° 3 and 4. He draws attention to the fact that they should become a full part of the IIA.

1. Financial Instruments

Commission proposed text on the Financial Instrument

The European Parliament, the Council and the Commission agree that the introduction of co-financing mechanisms is necessary to reinforce the leverage effect of the EU budget by increasing the funding incentive. They agree to encourage all types of financial instruments acting as catalysts for public and private investors. The objective is to increase up to EUR 10 billion the EIB's capacity for research and development loans in the period 2007-2013. Moreover, the instruments in favour of Trans-European Networks, and Small and Medium-sized Enterprises are to be reinforced. The Commission will make proposals, accordingly and will report back to the budgetary authority about the activities financed by the EIB, the EIF and the EBRD (relevant in the case of new Member States) to support investment in all those areas.

Rapporteur's comments

The Commission has endorsed the principle of modernisation of the Budget through co-financing by the EIB- EIF of activities related to the Lisbon strategy.

The reporting mechanism proposed by the Commission should be detailed in timing and content; it should provide a clear evaluation of the leverage effects in the areas pertaining to the negotiations. This mechanism should allow the Parliament to evaluate - once or twice per year - how EIB-EIF activities can complement a reduced ceiling for heading 1a.

The formal proposals should be made before the end of the year 2006.

2. Financial Regulation

Commission proposed text on the Financial Regulation

The institutions have a shared responsibility for the review of the Financial Regulation to improve implementation of the budget and increase the visibility and the benefit of EU funding towards the citizens without putting into question the progress achieved in the 2002 recasting. As in 2002, the European Parliament, the Council and the Commission agree that the review of the Financial Regulation is completed successfully through a real conciliation procedure, on the basis of its modified proposal, which forges effective consensus between the European Parliament and Council. They also seek close and constructive inter-institutional cooperation for the swift conclusion of the Implementing Rules in order to simplify procedures for funding whilst ensuring a high protection of the Union's financial interests.

The European Parliament and the Council are firmly committed to conclude the negotiations on the Financial Regulation in due time to allow for its entry into force on 1 January 2007.

Rapporteur's comments

This point still falls short of Parliament's expectations.

No time constraint is indicated and the role of European Parliament in the procedure has to be clarified. What if Council does not agree on the procedure and keeps to its minimalist approach?

The proposal is a constructive step since the Commission confirms its proposal for a real conciliation procedure and proposes a concrete calendar. The rapporteur draws attention to the need to incorporate some important issues related to the Financial Regulation and better management of the EU budget in the new IIA; such as the precendence of the Financial Regulation in other legal acts, the establishment of a interinstitutional working group which will prepare and accompany the midterm review and revision of the Financial Regulation; the submission of consolidated version of legislative acts with each revision of a legislative act and regular impact assessments.

3. Certification by Member States

Commission proposed text on the Certification by Member states on ensuring effective and integrated internal control of Community Funds

The European Parliament, the Council and the Commission agree on the importance of strengthening internal control without adding to the administrative burden for which the simplification of the underlying legislation is a prerequisite. In this context, priority will be given to managerial accountability under shared management in the form of national declarations. Member States will designate the bodies to be responsible for declarations before September 2006.

Rapporteur's comments

The rapporteur welcomes the support for a concrete roadmap. However the current proposal is limited to “managerial accountability” with no request for political commitment.

Commission proposed text on the democratic scrutiny and coherence of external actions

The European Parliament, the Council and the Commission acknowledge the need for a rationalisation of the various instruments for external actions. They agree that such a rationalisation of instruments, while enhancing the coherence and the responsiveness of the EU action, should not reduce the powers of either the legislative authority or the budgetary authority. The text of the relevant regulations should reflect these principles and, where appropriate, include the necessary policy content and an indicative breakdown of resources.

Rapporteur's comments

The rapporteur notices that the Commission agrees on the principle to secure Parliament’s legislative powers. However the text remains too vague concerning the procedures to be put in place.

5. Agencies

Commission proposed text on Agencies

Before taking any decision on the creation of a new agency, the Commission will assess the budgetary implications for the expenditure heading concerned. On the basis of this information, the two arms of the Budgetary Authority commit themselves in the framework of budgetary cooperation to come to an agreement on the financing of the concerned agency before the underlying legal base comes into force.

Rapporteur's comments

The text takes into account the problem raised by Parliament, especially concerning prior consulation of the EP for the financing of new agencies . Unfortunately the text does not yet indicate a more binding mechanism to prevent decisions without financing provisions agreed by the two arms of the budgetary authority. The rapporteur also welcomes that the Commission has finally identified the cost of the existing agencies over the next period.

6. Own Resources

Commission proposed text on Own Resources

In the context of the future revision of the own resources system, the institutions take note of the European Parliament intention to organise a conference of representatives of the European Parliament and the national parliaments.

Rapporteur's comments

The text remains too weak and lacks ambition .The link between the outcome of the Parliamentary Conference and the Commission’s future proposals is missing.

7. Financial programming

Commission proposed text on Financial Programming

The European Parliament, the Council and the Commission acknowledge the importance of financial programming and maintain the agreement reached on this subject during the conciliation of 16 July 2004. In particular Financial programming has to be updated by the Commission twice a year and considered, if necessary, at each trilogue meeting provided by the Interinstitutional Agreement of ….

Rapporteur’s comments

The text goes in the right direction but should clarify the Commission’s commitment to comply with all aspects of the declaration like the financial compatibility between the new proposals and the financial programming, the recourse to flexibility if necessary and the stocktaking of the financial consequences of the new legislative proposals.

8. Other points

- Flexibility : This point is treated in part I of the IIA.

- Review clause : This point is treated in part I of the IIA.

- Administrative expenditure: This point becomes useless since EP and Council rejected the Commission initial proposal.

- EDF: This point is treated in the part on figures.

- CFSP: This point is treated in part II of the IIA, where the Commission has already agreed to include the results reached at the Conciliation of 24 November 2005, concerning the level of representation of the Council (Ambassadors level) at the information meeting on CFSP.

WORKING DOCUMENT No 6 ON NEW FINANCIAL INSTRUMENTS - THE ROLE OF THE EUROPEAN INVESTMENT BANK GROUP

6.3.2006

1. Context

The president of the EIB (European Investment Bank) Mr Philippe Maystadt and the Chief Executive of the EIF (European Investment Fund) Mr Francis Carpenter have been invited to attend the meeting of the Committee on Budgets of Monday, 6 March 2006 to present the possible contributions of EIB-EIF to the EU budget over the next financial perspective[18].

In its resolution on Policy Challenges and Budgetary Means of the enlarged Union 2007-2013[19], the European Parliament states the following with regard to the financial instruments and co-financing:

"asks the Commission to make proposals to accompany the implementation of all common policies with new financial instruments and co-financing mechanisms; these instruments should address market failures and act as catalysts for private investors; budget optimisation and a high leverage effect should be key objectives, to be achieved, in particular, by SME guarantee instruments, but also by targeted venture capital support, including to business angels networks and technology transfer";

The Competitiveness Council of 28/29 November 2005 indicated the following concerning the further allocation of the EIB´s surpluses:

"the Community will improve their (R&D promoters) access to debt finance through the RSFF[20] by providing a grant to the EIB. The Community grant shall be used by the EIB, which will be a risk sharing partner, to contribute to the provisioning and capital allocation for loan and guarantee financing from its own resources. There will be no liability for the budget (..) this mechanism will enable the EIB to increase the amount of financing for European RTD actions (such as joint technology initiatives, large projects-including Eureka projects, and new research infrastructures) to help overcome market deficiencies.".

Subsequently, the European Council's conclusions of 15/16 December 2005 states the following[21]:

"The European Council invites the Commission in cooperation with the European Investment Bank to examine the possibility of strengthening their support for Research and Development by up to a maximum of € 10 billion through a financing facility with risk-sharing components to foster additional investment in European research and development, particularly by the private sector".

EIB financial support combined with EU budget in areas such as competitiveness, SMEs, TENs or research and innovation is expected to create an important leverage effect at two levels:

· First, on the basis of each euro from the EU budget (provision), a multiple of loans and other financial products can be developed by the EIB with a multiplication factor of between 2 and 20, depending on the degree of risk and the type of instrument of the investment concerned.

· Second, by catalysing other resources of the public and private sector, EIB loans in general represent about one third of the actual investments.

At the informal summit of Hampton Court, the figure of EUR 30 billion to be invested for Research and Development had been mentioned. At the November Competitiveness Council, RSFF has been approved on the basis of EUR 1 billion from the EU 7^th FP budget[22]. The scheme envisaged is the following:

These figures are realistic figures within the current parameters of the EIB. Beyond these figures, two problems are faced: the limits imposed by the statutes of the Bank and also the absorption capacity of the market.[23]

2. EU budget contributions and EIB own resources: areas of complementarity

The EIB group (European Investment Bank and European Investment Fund) is strongly committed to providing sustained support for (i) the Lisbon Strategy, (2) the Action for Growth Initiative for TENs and (3) the development of SMEs, in the form of long-term EIB loans as well as of venture capital and guarantees from the EIF. Three new financial instruments[24] are being proposed to reinforce this sustained support by combining EU budget resources with EIB reserves to leverage private capital funds from the market.

2.1 R&D, Innovation and Competitiveness

The Bank sees research investment as very important, especially taking into account the fact that Europe spends considerably less on R&D than the United States or Japan. The EIB's contribution to the Lisbon agenda is embodied in its Innovation 2010 Initiative (i2i) programme. Until now (2000-2005), the EIB signatures under the i2i programme amounted to ca. EUR 35 billion of which EUR 10.7 billion in 2005.The Bank could increase the current i2i target amount until 2010 of EUR 50 billion to EUR 65 billion and up to EUR 100 billion by 2013.

2.1.1 RSFF (Risk Sharing Finance Facility)

The Competitiveness Council approved RSFF in favour of reinforcing higher risk operations, to be provisioned by up to EUR 1 billion from the EU Budget and a matching amount by EIB own reserves. The Bank is ready to mobilize an amount equivalent to the EU budget allocation; however until now, there is no multi-annual commitment of budgetary funds to the RSFF scheme in the Commission’s proposal. The EIB has made it clear that such a multi-annual commitment was a condition sine qua non for its intervention to be operationally feasible. In such case, and only in such case, EIB could even help alleviating the budget constraint of the earlier years by front-loading its own participation.

2.1.2 SFF (Structured Finance Facility)

Based on previous experience the Bank could set up a Structured Finance Facility (SFF) with its own funds (EUR 500 million) to support riskier operations, within the Innovation Initiative (i2i). in the area of R&D.

2.2 SMEs

The Bank has long experience with SMEs financing in joint actions with the European Commission. The EIB/EIF representatives could confirm that an EIF capital increase of 50% from EUR 2 to 3 billion is being prepared to support the developments in favour of SMEs.

2.2.1 CIP Financial Instrument (Competitiveness and Innovation Programme)

CIP is a successor to MAP, the EU's support scheme for SMEs. The December 2005 European Council's decision on the financial perspectives does not include specific provision guaranteeing the CIP budget, notably the initial proposals of EUR 1 billion for the financial instruments to be administered under mandate by EIF. A funding of EUR 1 billion would represent the critical mass to ensure a successful implementation of the programme and allow EIF to leverage at least EUR 15 billion of guarantees and venture capital in favour of SMEs, especially high growth and technology driven ones. The extension of CIP to the financing technology transfer activities (eg: pre-seed and seed) is also being envisaged to bridge the gap between research and industry.

2.2.2 JEREMIE (Joint European Resources for Micro to Medium Enterprises)

JEREMIE is a joint initiative between Commission and the European Investment Bank and the European Investment Fund in order to promote increased access to finance through ERDF funding, for the development of micro, small and medium-sized enterprises in the regions of the EU. Member States and programming authorities will thus have the option to use part of their structural funds to leverage financial instruments for SMEs through financial engineering. No specific budgetary decision is required for JEREMIE.

2.2.3 SME Finance Facility

In April 1999, the European Commission launch the SME Finance Facility for micro, small and medium-sized enterprises operating in the EU Accession countries of central and eastern Europe. The SME Finance Facility, which is channelled through the EBRD, the EIB and CEB/KfW[25], provides capital to SMEs through loans to local banks, leasing companies and investments in private equity funds.[26]

2.3 Large-scale infrastructure investment

Since December 2003 within the Action for Growth initiative, a new impetus has been given to TENs financing by EIB under the name of TEN Finance Facility (TIF). The Bank is proposing to increase the current lending target of TIF from EUR 50 billion until 2010 to EUR 75 billion until 2013.

2.3.1 EU Loan Guarantee Instrument for TENs

A new joint proposal has been made by the Commission and EIB for a Community limited guarantee instrument for TEN-Transport projects. This scheme targets a very specific requirement, limited in time, to allow the development of Priority Pilot Projects (PPP) schemes for TEN-Transport projects. An amount of probably 500 mio EUR would be allocated from the TENs envelope and topped up with a similar amount from the EIB's own reserves making a total of 1 billion EUR. Such a scheme would permit a significant leverage effect and would mobilise up to 20 times (i.e. some 20 billion EUR) in the form of long-term senior bank loans.

2.3.2 JASPERS (Joint Assistance in Supporting Projects in European Regions)

JASPERS is a partnership between the Commission (DG REGIO), the EIB and the EBRD for a technical assistance facility that stands at the disposal of the beneficiary Member States at no cost to them. The implementation and financing of the corresponding projects could generate a significant contribution to economic and social cohesion, notably in the new Member States. No EU budget decision is required for JASPERS.

2.3.3. Galileo joint undertaking (GJU)

The EIB is involved in the advisory work for the Galileo joint undertaking. The EIB could be interested to play a more active role.

3. Rapporteur's observations

In the context of the negotiations on the next financial perspective and the possible contribution of EIB-EIF funds to the EU budget, the rapporteur wishes to make the following:

a) Financial instruments as full part of the Interinstitutional Agreement

As mentioned in his working documents n° 3, 4 and 5, the rapporteur proposes to include this new type of co-financing into the next IIA. In its working document COM(2006) 75 final "Contribution to the interinstitutional negotiations on the Proposal for renewal of the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure", the Commission has taken on board the European Parliament's requests as follows:

The European Parliament, the Council and the Commission agree that the introduction of co-financing mechanisms is necessary to reinforce the leverage effect of the EU budget by increasing the funding incentive. They agree to encourage all types of financial instruments acting as catalysts for public and private investors. The objective is to increase up to EUR 10 billion the EIB's capacity for research and development loans in the period 2007-2013. Moreover, the instruments in favour of Trans-European Networks, and Small and Medium-sized Enterprises are to be reinforced. The Commission will make proposals, accordingly and will report back to the budgetary authority about the activities financed by the EIB, the EIF and the EBRD (relevant in the case of new Member States) to support investment in all those areas.

The Commission has endorsed the principle of modernisation of the Budget through co-financing by the EIB- EIF of activities related to the Lisbon strategy.

The reporting mechanism proposed by the Commission should be detailed in timing and content; it should provide a clear evaluation of the leverage effects in the areas pertaining to the negotiations. This mechanism should allow the Parliament to evaluate - once or twice per year - how EIB-EIF activities can complement a reduced ceiling for heading 1a.

The formal proposals should be made before the end of the year 2006.

b) Complementarity

Since the EIB-EIF support is based on a combined effect of EIB and EU funding, could the EIB-EIF representatives explain what would be the consequences in terms of EIB loans and leverage effect of a reduction of the share of the EU budget under the different mechanisms (R&D, CIP, TENs), based on the Council's cuts.

· EIB funding and EU resources should not be substitutable but complementary.

· The additionality of EIB funding with appropriations of EU budget should represent a way to maximise the support of the EU economy.

· The leverage effect should be quantifiable and visible for the citizens.

· The combinations of EIB-EIF support and EU funding could ensure better discipline in the selection of worthwhile projects.

· In a context of good cooperation between the Institutions, the EIB-EIF financial mechanisms combined with EU funding should be transparent.

c) Possibility for the Union to meet the Lisbon objectives

· The rapporteur is of the opinion that the development of new financial instruments could contribute to achieving the Lisbon goals, especially if the ceiling of heading 1a would be reduced.

· Is the Committee ready to support the European Council conclusions through the mobilisation of EUR 1 billion from the envelope of the 7th Framework Programme on R&D?

·  Is the Committee ready to ask for further proposals of loans for other programmes such as TENs, SMEs and/or CIP?

· If so what would be the amount necessary to attain a useful critical mass under those programmes?

d) Short term incentive grants

On the basis of the "Jeremie" programme the EIB should indicate what facilities it could offer to provide for short term incentive grants with a rapid leverage effect in view of a possible adjustment in the context of the mid-term review.

WORKING DOCUMENT No 7 ON THE INTERINSTITUTIONAL AGREEMENT ON BUDGETARY DISCIPLINE AND SOUND FINANCIAL MANAGEMENT

21.3.2006

1. Background

In its resolution of 1 December 2005, the European Parliament asked the Commission to present a revised proposal of the Interinstitutional Agreement. On 15-16 December 2005, the European Council reached a political agreement on the Financial Perspective 2007-2013.

In its resolution of 18 January 2006, the European Parliament adopted its position on the European Council's agreement and rejected it in its current form.

On 1 February 2006, the Commission adopted a revised proposal for the renewal of the Interinstitutional Agreement[27].

In his working documents n° 3, 4 and 5, the rapporteur has presented his views on how the qualitative elements of Parliament's negotiating position of 8 June 2005 should be reflected in the next IIA.

On 15 February, the Commission presented a working document "Contribution to the interinstitutional negotiations on the proposal for renewal of the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure"[28] on the basis of the European Parliament's requests.

As envisaged and following a number of meetings held at institutional and at technical level, the rapporteur presents hereafter his proposals for the future Interinstitutional Agreement on Sound Financial Management. The scope of the Interinstitutional Agreement should be updated and broadened. It should include a new Part III focussing on qualitative reforms in view of improving the implementation of the EU budget.

· The proposals are based on both

- the revised version of the Interinstitutional Agreement¹

- the working document "Contribution to the interinstitutional negotiations on the proposal for renewal of the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure"²

· The proposals are composed of

- an explanatory text for each article modified/added

- a possible text for the IIA itself.

Interinstitutional Agreement on Sound Financial Management

Part I             Budgetary Discipline, definition and the implementation provisions

Part II            Interinstitutional cooperation

Part III           Improving the quality of the implementation of the Budget and

corresponding reforms

2. General Aspects

Title of the Interinstitutional Agreement

In order to broaden the scope of the IIA, to update its contents and to improve its visibility, a change in the title is proposed:

Possible text

"Interinstitutional Agreement on Sound Financial Management".

Art. 1 - Purpose of the Interinstitutional Agreement

It could be useful to add a reference to the possible entry into force of the Constitution during the next financial period that might change all the rules of the financial framework and the annual budgetary procedure.

Article 1a (new) - New structure of the IIA

Possible text

"In the event the Constitutional Treaty will enter into force during the period covered by the financial framework established in the present Interinstitutional Agreement, the Institutions will call for a special conciliation in order to allow a fast transition from the present financial framework to the legal system foreseen in articles I-55 and III-402  of the Constitution, in full respect of the respective rights conferred by these articles to each Institution."

3. PART I: Budgetary discipline

Art. 3 - Budgetary Powers and majorities

Two problems concerning majorities should be addressed in the negotiations.

The general rule in the IIA foresees that all budgetary decisions should be taken with the majority foreseen in article 272 of the Treaty (qualified majority in Council and EP).

a) In spite of the provisions of the Interinstitutional Agreement, Member States have an internal rule to take decisions by unanimity for which the IIA foresees a qualified majority.

b) Article 23 of the IIA provides a specific exception to the general rule for unanimity in Council with regard to decisions over 0.03 %. The exception of art. 23 should be deleted.

These points need to be raised at political level.

Art. 3 a (new) - Budgetary Powers and majorities – a new procedure

A new article could be proposed to introduce a "lighter procedure" below a limit indicated [i.e. xx million] linked to the level of the amount requested. This procedure should follow the model defined in the Treaty (and in Financial Regulation for transfers) based on the classification of expenditure (art. 272), Council decides on CE and Parliament on NCE. This "lighter procedure" should apply to all the procedures foreseen in the IIA (i.e. Revision, Flexibility, Globalisation, Solidarity, Emergency aid, Loans and Guarantees) when the amount requested is below a certain threshold to be defined for each procedure.

Possible text

"In case it is necessary to apply one of the procedures foreseen in art. 24 and art. 26 to 29, and within the amounts indicated in each article below, if the two arms of the Budgetary Authority fail to reach an agreement, the Council may, acting by qualified majority, decide on expenditure necessarily resulting from this Treaty or from acts adopted in accordance therewith. The European Parliament may decide on the non compulsory expenditure, following the procedures defined in art. 272 of the Treaty."

Art. 12 - Contents and scope of the financial framework (automatic acceptance of the Maximum Rate of Increase)

Automatic acceptance of the MRI is central to respecting the IIA and FP. In the past Council has threatened not to respect this article. i.e. to reject a budget that respects the ceilings but goes beyond the statistical MRI.

Each Institution could have the right not to implement this article but the consequences have to be clear: in this case the agreement is suspended and art. 272 should apply.

Possible text

"In case one arm of the Budgetary Authority does not agree with MRI resulting from the vote on the draft budget, that respect the ceilings agreed in annexe 1, the validity of the IIA and the FP is suspended, then the procedure foreseen in art. 272 of the EC Treaty should apply."

Art. 17 - Adjustments connected with implementation

A similar procedure existed in the Interinstitutional Agreement 1992-1999, the adjustment, connected with implementation, should lead to the possibility of modifying the annual ceilings over the period, in commitment and payments, without changing the total amount.

Possible text

"Before the end of March the Commission will present the implementation of all the co-decided programmes (as reference art. 38) and assess the reasons of non implementations. The Commission will propose to the Budgetary Authority , if appropriate, the possibility of modifying the profile of the expenditure of the programme, including the eventual effect on the ceilings."

Art. 20 a (new) – Margin for the annual procedure

With such a tight financial perspective, where most/all available margins are likely to be absorbed by the co-decisions programs, the risk is high that the margin for annual procedure will be very limited/non-existent. This could hamper the EP's competencies in the annual procedure regarding annual programs, activities under the autonomy of the Commission and its ability to ensure that the envelopes for pilot projects and preparatory actions are respected.

The European Parliament should propose that sufficient margins are guaranteed.

Possible text

"Each year, when presenting the PDB, the Commission commits to respect the annual amount foreseen by the financial statement of each co-decided program and to leave sufficient margin under all headings of financial perspectives for allowing the normal evolution of the budgetary procedure. Should the Commission consider that the margin left is not sufficient to allow the annual procedure, it should make a proposal to mobilize the flexibility instrument."

Art. 21a (new) - Balance from previous years

The Interinstitutional Agreement should foresee a new mechanism to finance activities not covered by the financial perspectives which allows unspent appropriations (commitments and payments) from previous years to be entered in the budget. Such a mechanism might require a modification of the Financial Regulation.

At present unused payments appropriations from year N-1 are entered in the revenue side of the budget of year N through an Amending Budget around May, proportionally reducing the contributions from the Member States.

The new mechanism should foresee the creation of an ad hoc budget line "balance of previous years" in the expenditure part of the Budget, outside the Financial Framework. After the final closure of the accounts of year N-1, part of the appropriations resulting from the balance of the previous year, should be entered, with an Amending Budget, into the specific budget line of year N, both in commitments and payments.

Appropriations entered on this budget line can be transferred to any operational budget line via a transfer, if a margin is available under the ceiling of the relevant heading, or through one of the other procedures foreseen in the IIA if not.

Whenever it is necessary to mobilize supplementary resources for any of the specific procedures foreseen in the IIA (i.e. Revision, Flexibility, Globalisation, Solidarity, Emergency aid, Loans and Guarantee) the Commission should propose that financing is provided by

· Reallocation of appropriations within or between headings;

· Use of appropriations from the specific budget line "balance of previous years";

· Supplementary resources called up from the Member States.

The decision on financing should be taken by the budgetary authority.

The Commission may propose to the Budgetary Authority the use of the appropriations entered in the specific budget line "balance of previous years". The budgetary authority may take a decision after the conciliation in July.

Possible text

"Appropriations which have not been used at the end of the financial year may be carried over and decommitments may be made available again, up to a maximum of xx billion to the following two years, this amount will be entered in a specific budget line, over and above the relevant amount as laid down in Annex I. This amount can be used only when transferred to an operational budget line according to the procedures of art. 24 of Financial Regulation or the specific procedures foreseen in art. 24 and art. 26 to 29 of the present IIA."

Art. 22 - Revision of the financial framework: use of revision

This article should make clearer the circumstances in which revision, rather than use of the Instrument of Flexibility, should apply:

· To change the ceilings without earmarking for a specific policy

· To change the ceilings for a specific policy when the modification is longer than [three] years;

· When there is a modification to the structure of the Financial Perspective – e.g. adding a heading.

Each arm of the budgetary authority may ask the Commission to initiate a procedure for revision, on the basis of either the presentation of the APS, or after the PDB.

Possible text

"In addition to the regular technical adjustments, adjustments in line with the conditions of implementation, the mobilization of the instrument of flexibility, the financial framework may be revised in compliance with the own resources ceiling, on a proposal from the Commission, in case of modification of the ceilings, either not allocated to a specific policy or allocated to a policy when the modification exceed [three] years or in case of addition of a new heading."

Art. 23 - Revision of the financial framework: majority

As indicated in Point 3 and 3a (new), only two majorities should be admissible: the majority of art. 272 and the procedure based on the competence of each Institution based on the classification of expenditure (Point 3 a (new)). As revision implies a more substantial change to the financial framework (i.e. a new policy or even a new heading) it seems appropriate to introduce two modifications to this article: one to change the upper limit to the own resources decision (1.31% GNI for commitments and 1.24% for payments) and two to suppress the reference to unanimity.

Possible text

"Any decision to revise the financial framework within the margin established by the Council decision on own resources (…………..) will be taken jointly by the two arms of the budgetary authority acting in accordance with Point 3."

Art. 24 - Revision of the financial framework

Whenever it is necessary to apply this procedure, the Commission should propose that financing is raised from one or more of the following elements:

· Reallocating of appropriations within or between the headings;

· Use of appropriations from the specific budget line "balance of previous years";

· Supplementary resources called up from the Member States.

The decision on financing should be taken by the budgetary authority according to the budgetary majorities as defined in article 3, unless the amount is below [xxx million] in which case the "lighter procedure", art. 3 a (new), applies.

Possible text

"Without prejudice of Point 41, when a decision to proceed to the revision of the financial framework, in line with art. 22, has been taken by the Budgetary Authority the institutions will examine, in the following order:

1. the scope for reallocating expenditure between the programmes except, save exceptional cases, the ones referred in art. 39 of the present agreement, covered by the heading concerned by the revision;

2. the amount to be used from the specific budget line "balance of previous year";

3. the increase of the ceiling of the heading concerned and consequently supplementary resources called once the amount is entered into the budget. The institutions may examine the scope for offsetting raising the ceiling for one heading by lowering the ceiling for another.

The objective should be that a significant amount, in absolute terms and as a percentage of the new expenditure planned, should be within the existing ceiling for the heading.
In case the budgetary authority fails to agree on the financing, and up to an amount of [xx million] the decision will be taken according to the procedure indicated in art. 3 a."

Art. 26 - Emergency Aid Reserve

The emergency aid reserve should be outside h.4 and the financial framework, as indicated by the European Parliament in its resolution of 8 June 2005. To finance a reserve outside the Financial Perspective, as in the case of the Solidarity Fund, the normal procedure would be either a transfer from unused appropriations or through an Amending Budget. The Commission will strongly oppose this because they consider that it would slow up the EU's ability to respond.

Whenever it is necessary to apply this procedure, the Commission should propose that financing is raised from one or more of the following elements:

· Reallocating of appropriations within or between the headings;

· Use of appropriations from the specific budget line "balance of previous years";

· Supplementary resources called up from the Member States;

The decision on financing should be taken by the budgetary authority according to the budgetary majorities as defined in article 3, unless the amount is below [xxx million] in which case the "lighter procedure", art. 3 a (new), applies.

Possible text

"The corresponding commitment appropriations for Emergency Aid shall be entered in the budget under the relevant heading, over and above the relevant amount as laid down in Annex I. The purpose of the emergency aid reserve is to provide a rapid response to the specific aid requirements of non-member countries following events which could not be foreseen when the budget was established, first and foremost for humanitarian operations, but also for civil crisis management and protection where circumstances so require. Its annual amount is fixed at € 221 million for the duration of the financial framework, in constant prices.

When the Commission considers that this reserve needs to be called on, the Commission will present a proposal to enter this amount into the appropriate budget line. The Budgetary Authority will examine, in the following order:

1. the scope for reallocating expenditure between the programmes except, save exceptional cases, the ones referred in art. 39 of the present agreement, covered by the heading concerned by the revision;

2. the amount to be used from the specific budget line "balance of previous year";

3. supplementary resources called once the amount is entered into the budget. The institutions may examine the scope for offsetting raising the ceiling for one heading by lowering the ceiling for another.

In case the budgetary authority fails to agree on the financing, and up to an amount of [xx million] the decision will be taken according to the procedure indicated in art. 3 a."

Art. 27 European Union Solidarity Fund

Whenever it is necessary to apply this procedure, the Commission should propose that financing is raised from one or more of the following elements:

· Reallocating of appropriations within or between the headings;

· Use of appropriations from the specific budget line "balance of previous years";

· Supplementary resources called up from the Member States;

The decision on financing should be taken by the budgetary authority according to the budgetary majorities as defined in article 3, unless the amount is below [xxx million] in which case the "lighter procedure", art. 3 a (new), applies.

Possible text

"The European Union Solidarity Fund is intended to allow rapid financial assistance in the event of major disasters occurring on the territory of a Member State or of a candidate country, as defined in the relevant basic act. There will be a ceiling on the annual amount available for the Solidarity Fund of € 1 billion. On 1 October each year, at least one-quarter of the annual amount will remain available in order to cover needs arising until the end of the year. The portion of the annual amount not entered in the budget may not be rolled over in the following years.

In exceptional cases and if the remaining financial resources available in the Fund in the year of occurrence of the disaster, as defined in the relevant basic act, are not sufficient to cover the amount of assistance deemed necessary by the budgetary authority, the Commission may

propose that the difference be financed through the following year's Fund. The annual amount of the Fund to be budgeted in each year may not exceed € 1 billion under any circumstance.

When the conditions for mobilising the Solidarity Fund as set out in the relevant basic act are met, the Commission will make a proposal to deploy it. The decision to deploy the Solidarity Instrument will be taken jointly by the two arms of the budgetary authority. The corresponding commitment appropriations shall be entered in the budget over and above the relevant headings in the financial framework as laid down in Annex I. when a decision to proceed to the mobilization of such instrument has been taken, the institutions will examine, in the following order:

1. the scope for reallocating expenditure between the programmes except, save exceptional cases, the ones referred in art. 39 of the present agreement, covered by the heading concerned by the revision;

2. the amount to be used from the specific budget line "balance of previous year";

3. supplementary resources called once the amount is entered into the budget. The institutions may examine the scope for offsetting raising the ceiling for one heading by lowering the ceiling for another.

In case the budgetary authority fails to agree on the financing, and up to an amount of [xx million] the decision will be taken according to the procedure indicated in art. 3 a."

Art. 28 - Instrument of Flexibility

The conditions under which flexibility can be used should be clarified. The Instrument of Flexibility should be mobilized for:

· specific needs

· a period of maximum [three years].

Otherwise the revision, as defined in ex art.24, should apply.

Whenever it is necessary to apply this procedure, the Commission should propose that financing is raised from one or more of the following elements:

· Reallocating of appropriations within or between the headings;

· Use of appropriations from the specific budget line "balance of previous years";

· Supplementary resources called by the Member States.

The decision on financing should be taken by the budgetary authority according to the budgetary majorities as defined in article 3, unless the amount is below [xxx million] in which case the "lighter procedure", art. 3a (new), applies.

Possible text

"When a decision to mobilize such an Instrument has been taken by the Budgetary Authority the institutions will examine, in the following order:

1. the scope for reallocating expenditure between the programmes except, save exceptional cases, the ones referred in art. 39 of the present agreement, covered by the heading concerned by the revision;

2. the amount to be used from the specific budget line "balance of previous year";

3. supplementary resources called once the amount is entered into the budget. The institutions may examine the scope for offsetting raising the ceiling for one heading by lowering the ceiling for another

The objective should be that a significant amount, in absolute terms and as a percentage of the new expenditure planned, should be within the existing ceiling for the heading

In case the budgetary authority fails to agree on the financing, and up to an amount of [xx million] the decision will be taken according to the procedure indicated in art. 3 a."

Art. 29 - European Globalisation Adjustment Fund

The Globalisation Fund is outside the financial framework and is financed with the margin available over two years.

Whenever it is necessary to apply this procedure, the Commission should propose that financing is raised from one or more of the following elements:

· Reallocating of appropriations within or between the headings;

· Use of appropriations from the specific budget line "balance of previous years";

· Supplementary resources called by the Member States;

The decision on financing should be taken by the budgetary authority according to the budgetary majorities as defined in article 3, unless the amount is below [xxx million] in which case the "lighter procedure", art. 3 a (new), applies.

Possible text

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

The Fund may not exceed a maximum annual amount of € 500 million. When the conditions exist for mobilising the European Globalisation Adjustment Fund, as set out in the relevant basic act, the Commission will make a proposal to deploy it. The decision to deploy the European Globalisation Adjustment Fund will be taken jointly by the two arms of the budgetary authority.

The corresponding commitment appropriations shall be entered in the budget under the relevant heading, if necessary over and above the relevant amount as laid down in Annex I.

when a decision to mobilize this instrument has been taken by the Budgetary Authority the institutions will examine, in the following order:

1. the scope for reallocating expenditure between the programmes except, save exceptional cases, the ones referred in art. 39 of the present agreement, covered by the heading concerned by the revision;

2. the amount to be used from the specific budget line "balance of previous year";

3. the increase of the ceiling of the heading concerned and consequently supplementary resources called once the amount is entered into the budget. The institutions may examine the scope for offsetting raising the ceiling for one heading by lowering the ceiling for another.

In case the budgetary authority fails to agree on the financing, and up to an amount of [xx million] the decision will be taken according to the procedure indicated in art. 3 a."

Art. 31 - Duration

A financial framework of seven years may partially jeopardise the competences of the next Parliament and the next Commission.

At the same time the agreed amounts of the multi-annual programmes must be protected.

This article should as an option, allow for an ad hoc procedure to assess the functioning of the current agreement and the financial framework and to preserve the EP's prerogatives for confirming the prolongation/modification/rejection of the current FP/IIA.

Possible Text

"The newly elected Parliament can decide to confirm, to modify or to terminate the current IIA and the financial framework while ensuring the financial envelopes for the multi-annual programmes as a guaranteed minimum."

4. PART II: Interinstitutional cooperation

Article 40 - Reference to financial programming (Part III)

In this article there should be a reference to the financial consequences on financial programming and recourse to flexibility if necessary, in line with the joint declaration of July 2000 on financial programming.

Possible text

"The financial statements of the programmes may also be revised in the context of the matching between legislative and financial programming at the bi-annual updating of legislation in force, pending legislation and future legislation, including through the recourse of the instrument allowed for by the current IIA under its articles 21a, 24 and 28 and if the ceilings are found to be insufficient."

Article 43 and 44 (new) - Financing of Common foreign and security policy (CFSP)

The provision should reflect the agreements of recent years between the institutions.

Possible text

43. " For the CFSP expenditure charged to the general budget of the European Communities in accordance with Article 28 of the Treaty on European Union, the institutions will endeavour, in the conciliation procedure provided for in Annex II and on the basis of the preliminary draft budget established by the Commission, to secure each year agreement on the amount of the operating expenditure to be charged to the Community budget and on the distribution of this amount between the articles of the CFSP budget chapter. In the absence of agreement, it is understood that the European Parliament and the Council will enter in the budget the amount contained in the previous budget or the amount proposed in the preliminary draft budget, whichever is the lower.

The total amount of operating CFSP expenditure will be entered entirely in one budget chapter (CFSP). This amount is to cover the real predictable needs and a reasonable margin for unforeseen actions.. Each article covers Joint Actions and Council Decisions implementing joint actions already adopted, measures which are foreseen but not yet adopted and all future – i.e. unforeseen – action to be adopted by the Council during the financial year concerned.

Since, under the Financial Regulation, the Commission has the authority, within the framework of a CFSP action, to transfer appropriations autonomously between articles within one budget chapter, i.e. the CFSP allocation, the flexibility deemed necessary for speedy implementation of CFSP actions will accordingly be assured. In the event of the amount of the CFSP budget during the financial year being insufficient to cover the necessary expenses, the European Parliament and the Council will seek a solution as a matter of urgency, on a proposal from the Commission.

The European Parliament, the Council and the Commission agree that the amount for actions entered under the article 'emergency measures' may not exceed 20% of the overall amount of the CFSP budget chapter."

44. "Each year, the Council establishes a forward looking document setting out the main aspects and basic choises of the common foreign and security policy, including financial implications for the General Budget n+1 of the European Union and a document evaluating the measures launched during the year n-1. The Council Presidency will consult the European Parliament on these Council documents. They will be transmitted to Parliament before 15th June for the year in question.

Furthermore, according to the agreement reached at the conciliation meeting on 24 November 2003, the Council Presidency, at the political level of Ambassador, and the two incoming Presidencies will in the context of the regular political dialogue with the two responsible committees of Parliament give information on upcoming CFSP-issues and options and early warning on CFSP Joint Actions which might have important financial implication by holding joint consultation meetings at least five times a year to be agreed at the first trialogue of the year as provided for in Annex II with the Council Presidency in office for that year. The Commission will be associated and participate at these meetings.

Whenever it adopts a decision in the field of CFSP entailing expenditure, the Council will immediately in each case and no later than five working days following the final decision send the European Parliament an estimate of the costs envisaged ('financial statement'), in particular those regarding time-frame, staff employed, use of premises and other infrastructure, transport facilities, training requirements and security arrangements.

Once a quarter, the Commission will inform the budgetary authority about the implementation of CFSP actions and the financial forecasts for the remaining period of the year."

Article 44 a (new) - Financing the Area of Freedom, Security and Justice

A new procedure should be laid down to guarantee Parliament's rights in the decision-making under this area through a structured dialogue which could take place during the July conciliation.

Possible text

"For expenditure on Freedom, Security and Justice charged to the general budget of the European Communities, in accordance with Article xx of the Treaty on the European Union, the Institutions will endeavour, in the Conciliation procedure provided for in Annex II and on the basis of the Preliminary Draft Budget established by the Commission, to secure each year an agreement on additional financial resources or on the reallocation of resources according to new priorities, through a structured dialogue at an early stage of the annual procedure."

Annex II - Interinstitutional collaboration in the budgetary sector (re-integration in par.)

· After point C,

New procedure for Freedom, Security and Justice:

This annex should also incorporate a reference to the procedure relating to the structured dialogue establishing the priorities for expenditure related to the area of Freedom, Security and Justice.

· Under point D,

- Implementability: Concerning the Commission's assessment of the implementability of the amendment envisaged by the budgetary authority, and in particular PP and PA, the deadline foreseen (mid-June) should be adjusted to EP's calendar (mid-September).

- The annual ceilings for PP/PA were currently foreseen for EU-15 and have never been updated since 1999. They should therefore be adjusted to an enlarged Union EU-25/27.

- Ceilings for PP/PA: The Commission has suppressed former articles 36 and 37 because they are covered by article 49 of the Financial Regulation and introduced the new ceilings under Annex II point D of the revised IIA. The Commission has adjusted the ceilings of 1999 to 2004 prices and to a 10% increase to cater for enlargement.

Possible text

"Furthermore, the three institutions agree to limit the total amount of appropriations for pilot schemes to € 40 million [instead of 38] in any budget year. They also agree to limit to € 50 million [instead of 36] the total amount of appropriations for new preparatory actions in any budget year, and to € 100 million [instead of 90] the total amount of appropriations actually committed for preparatory actions."

5. PART III (new): Improving the quality of the implementation of the Budget and corresponding reforms

New articles to be integrated:

Article 45 (new) - Financial Regulation

Purpose

Without access to the Community programmes and a more user friendly execution of the budget, the Union will not reach the people and many policies will not have the expected effects. The key to an easier access to Community programmes and a simpler budget execution lies with the reform of the Financial Regulation, the manual how to run the Union's programmes and budget. The shared aim for the reform of the Financial Regulation should be come to simpler and faster, more transparent and reliable, as well as to more cost-efficient rules and procedures.

Procedure

A real conciliation procedure based on the joint 1975 declaration and already used for the 2002 revision should be agreed in order to involve the two arms of the budgetary authority on an equal footing.

The institutions also seek close and constructive inter-institutional cooperation for the swift conclusion of the Implementing Rules in order to simplify procedures for funding whilst ensuring a high protection of the Union's financial interests.

The European Parliament and the Council are firmly committed to conclude the negotiations on the Financial Regulation in due time to allow for its entry into force on 1 January 2007.

Content

The following principles, modifications and/or clarifications on items related to the Financial Regulation should be incorporated into the new Interinstitutional Agreement with a view to ensuring that the budget is implemented with greater efficiency, less red tape and greater transparency and in a manner which is closer to the citizen:

· Making reference to Article 5 of the EC Treaty (proportionality principle), which, at all times, must govern administrative action concerning budget implementation (Cost for administration of grants/contracts must be proportionate to value of grant/contract) (Ads. 28, 46, 86, 116 to the report on the revision of the Financial Regulation hereinafter "FinReg").

· Commitment of the institutions to expressly indicate any derogation from or exception to the Financial Regulation, giving reasons when it proposes derogations from or exceptions to the Financial Regulation(Ad. 29 FinReg);

· Laying down a right for Parliament to be involved - during a programme's seven-year duration - in decision-taking on particularly important tendering procedures identified by Parliament's relevant portfolio committee (‘droit de regard formalisé’). Provisions have to be made for a timely evaluation and review of programmes which ensure that, in due time before the end of the term, alterations to the programme can be made, if necessary ('Diligent Monitoring'). After a programme has been implemented, a report must be submitted, in particular on the number of applications accepted and rejected, grant recipients, application processing time and any obstacles to carrying out procedures (Ads. 76, 107 FinReg).

· Regular legislative impact assessment, including a subsidiarity check function plus, at all times, verification of alternatives. Draft amending legislation should always be submitted together with a consolidated version and a statement of reasons for each proposed amendment. (Not expressly provided for in FinReg but considered a sheer necessity while working on its provisions).

· the establishment of an interinstitutional working group which will prepare and accompany the midterm review and revision of the Financial Regulation

Possible text

"The provisions of the Financial Regulation are an important instrument for the quality of the budget implementation and should ensure the access to the Community programmes and a more user friendly execution of the budget. Any reform should aim at simpler and faster, more transparent and reliable, as well as to more cost-efficient rules and procedures.

The institutions commit themselves

· to find the right balance between the protection of financial interests and the and the resulting administrative cost, taking into account the principle of proportionality;

· to expressly indicate any derogation from or exception to the Financial Regulation, giving reasons when it proposes derogations from or exceptions to the Financial Regulation;

· to establish an interinstitutional working group which will prepare and accompany the regular review (every three years) and a future general revision of the Financial Regulation.

The Commission ensures that

· together with a draft amending legislation a consolidated version of the legislative act and a statement of reasons for each proposed amendment will be provided;

· regular legislative impact assessments, including a subsidiarity check function will be conducted;

· the Annual activity reports per DGs presented to the budgetary authority contains synthetic information on the call for tenders and their results."

"Declaration:

Within the framework of reviewing the Financial Regulation the Institutions commit themselves to improve implementation of the budget and increase the visibility and the benefit of EU funding towards the citizens without putting into question the progress achieved in the 2002 recasting. As in 2002, the review of the Financial Regulation will be adopted on the basis of a modified proposal from the Commission and following a real conciliation procedure[29] aimed at achieving effective consensus between the European Parliament and Council. They also seek close and constructive inter‑institutional cooperation for the swift conclusion of the Implementing Rules in order to simplify procedures for funding whilst ensuring a high protection of the Union's financial interests. The European Parliament and the Council are firmly committed to conclude the negotiations on the Financial Regulation so as to allow its entry into force on 1 January 2007.

The institutions recognize the importance of the joint standardisation service for forms and procedures regarding similar grants, Database for the notification of applicants, Information and advice for applicants, Need for legal certainty and indication of legal remedies; Liability: Clearer distinction between intentional harm and mistakes, Safeguarding the rights of Parliament (e.g. transfers), a ‘droit de regard formalisé’ and commit themselves to find common solutions in the context of the legislative procedure on the Financial Regulation."

Article 46 (new) - Certification by Member States

Possible text

"In view of safeguarding internal control in the Member States and the European Commission without adding to the administrative burden for which the simplification of the underlying legislation is a prerequisite, priority is given to managerial accountability at appropriate Member State level, whereby the information is confirmed or guaranteed, under shared management. Appropriate provisions to this end are laid down in the financial regulation. (article xx)."

Article 47 (new) - New financial instruments

Possible text

A.        On the instruments

"The introduction of co-financing mechanisms is necessary to reinforce the leverage effect of the EU budget by increasing the funding incentive. All types of financial instruments acting as catalysts for public and private investors are encouraged. In consequence, the Commission, in cooperation with the EIB, makes proposals:

-          in accordance with the conclusions of the European Council in December 2005, to increase by up to EUR 10 billion the EIB's capacity for research and development loans in the period 2007-2013

-          to increase up to EUR xx billion the EIB capacity for Trans‑European Networks and Small and Medium- sized Enterprises."

B.        On reporting

"The Commission, when presenting the PDB, will report back to the Budgetary Authority about the activities financed by the EIB, the EIF and the EBRD to support investment in all the areas mentioned under A above."

Article 48 (new) - Review clause

Four objectives should be added to improve this article:

- to associate the European Parliament to the Commission's work and create a working group at interinstitutional level;

- to better define the Own Resources' objective, including the idea of calling a conference with National Parliaments and the European Parliament;

- to accept the wide review of the Commission, including on agriculture expenditure with the possibility of introducing co-financing;

- to include an assessment of the review with a vote by the EP to confirm the current agreement.

Possible text

Before the end of 2008 the Commission will present to the European Parliament and Council a wide-ranging review, including the corresponding Commission proposals, covering all aspects of EU spending and resources, as well as an assessment of the functioning of the current agreement, with a view to ensuring that the budget is equipped to respond to the challenges of the future.

Each arm of the budgetary authority can take a decision, by March 2010 on the Commission proposal, including on the continuation/modification/rejection of the current IIA.

An ad hoc working group, is created at the beginning of 2007, composed by representatives of the budgetary authority is created to keep the Budgetary Authority informed of the progress achieved in this review and where appropriate to get its opinion, a progress report should be presented to the Budgetary Authority every year before the July Conciliation.

Concerning the Own Resources, aware of the role of Governments and National Parliaments, at the beginning of 2007 a conference will be called with representatives of Governments, National Parliaments. The conclusions of this conference will be taken into account by the Commission in its White Paper."

Article 49 (new) - Reforming the system of own resources

Possible text

"In view of the need to give the European Union transparent and independent own resources to replace the existing system, they agree that the preparatory work for setting up such a system will be conferred to a conference involving the European Parliament and the national parliaments. The conference will deliver orientations in view of Commission proposals to be presented by the end of 2008."

Article 50 (new) - Agencies

Possible text

"A binding ceiling for the future new agencies is established to avoid reduction of the operational programs and the Community programmes. The ceilings of the specific heading can only be modified by a decision of the budgetary authority. When a decision to finance a new Agency or to increase the appropriation for an existing one has been taken by the Budgetary Authority, the institutions will examine, in the following order:

1. the scope for reallocating expenditure between the programmes except, save exceptional cases, the ones referred in art. 39 of the present agreement, covered by the heading concerned by the revision.

2. the amount to be used from the specific budget line "balance of previous year"

3. the increase of the ceiling of the heading concerned and consequently supplementary resources called once the amount is entered into the budget. The institutions may examine the scope for offsetting raising the ceiling for one heading by lowering the ceiling for another

In case the budgetary authority fails to agree on the financing, and up to an amount of [xx million] the decision will be taken according to the procedure indicated in art. 3 a. "

Article 51 (new) -European Schools

Possible text

"A binding ceiling is established for the European Schools. Should the amount of the European School be insufficient the ceilings can only be modified by a decision of the budgetary authority. When a decision to finance a new School or to increase the appropriation for an existing one has been taken by the Budgetary Authority, the institutions will examine, in the following order:

1. the scope for reallocating expenditure between the programmes except, save exceptional cases, the ones referred in art. 39 of the present agreement, covered by the heading concerned by the revision.

2. the amount to be used from the specific budget line "balance of previous year"

3. the increase of the ceiling of the heading concerned and consequently supplementary resources called once the amount is entered into the budget. The institutions may examine the scope for offsetting raising the ceiling for one heading by lowering the ceiling for another

In case the budgetary authority fails to agree on the financing, and up to an amount of [xx million] the decision will be taken according to the procedure indicated in art. 3 a."

Article 52 (new) - Democratic scrutiny and coherence of external actions

Possible text

"The need for a rationalisation of instruments for external actions and concentration of programmes for management facilities should not reduce the powers of the legislative authority or the Budgetary Authority. The Institutions therefore agree to establish a procedure granting Parliament and Council political control over the strategic choices which, under the regulations establishing the new external assistance instruments, will be delegated to the Commission. This procedure shall allow Parliament and Council to object to draft measures entailing such strategic choices and to request that the Commission either withdraws them or modifies them.

The current budgetary provisions concerning the transition of potential candidates to pre-accession candidates, owing to the significant budgetary implication will apply also with regard to the new multi-annual financial framework as laid down in the joint declaration accompanying the adjustment and revision of the financial perspective for the enlargement of ten new Member states (A5-117/2003, 09.04.2003; A6-153/2005, par. 29/30).

The Commission will provide in the PDB a nomenclature which allows better transparency over thematic and geographical areas."

Article 53 (new) - Financial programming

Possible text

"1.      The Commission submits twice a year, the first time in May/June (together with the documents accompanying the PDB) and the second time in December/January (after the adoption of the Budget), a complete financial programming for Headings 1A, 2 (for environment and fisheries), 3 and 4 of the 2007-2013 Financial Framework. This document, structured by heading, policy area and budget line should identify two phases:

a.        legislation in force with the distinction between multiannual programmes and annual actions:

- for multiannual programmes the Commission should indicate the procedure under which they were adopted (COD and CNS), their duration, the reference amounts, the share allocated to administrative expenditure;

- for annual actions (PP-PA, Agencies) and actions financed under the prerogatives of the Commission, it should provide multiannual estimates and (for PP-PA), the margins left under the authorised ceilings foreseen by the IIA (EUR [38] million for PP and EUR [90] million for PA);

b.        pending legislation: ongoing Commission's proposals referenced by budget line (lower level), chapter and policy area. A mechanism should be found to update the tables each time a new proposal is adopted in order to evaluate the financial consequences.

2.        The Commission should consider ways of cross-referencing the financial programming with its legislative programming to provide more precise and reliable forecasts. For each legislative proposal, the Commission should indicate whether it is included in the May-December programming or not. The Budgetary Authority should notably be informed of:

a.        all new legislative acts adopted but not included in the May-Dec document (with the corresponding amounts);

b.        all pending legislation presented but not included in the May-Dec document (with the corresponding amounts);"

Article 54 (new) - Creation of a special reserve for cohesion

Possible text

"Non obstante the provisions of article 16, a special reserve for cohesion is created with unused appropriations of sub-heading 1b for the years 2007-2009 to re-allocate them in 2010. The corresponding commitment appropriations shall be entered in the budget under the relevant heading, if necessary over and above the relevant amount as laid down in Annex I. The Commission will present a proposal for the re-allocation of the funds made available, the decision will be taken jointly by Council and Parliament."

Article 55 - Loans and guarantees

The reserve for Loans and Guarantees should be placed outside the financial framework. The provisioning mechanism can work even if the funds are placed outside the financial framework.

Whenever it is necessary to apply this procedure, the Commission should propose that financing is raised from one or more of the following elements:

· Reallocating of appropriations within or between the headings;

· Use of appropriations from the specific budget line "balance of previous years";

· Supplementary resources called by the Member States;

The decision on financing should be taken by the Budgetary Authority according to the budgetary majorities in article 3, unless the amount is below [xxx million] in which case the "lighter procedure", art. 3 a (new), applies.

• [1]  The Single European Act (1986) promoted the first European policies which lead to the multiplication of multi-annual programmes in the field of research. The first framework programme is mentioned in art. 166 of the Single European Act (1986) and education (COMETT programme 1987-1989)
• [2]  OJ C 194 , 28.07.1982 p. 1-3
• [3]  OJ C172 of 18.06.1999, page 1
• [4]  UK/Commission C-106/96
• [5]  Before 1 July 2005, the Commission will present proposals for a new medium-term financial perspective. Should the two arms of the budgetary authority fail to agree on a new financial perspective and unless the existing financial perspective is expressly denounced by one of the parties to this Agreement, the ceilings for the last year covered by the existing financial perspective will be adjusted in accordance with paragraph 15 by applying to these amounts the average rate of increase observed over the preceding period, excluding any adjustments made to take account of enlargement of the Union. This rate of increase may not, however, exceed the rate of growth of Community GNP for the year concerned.
• [6]  According to article 272,9 of the EC Treaty, the MRI results from the trend, in terms of volume of the gross national product within the Community, the average variation in the budgets of the Member States, and the trend of the costs of living during the preceding financial year.
• [7]  Based on Commission estimation of MRI and expenditure for Bulgaria and Romania over MRI
• [8]  Pilot projects and preparatory actions according to article 49 of the Financial Regulation
• [9]  PE 349.852 - DT\547939
• [10]  RAPID MEMO/05/386 from 20 October 2005; http://europa.eu.int/rapid/
• [11]  the full text of the five "ideas" is reproduced in this document and can be found under RAPID MEMO/05/386 from 20 October 2005; http://europa.eu.int/rapid/
• [12]  P6_TA(2005)0224 from 8 June 2005
• [13]  PE 367.953v01-00
• [14]  COM(2006)0036
• [15]  Council Regulation (EC, Euratom), N° 1605/2005, OJ L 248, 16.9.2002, page 1.
• [16]  "Indicative breakdown of expenditure within individual headings and sub-headings, based on the European Council conclusions of December 2005"
• [17]  "Impact of the financial framework foreseen by the European Council for 2007-2013"
• [18]  see also the background note from the Budgetary Support Service
• [19]  Par. 50, 2004/2209(INI), P6_TA(2005)0224, adopted on 8 June 2005
• [20]  RSFF - Risk Sharing Finance Facility
• [21]  Par. 11, CADREFIN 268, Council of the European Union, 19 December 2005
• [22]  The Commission has embodied the RSFF scheme in art. 53 of the Proposal for a Regulation of the European Parliament and of the Council laying down the rules for the participation of undertakings, research centres and universities in actions under the Seventh EC Framework Programme and for the dissemination of research results (2007-2013) - COM(2005)705 of 23.12.2005.
• [23]  Under the Statute, the Bank may have maximum loans outstanding equivalent to two and half times its capital. Apparently the EIB is not favourable to lower the budget contribution to these combined instruments and programmes (critical mass). A reduced amount could go again the concepts of EIB's instruments and possibly loose the leverage effect of scarce budget resources towards the EIB borrowing and lending capacities.
• [24]  RSFF, CIP Financial Instrument, EU Loan Guarantee Instrument for TENs
• [25]  CEB/KfW : Council of Europe Development Bank/ Kreditanstalt für Wiederaufbau
• [26]  The facility is currently operational in Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia and Turkey. The financial intermediaries in the candidate countries participating in this programme must be committed to develop SME operation as a significant part of their business.
• [27]  COM(2006) 36 final
• [28]  COM(2006) 75
• [29]             Cf. Joint Declaration of the European Parliament, the Council and the Commission of 4 March 1975 (OJ No. C 89 of 22.04.1975, p. 1).

OPINION OF THE COMMITTEE ON FOREIGN AFFAIRS (22.3.2006)

for the Committee on Budgets

on the Interinstitutional Agreement on budgetary discipline and sound financial management
(2004/2099(ACI))

Draftsman: Karl von Wogau

SUGGESTIONS

The Committee on Foreign Affairs calls on the Committee on Budgets, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

1.   Is of the opinion that a new Financial Framework should guarantee the critical financial mass and achieve a steady progression in the allocation of resources for external assistance, commensurate with the growing challenges and with the increased expectations with respect to the Union’s role;

2.   Reaffirms the need for more targeted use of EU funds in the external assistance area, as outlined in its resolution on Policy Challenges and Budgetary Means of 8 June 2005^[1]*, and invites the Council to come up with a similar prioritisation of EU spending, rather than applying linear cuts to all EU instruments;

3.   Rejects the drastic cut which would be inflicted on research in the field of security if the ceilings agreed by the Heads of State and Government were applied; confirms its determination, even in a tight financial context, to allocate adequate resources to this critical research area and to ensure that Galileo, a high-tech programme of strategic importance for both the economy and the security of the European Union, is properly funded;

4.   Opposes the European Council’s request that at least 90% of the EU external assistance be classified as official development aid; considers that binding targets of this nature could impair the Union’s capacity to provide the right mix of policies with regard to partner countries, and in particular to respect its commitments to countries either torn by conflict or engaged in post-conflict management;

5.   Regards as crucial the establishment of well-endowed flexibility instruments to cover unforeseen needs, including those of a multi-annual character; is convinced that this must be matched by a simplified, less cumbersome procedure for the mobilisation of such instruments; considers however that this cannot be a substitute for adequate ordinary budgetary allocations and that the establishment of these instruments should be accompanied by a commitment to use the mid-term review of the Financial Framework to budget adequately for such unforeseen expenditure;

6.   Regrets attempts to apply procedures of an intergovernmental nature in the allocation and management of funds for CFSP actions under the EU budget;

7.   Expects the future Interinstitutional Agreement to provide for the unrestricted participation of Parliament in the annual CFSP review; stresses in this connection the need to consult Parliament in advance on aspects and choices;

8.   Emphasises the increasing interdependence between civilian and military components of EU operations and the recognised need for comprehensive planning of CFSP/ESDP activities; would therefore welcome, in the context of the above information and consultation arrangements, the opportunity of clarifying the scope and nature of the different sources of financing;

9.   Takes the view that the new Interinstitutional Agreement should provide for the Community budget funding of joint costs incurred by all ESDP operations; in the interests of transparency urges that the Interinstitutional Agreement contains at the very least a mandatory provision concerning a posteriori notification of security policy funding mechanisms not included in the Community budget;

10. Warns the Council that the substantial increase in CFSP spending advocated by the Heads of State cannot be reconciled with the tight expenditure ceilings they have put forward; therefore urges the Member States to develop greater complementarity and synergy between Community instruments - notably the new Instrument for Stability - and CFSP activities, since this would allow the Union to respond more adequately to the increasing financial needs for crisis management and non-proliferation measures;

11. Calls on Parliament to ensure the efficient and effective implementation of the various CFSP measures by appointing, through its committee responsible (the Committee on Foreign Affairs), standing rapporteurs to monitor those measures and the implementation of the relevant articles under the CFSP budget heading.

PROCEDURE

Title	The interinstitutional Agreement on budgetary discipline and sound financial management
Procedure number	2004/2099(ACI)
Committee responsible	BUDG
Committee asked for its opinion   Date announced in plenary	AFET 27.10.2005
Enhanced cooperation	No
Draftsperson   Date appointed	Karl von Wogau 13.9.2004
Discussed in committee	22.2.2006	20.3.2006
Date suggestions adopted	21.3.2006
Result of final vote	for: against: abstentions:		43 2 0
Members present for the final vote	Angelika Beer, Panagiotis Beglitis, André Brie, Elmar Brok, Philip Claeys, Véronique De Keyser, Giorgos Dimitrakopoulos, Ana Maria Gomes, Alfred Gomolka, Richard Howitt, Jana Hybášková, Toomas Hendrik Ilves, Michał Tomasz Kamiński, Helmut Kuhne, Vytautas Landsbergis, Emilio Menéndez del Valle, Francisco José Millán Mon, Pasqualina Napoletano, Annemie Neyts-Uyttebroeck, Baroness Nicholson of Winterbourne, Raimon Obiols i Germà, Cem Özdemir, Justas Vincas Paleckis, Alojz Peterle, João de Deus Pinheiro, Mirosław Mariusz Piotrowski, Hubert Pirker, Paweł Bartłomiej Piskorski, Libor Rouček, José Ignacio Salafranca Sánchez-Neyra, Jacek Emil Saryusz-Wolski, György Schöpflin, Gitte Seeberg, Marek Maciej Siwiec, István Szent-Iványi, Konrad Szymański, Charles Tannock, Ari Vatanen, Karl von Wogau, Luis Yañez-Barnuevo García, Josef Zieleniec
Substitutes present for the final vote	Irena Belohorská, Alexandra Dobolyi, Árpád Duka-Zólyomi, Patrick Gaubert, Jaromír Kohlíček, Ģirts Valdis Kristovskis, Miguel Angel Martínez Martínez, Tatjana Ždanoka
Substitutes under Rule 178(2) present for the final vote

• [1] ^* Texts Adopted, P6_TA(2005)0224.

OPINION OF THE COMMITTEE ON DEVELOPMENT (24.4.2006)

for the Committee on Budgets

on the Interinstitutional Agreement on budgetary discipline and sound financial management
(2004/2099(ACI))

Draftswoman: Glenys Kinnock

SUGGESTIONS

The Committee on Development calls on the Committee on Budgets, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

1.   Rejects the 20.4% cut made by the European Council of December 2005 to the level of funding proposed by the Commission for Heading 4 for the period 2007-2013, as this will not provide sufficient resources for the Community to fulfil its role as "a global player"; considers that a more realistic level of funding is indispensable, not only to respond to repeated criticisms that the Community "punches below its weight" in external policies but also, most importantly, to ensure that a meaningful effort can be made towards the eradication of poverty in developing countries along the lines set out in the Millennium Development Goals (MDGs); stresses, particularly, that the allocation for development actions must be commensurate with commitments made by Member States to increase their levels of Official Development Assistance towards the United Nations target of 0.7% of Gross National Income by 2015.

2.   Welcomes the establishment of new external policy priorities giving greater emphasis to the regions neighbouring the Community and providing the means to re-establish stability in situations of political turmoil; stresses, however, that these new priorities should not detract from the importance of fulfilling commitments made on the MDGs and giving priority to the poorest countries and the poorest communities within countries.

3.   Gives its full support to the recommendation of the European Council of December 2005 that "the Union should aim to ensure over the period 2007-2012 that at least 90% of its overall external assistance be counted as official development assistance according to the present DAC definition".

4.   Agrees with the principle of simplification of the legislative environment, but insists that nothing in the Interinstitutional Agreement should prejudge the outcome of current or forthcoming negotiations on its legislative work, including the legislative architecture for Heading 4 and the relative merits of including policy details and financial allocations within legislation as currently proposed.

5.   Draws attention to the repeated use of the Flexibility Instrument to fund unforeseen needs in Heading 4 during the period 2000-2006 and calls for a sufficient unallocated margin to be preserved under the Heading 4 ceiling to make provision for similar needs likely to arise in the future; calls, in that regard, for adequate facilities for flexibility to be applied to the whole Financial Perspective to make provision for the possible additional funding for Heading 4 if the need arises.

6.   Highlights the need for sufficient funding to be provided for adequate compensation of ACP countries signatories to the Sugar Protocol to the Cotonou Agreement which face serious economic and social consequences following the reform of the EU Sugar Regime, and calls for an allocation to be ring-fenced from the Heading 4 margin for this purpose.

PROCEDURE

Title	The interinstitutional Agreement on budgetary discipline and sound financial management
Procedure number	2004/2099(ACI)
Committee responsible	BUDG
Opinion by   Date announced in plenary	DEVE 27.10.2005
Enhanced cooperation – date announced in plenary
Drafts(wo)man   Date appointed	Glenys Kinnock 25.1.2006
Previous drafts(wo)man
Discussed in committee	20.2.2006
Date adopted	24.4.2006
Result of final vote	+: –: 0:	13 0 0
Members present for the final vote	Margrete Auken, Margrietus van den Berg, Koenraad Dillen, Michael Gahler, Filip Andrzej Kaczmarek, Miguel Angel Martínez Martínez, Luisa Morgantini, Horst Posdorf, Frithjof Schmidt, Feleknas Uca
Substitute(s) present for the final vote	Linda McAvan, Zbigniew Zaleski, Gabriele Zimmer
Substitute(s) under Rule 178(2) present for the final vote
Comments (available in one language only)

OPINION OF THE COMMITTEE ON BUDGETARY CONTROL (5.10.2005)

for the Committee on Budgets

on the Interinstitutional Agreement on budgetary discipline and sound financial management
(2004/2099(ACI))

Draftsman: Jan Mulder

GENERAL COMMENTS

According to its competence for the control of the implementation of the budget, the Committee's proposals are restricted to suggestions concerning proper control of the implementation of the budget.

The solid financial framework aimed at by the Commission's proposal must build on solid financial control mechanisms. In this regard Parliament, in its resolution on the 2003 Commission discharge and the Commission in its proposal on a roadmap to an integrated control framework have proposed mechanisms to provide the Commission with reasonable assurance that Member States' control systems are in place and functioning. Without prejudice and in addition to the negotiations launched in July 2005, the amendments aim at ensuring that this process is taken into account in the Interinstitutional Agreement for the next financial perspectives.

CONCLUSIONS

The Committee on Budgetary Control calls on the Committee on Budgets, as the committee responsible, to incorporate the following amendments in its report:

Text proposed by the Commission	Amendments by Parliament
Amendment 1 Part II, point B, article 31, paragraph 2 a (new)
	The preliminary draft budget will also be accompanied by the annual ex-post declaration of assurance presented by the highest political and managing authority of each Member State (Finance Minister), stating that appropriate controls allowed for reasonable assurance concerning the legality and regularity of operations implementing expenditure, in particular, in the areas of shared management.
Amendment 2 Part II, point, B, article 32, paragraph 1 a (new)
	Moreover, the two arms of the budgetary authority undertake to consider the efforts made or further required to be made by the Member States in cooperation with the Commission in developing and implementing effective control systems, covering both revenue and expenditure, with a view to ensuring sound financial management. To this end, the two arms of the budgetary authority discuss, in the context of the conciliation procedure provided for in Annex II, the formal ex-ante disclosure statement made by the highest political and managing authority of each Member State (Finance Minister) providing assurance that efficient and effective controls for the implementation of the EU budget are in place or, if necessary, indicating concrete remedial action, in particular in the areas of shared management.
Amendment 3 Annex II, point C, article 2, point (a)
(a) continue discussions on the general trend of expenditure and, in this framework, on the broad lines of the budget for the coming year in the light of the Commission's preliminary draft budget;	(a) continue discussions on the general trend of expenditure and, in this framework, on the broad lines of the budget for the coming year in the light of the Commission's preliminary draft budget. These discussions will cover the declaration of assurance and the disclosure statement made by the highest political and managing authority (Finance Minister) of each Member State in accordance with Articles 31 and 32 of this Agreement;

PROCEDURE

Title	The interinstitutional Agreement on budgetary discipline and sound financial management
Procedure number	2004/2099(ACI)
Committee responsible	BUDG
Committee asked for its opinion   Date announced in plenary	CONT
Enhanced cooperation	No
Drafts(wo)man   Date appointed	Jan Mulder 22.9.2004
Discussed in committee	12.9.2005
Date suggestions adopted	3.10.2005
Result of final vote	for: against: abstentions:		18 0 0
Members present for the final vote	Simon Busuttil, Mogens N.J. Camre, Paulo Casaca, Szabolcs Fazakas, Christofer Fjellner, Ingeborg Gräßle, Umberto Guidoni, Ona Juknevičienė, Jan Mulder, José Javier Pomés Ruiz, Bart Staes, Margarita Starkevičiūtė, Jeffrey Titford, Kyösti Tapio Virrankoski, Terence Wynn
Substitutes present for the final vote	Joel Hasse Ferreira, Edit Herczog, Bill Newton Dunn, Esko Seppänen
Substitutes under Rule 178(2) present for the final vote

OPINION OF THE COMMITTEE ON REGIONAL DEVELOPMENT (23.3.2006)

for the Committee on Budgets

on the Interinstitutional Agreement on budgetary discipline and sound financial management(2004/2099(ACI))

Draftswoman: Constanze Angela Krehl

SUGGESTIONS

The Committee on Regional Development calls on the Committee on Budgets, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

1.   Welcomes the fact that the European Council reached agreement on the Financial Perspective 2007-2013, but deplores the fact that the projected resources are insufficient to meet the needs of the Union, and of regional development especially, over the period concerned; points out that Parliament had called for 0.41% of Union GNI to be allocated to cohesion but the European Council cut that percentage to the significantly lower figure of 0.37%;

2.   Considers in particular that the budgets allocated under heading 1b are manifestly insufficient and therefore requires that the credits concerned be re-established at the level proposed by Parliament in its resolution on Policy Challenges and Budgetary Means of the enlarged Union 2007-2013[1]; regrets, in particular, the substantial reduction in resources for the "European Territorial Cooperation Objective", which have been cut by almost 50% of the amount stipulated in the original Commission proposal.; stresses that this objective has a clear European added value, since it promotes cooperation among Member States and regional authorities; asks, therefore, for the allocation of substantial additional funding for this objective; notes also the disproportionate reduction in the budget allocated to the competitiveness objective;

3.   Deplores the fact that the December 2005 European Council failed to provide full compensation for the ‘statistical effect’ regions, which will consequently have to endure 20% cuts starting immediately in 2007 and continuing in stages until 2013;

4.   Notes that the Council's proposal for the financial perspective affects the draft legislation at present before Parliament and reminds Council that changes to that legislation can only be made under the rules of co-decision;

5.   Criticises in this connection the proposal put forward in the financial negotiations to apply various standards for calculating the participation by EU funds and for the eligibility of VAT for funding; calls for the extension of private co-financing and the eligibility of VAT for funding to all Member States;

6.   Welcomes the creation of a Globalisation Adjustment Fund, which should help workers in the Union’s regions affected by delocalisation and globalisation;

7.   Welcomes the fact that the flexibility reserves, and in particular the reserve for cohesion and the solidarity reserve, are placed outside the financial framework and understands from this that their implementation should have no effect on the sums reserved for the Structural Funds;

8.   Requires that the mechanisms and procedures for calling on these reserves be adapted to existing structures to ensure their speedy, unbureaucratic and effective use;

9.       In application of the principle of recycling and notwithstanding the provisions of paragraph 16 of the draft interinstitutional agreement, requires that a special reserve be created for cohesion with appropriations from sub-heading 1bwhich have been decommitted due to the N+2 or N+3 rule . The corresponding commitment appropriations should be entered in the budget under the relevant heading, if necessary over and above the relevant amount as laid down in Annex I to the interinstitutional agreement. Further asks the Commission to present a proposal for the re-allocation of the funds made available, the decision to be taken jointly by the Council and Parliament;

10. Maintains that the negotiations under way on the interinstitutional agreement must ensure full compliance with the spending target for the Structural Funds and the Cohesion Fund, whereby implementation of the Funds will be guaranteed and no margin left under heading 1b;

11.     Points to the evident will of all Member States to commence planning their programmes for the next programming period without delay;

12. Emphasises the need for the two arms of the budgetary authority to rapidly agree on the multi-annual framework 2007-2013, thus permitting Member States to plan their programmes and avoid undue delay in commencing them; furthermore, draws attention to the need to avoid the delays in implementation experienced at the beginning of the current programming period;

13. Points out that the financial perspective is not an end in itself, but a means of pursuing what should be a far-sighted and ambitious European policy.

PROCEDURE

Title	The interinstitutional Agreement on budgetary discipline and sound financial management
Procedure number	2004/2099(ACI)
Committee responsible	BUDG
Opinion by   Date announced in plenary	REGI 27.10.2005
Enhanced cooperation – date announced in plenary
Drafts(wo)man   Date appointed	Constanze Angela Krehl 6.10.2004
Previous drafts(wo)man
Discussed in committee	31.1.2006		23.2.2006
Date adopted	21.3.2006
Result of final vote	+: –: 0:	40 2 1
Members present for the final vote	Alfonso Andria, Stavros Arnaoutakis, Elspeth Attwooll, Jean Marie Beaupuy, Rolf Berend, Jana Bobošíková, Graham Booth, Bairbre de Brún, Giovanni Claudio Fava, Hanna Foltyn-Kubicka, Iratxe García Pérez, Eugenijus Gentvilas, Lidia Joanna Geringer de Oedenberg, Ambroise Guellec, Gábor Harangozó, Konstantinos Hatzidakis, Mieczysław Edmund Janowski, Gisela Kallenbach, Tunne Kelam, Miloš Koterec, Constanze Angela Krehl, Jamila Madeira, Sérgio Marques, Miroslav Mikolášik, Francesco Musotto, Jan Olbrycht, Markus Pieper, Francisca Pleguezuelos Aguilar, Alyn Smith, Grażyna Staniszewska, Margie Sudre, Kyriacos Triantaphyllides, Oldřich Vlasák
Substitute(s) present for the final vote	Thijs Berman, Brigitte Douay, Den Dover, Jillian Evans, Emanuel Jardim Fernandes, Louis Grech, László Surján, Thomas Ulmer, Manfred Weber
Substitute(s) under Rule 178(2) present for the final vote	María Esther Herranz García
Comments (available in one language only)	...

• [1]             Texts Adopted, P6_TA(2005)0224.

OPINION OF THE COMMITTEE ON AGRICULTURE AND RURAL DEVELOPMENT (23.2.2006)

for the Committee on Budgets

on the Interinstitutional Agreement on budgetary discipline and sound financial management
(2004/2099(ACI))

Draftswoman: Bernadette Bourzai

SHORT JUSTIFICATION

Since 1988, the financial framework (or financial perspective) has translated the Union’s political priorities into financial terms and set limits on EU expenditure over a fixed period.

In practice, however, Parliament, the Council and the Commission must conclude an interinstitutional agreement (IIA) on discipline and improvement of the budgetary procedure that defines the multiannual financial framework and its implementing provisions (Part I) as well as the rules relating to the improvement of interinstitutional collaboration in general and to more specific areas such as the classification of expenditure, legal bases etc. (Part II).

The IIA provides clarity, continuity and flexibility. However, while the IIA enhances interinstitutional collaboration with trialogues and conciliation meetings, the annual budgetary procedure remains overly cumbersome and formalistic.

Agriculture expenditure in the annual budgetary procedure

- Each year, before the first reading of the European Parliament, the Commission sends the budgetary authority a letter amending the preliminary draft budget for agriculture.

This letter takes account of the latest decisions relating to the common agricultural policy and the most recent crop estimates, in view of the fact that agricultural expenditure, which is compulsory, is closely linked to the specific market situation, to the effective exchange rate between the euro and the dollar and to the pace of payments made by the Member States.

This means that the role of Parliament’s Committee on Agriculture and Rural Development, which works on the basis of the figures in the draft preliminary budget, is neutralised in advance.

- The final decision on compulsory expenditure, which mainly consists of support to farmers, is made by the Council.

Although the responsibilities of the Committee on Agriculture and Rural Development relate to a considerable proportion of the Community budget (43 % of the budget in 2005 and 45 % in 2006), the action it can take in the budgetary procedure, particularly as regards compulsory expenditure, is often limited because it does not take part in the negotiations between the Council and Parliament, who have to wait for the letter of amendment before agreement is reached.

There needs to be a rethink of the distinction between compulsory and non‑compulsory expenditure, particularly following the latest CAP reform.

In practice, a great deal of market expenditure becomes direct aid which is assimilated into structural expenditure and which could, as such, be classified as non‑compulsory expenditure. Furthermore, in view of the progressive importance of rural development expenditure, which by its nature is multiannual and therefore programmable, discussions on the classification of agriculture expenditure in general could be reopened.

The 2007-2013 financial framework. The proposal by the December 2005 European Council

The expenditure allocated under the first pillar of the CAP has already been fixed for 2007‑2013 on account of the decision by the 2002 Brussels European Council that the amount earmarked for agriculture for 2006 under Agenda 2000 would be maintained until 2013. The expenditure ceiling is to rise by 1 % per year.

The proposal by the December 2005 European Council on the new financial framework adheres to this agreement but also takes into account, within this ceiling, the anticipated requirements of Romania and Bulgaria. Furthermore, the amounts proposed for financing rural development policy are insufficient and run the risk of compromising the double objective of the 2002 reform. Indeed, with aid no longer being linked to production, the implementation of actions financed by rural development was supposed to provide for a certain amount of reconversion as well as the maintenance of farmers’ income levels.

SUGGESTIONS

The Committee on Agriculture and Rural Development calls on the Committee on Budgets, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

1.  Recommends that its Committee on Budgets consider a new timetable for the different stages of the annual budget negotiations so as to allow the Committee on Agriculture and Rural Development a genuine opportunity to give its opinion on the draft agriculture budget and to react following publication of the Commission’s letter amending agriculture expenditure;

2.  Emphasises the need for greater transparency in budgetary conciliation;

3.  Proposes that a European Parliament delegation for budgetary conciliation be set up that would be representative of the budget share of the different European policies and which would, therefore, systematically include the draftsman of the Committee on Agriculture and Rural Development;

4.  Calls on the Commission to provide, as a minimum, specific information for the Committee on Agriculture and Rural Development on the clearance of accounts in order to improve the Committee’s right to scrutiny, as regards not only agricultural expenditure but also the reimbursement of unused amounts to the Member States;

5.  Approves of the idea of reallocation flexibility in order that, for example, unused appropriations under heading 2 may remain available under heading 2 without a revision of the financial framework; further calls for the resources released from export subsidies as a result of commitments under the WTO Agreement to be re‑designated for rural development;

6.  Recalls that the ceilings for the common agricultural policy (CAP) were fixed until 2013 by the 2002 reform and that the changes agreed as a result of the mid‑term review clause proposed by the last European Council (point 80 of the agreement) can lead to redistributions and reforms within the agriculture budget but cannot have any impact on total CAP expenditure in the Community budget until 2013;

7.  Considers that the European Council’s proposal to reduce the amount allocated to rural development by some EUR 20 000 million is unacceptable since it conflicts with one of the principal objectives of the September 2003 reform of the CAP, which was to reinforce the second pillar; considers that this is particularly true in the EU 15, which face a reduction of 35 % in funding for rural development;

8.  Rejects, therefore, the agreement reached by the Heads of State and Government of the European Union on the Rural Development strand since the funding available will obstruct the financing of actions launched in the past as well as that of new eligible measures, especially those stemming from implementation of the Natura 2000 network;

9.  Considers that financing the Natura 2000 network with a reduced allocation for the second pillar of the CAP could give rise to injustices, owing to the impossibility of compensating all farmers for the loss in income occasioned by satisfying the environmental requirements inherent in that network;

10. Is concerned that the frontloading of spending on rural development at the beginning of the financial period 2007-2013 does not reflect the usual expenditure profile at Member State level, where the traditional pattern is to spend more towards the end of the period;

11. Is also concerned that lower spending levels proposed for the end of the period 2007-2013 will make it more difficult to negotiate a new financial package for 2013 onwards, at which point an enhanced rural development package may be required;

12. Requests that the initial annual profile of rural development funds of guarantee origin be restored;

13. Rejects the possibility available to the Member States of transferring up to 20 % in supplementary modulation to rural development programmes as this constitutes a first step towards renationalising the CAP and causes unacceptable harm to the Community market; considers further that this supplementary modulation endangers the proper financing of the first pillar and the continuing economic viability of many agricultural holdings;

14. Emphasises that in any event the option available to Member States to transfer up to a maximum of 20 % of the amounts they receive for market expenditure and direct payments for financing rural development programmes is technically impossible since market expenditure is not allocated in national envelopes and is by definition fluctuating;

15. Regrets that the voluntary modulation of 20 % proposed by the Council to fund rural development would not be required to meet the same rules in terms of national cofinancing or to respect the minimum spending axis set out in Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agriculture Fund for Rural Development (EAFRD) for rural development;

16. Considers that including the costs of implementing the CAP in Bulgaria and Romania (EUR 8 billion) in the envelope for income support and agricultural market support intended for 25 Member States and the application of supplementary modulation will lead to a very noticeable reduction in direct aid, raising concerns of a very early application of financial discipline and, as a result, insecurity for farmers;

17. Is concerned that the Commission's proposal on the Financial Perspectives 2007-2013 does not contain the appropriations needed to cover direct payments in new Member States as set out in Annex VIIIa of Regulation (EC) No 1782/2003; calls on the Commission and the Council to fulfil the Copenhagen Agreement and their financial obligations towards the new Member States;

18. Calls on the Commission to explain how the financial discipline appropriate to the CAP as defined in Article 11 of Regulation (EC) No 1782/2003 should link up with the implementing provisions for the new financial framework as laid down in this interinstitutional agreement.

PROCEDURE

Title	The interinstitutional Agreement on budgetary discipline and sound financial management
Procedure number	2004/2099(ACI)
Committee responsible	BUDG
Opinion by   Date announced in plenary	AGRI 27.10.2005
Enhanced cooperation – date announced in plenary	--
Drafts(wo)man   Date appointed	Bernadette Bourzai 5.10.2004
Previous drafts(wo)man	--
Discussed in committee	25.1.2006		21.2.2006
Date adopted	21.2.2006
Result of final vote	+: –: 0:	35 1 --
Members present for the final vote	Marie-Hélène Aubert, Peter Baco, Katerina Batzeli, Thijs Berman, Niels Busk, Luis Manuel Capoulas Santos, Giuseppe Castiglione, Joseph Daul, Albert Deß, Michl Ebner, Carmen Fraga Estévez, Duarte Freitas, Jean-Claude Fruteau, Ioannis Gklavakis, Lutz Goepel, Friedrich-Wilhelm Graefe zu Baringdorf, María Esther Herranz García, Elisabeth Jeggle, Heinz Kindermann, Stéphane Le Foll, Albert Jan Maat, Diamanto Manolakou, Rosa Miguélez Ramos, Neil Parish, María Isabel Salinas García, Agnes Schierhuber, Willem Schuth, Czesław Adam Siekierski, Marc Tarabella, Jeffrey Titford, Kyösti Virrankoski, Janusz Wojciechowski, Andrzej Tomasz Zapałowski
Substitute(s) present for the final vote	Bernadette Bourzai, Markus Pieper, Zdzisław Zbigniew Podkański
Substitute(s) under Rule 178(2) present for the final vote	--
Comments (available in one language only)	--

OPINION OF THE COMMITTEE ON FISHERIES (19.4.2006)

for the Committee on Budgets

on the Interinstitutional Agreement on budgetary discipline and sound financial management
(2004/2099(ACI))

Draftswoman: Rosa Miguélez Ramos

SUGGESTIONS

The Committee on Fisheries calls on the Committee on Budgets, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

1.   Deplores the fact that the projected resources decided upon by the European Council in December 2005 are insufficient to meet the needs of the fisheries sector at a time of continued crisis in the fishing industry, characterised by smaller catches, lower income and increased costs, particularly for fuel;

2.   Stresses that the allocation earmarked for the European Fisheries Fund (EFF) by the European Council in its December 2005 agreement is clearly insufficient to carry out the Community's fisheries structural policy, since it represents a 22% cut by comparison with the figures approved in the European Parliament's resolution of 8 June 2005 on Policy Challenges and Budgetary Means of the enlarged Union 2007-2013[1];

3.   Shares the Commission's deep concern at the lack of resources for regions outside the 'Convergence' objective, most of which are seriously affected by the general crisis in the fishing industry;

4.   Demands that the credits concerned be reinstated at the level proposed by Parliament in its abovementioned resolution of 8 June 2005;

5.   Rejects any further suggestion that credits for the EFF should be restored at the cost of the second instrument; demands that Member States whose territory includes regions eligible under the different objectives (convergence and non-convergence) should be given greater flexibility in the management of their EFF envelope, by allowing them to transfer appropriations, within a limit of 5% of the total budget for the Member State concerned, between their convergence and non-convergence regions, so as to permit EFF resources to be targeted at those areas most in need of support;

6.   Expresses its concern, moreover, at the lack of resources planned for the second instrument and insists that adequate funding be available in order to implement in full all the non-structural elements of the CFP, such as conservation, control, governance and international aspects;

7.   Notes that some of the Council's conclusions on the financial perspectives relate to the rules and mechanisms for delivering assistance under the Structural Funds and are subject to co-decision or the assent of the European Parliament; demands, for the sake of ensuring consistency and coherence between the Funds, that any changes finally agreed between Parliament and Council be also applied to the EFF;

8.   Calls, in particular, for the elimination of any double standards both between Member States and between the Funds with regard to the Community contribution;

PROCEDURE

Title	The interinstitutional Agreement on budgetary discipline and sound financial management
Procedure number	2004/2099(ACI)
Committee responsible	BUDG
Opinion by   Date announced in plenary	PECH 27.10.2005
Enhanced cooperation – date announced in plenary
Drafts(wo)man   Date appointed	Rosa Miguélez Ramos 15.2.2006
Previous drafts(wo)man
Discussed in committee	22.2.2006		21.3.2006
Date adopted	19.4.2006
Result of final vote	+ :	Unanimously
Members present for the final vote	James Hugh Allister, Stavros Arnaoutakis, Elspeth Attwooll, Marie-Hélène Aubert, Iles Braghetto, Luis Manuel Capoulas Santos, Carlos Carnero González, David Casa, Paulo Casaca, Zdzisław Kazimierz Chmielewski, Carmen Fraga Estévez, Ioannis Gklavakis, Alfred Gomolka, Ian Hudghton, Heinz Kindermann, Henrik Dam Kristensen, Albert Jan Maat, Willy Meyer Pleite, Rosa Miguélez Ramos, Philippe Morillon, Seán Ó Neachtain, Bernard Poignant, Struan Stevenson, Margie Sudre
Substitute(s) present for the final vote	Chris Davies, Duarte Freitas
Substitute(s) under Rule 178(2) present for the final vote	Carlos Carnero González, Salvador Garriga Polledo, Eugenijus Gentvilas
Comments (available in one language only)	...

• [1]  Texts adopted, P6_TA(2005)0224.

OPINION OF THE COMMITTEE ON CULTURE AND EDUCATION (21.3.2006)

for the Committee on Budgets

on the Interinstitutional Agreement on budgetary discipline and sound financial management
(2004/2099(ACI))

Draftswoman: Ruth Hieronymi

SUGGESTIONS

The Committee on Culture and Education calls on the Committee on Budgets, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

1.   Recalls the importance of promoting active EU policies in the fields of education, training, media, youth, culture and active citizenship to the creation of a stronger political identity for the Union and as a clear added value of the Union for its citizens;

2.   Recalls the importance of these policies to fulfilling the goals of the Lisbon strategy and the related social, economic and key political challenges to be faced in the coming years; stresses that the next financial perspective must state adquate means for tackling these challenges;

3.   Stresses the importance of agreeing expenditure ceilings in line with the priorities and programme structures defined during the co-decision procedures for the programmes Lifelong Learning, Media, Youth and Culture, which have already reached an advanced stage; asserts that such progress is undermined by budget cuts, which pose serious risks to the effectiveness, role, operation and implementation of the programmes;

4.   Welcomes the Commission's proposal to increase the leverage effect of EU funds by improving synergies between the EU budget and the European Investment Bank; emphasises the link between education and training projects and research funding as well as the need to achieve financial synergies extending to educational, cultural, audiovisual, institutional and territorially integrated systems facilitating research and innovation activities;

5.   Recalls the significant increases agreed by Parliament and Council for several budget lines in the 2006 budget relating to education, training and youth;

6.   Notes the immediate absorption and the very high execution rate of EU funding in the areas of education, media, youth, culture (such areas presenting "real value for money");

Heading 1a

7.   Emphasises that, under the proposal made by the European Council of 15 and 16 December 2005, spending on Lifelong Learning (under heading 1a) would be restored to 2006 levels only in 2009;

8.   Notes that the impact on the Erasmus programme will imply a reduction in student mobility grants from 170 000 in 2006 to 140 000 annually for the coming years, and the loss of a number of important measures such as grants for non-teaching staff, long-term teacher mobility and special mobility for joint masters;

9.   Notes that the number of beneficiaries of the Leonardo programme will drop from 50 000 in 2006 to 36 000 annually for the coming years and that within the Comenius programme the number of beneficiary pupils involved in partnerships will decrease from the target of 4 million to 2 million; stresses also that a number of measures targeting adult learners (Grundtvig) and supporting multilingualism will be discontinued;

Heading 3b

10. Recalls that, while the partial political agreement reached with the Council after Parliament's first reading of the proposal in the Youth in Action programme shows that the institutions are on the way to reaching an important agreement ensuring the programme an effective structure and effective operation, the envelope proposed by the Council for heading 3b would imply a reduction in youth exchanges and projects of 22%;

11. Stresses that the important step of reaching a partial political agreement with the Council on the proposal for the Media programme should not be undermined by reduced funding for the programme; asserts that this would undermine the programme's strategic contribution - via its digitisation processes - to the strengthening of the audiovisual sector and the information society, as well as its smooth operation at a time when its success is steadily growing and being recognised by stakeholders; emphasises that a reduction in funding would mean less overall investment in the European audiovisual industry, in particular in new and future Member States and in countries with limited audiovisual production capacity; recalls that nine out ten European films distributed outside their country of production received support from the Media programme and the fact that requests for support from Media have increased by 120% in the last five years;

12. Stresses that, while the partial political agreement reached with the Council after Parliament's first reading of the proposal in the Culture 2007 programme is an adequate starting point for an EU policy capable of responding to the needs of different social and economic sectors, which are at the core of European identity, richness and diversity, the budget proposal of the Council would mean a decrease in the number of projects supported by Culture 2007 from 148 to 100;

13. Stresses the importance of the programme Citizens for Europe, which is aimed not only at fostering various activities at the level of civil society, involving citizens, associations and local authorities, but also at supporting memorials to victims of totalitarian regimes of the past century, an essential contribution to keeping alive the memory of the tragedies which inspired European integration as a project of peace and stability; stresses that the Council's proposal might reduce the level of support to only 800 of the planned 1.300 town twinning projects;

14. Stresses the importance of defining, in a transparent way, adequate margins within heading 3b for innovative actions.

EXPLANATORY STATEMENT

The negotiations on the renewed Inter-institutional Agreement on budgetary discipline are under going. These should offer the European Parliament the opportunity to reaffirm its prerogatives as the budgetary authority and as one of the co-legislating institutions.

The Culture Committee has already taken a firm position through its opinion[1].

The Council on 15-16 December 2005 found an agreement on ceilings for expenditure, which differ consistently with the position taken by the European Parliament with its resolution[2]. The co-decision procedure on Lifelong Learning, Media, Youth in Action, Culture and Citizens for Europe programmes is therefore now at stake.

In this respect, it is crucial to call upon the Council to explain to citizens the consequences of its choices on budgetary priorities for the years to come.

PROCEDURE

Title	The interinstitutional Agreement on budgetary discipline and sound financial management
Procedure number	2006/0036(ACI)
Committee responsible	BUDG
Opinion by   Date announced in plenary	CULT 27.10.2006
Enhanced cooperation – date announced in plenary
Drafts(wo)man   Date appointed	Ruth Hieronymi 23.1.2006
Previous drafts(wo)man
Discussed in committee	23.2.2006
Date adopted	21.3.2006
Result of final vote	+: –: 0:	26 1 0
Members present for the final vote	Maria Badia I Cutchet, Christopher Beazley, Ivo Belet, Giovanni Berlinguer, Guy Bono, Marie-Hélène Descamps, Claire Gibault, Vasco Graça Moura, Lissy Gröner, Luis Herrero-Tejedor, Ruth Hieronymi, Manolis Mavrommatis, Marianne Mikko, Ljudmila Novak, Doris Pack, Rolandas Pavilionis, Zdzisław Zbigniew Podkański, Christa Prets, Karin Resetarits, Nikolaos Sifunakis, Hannu Takkula, Helga Trüpel, Henri Weber, Thomas Wise
Substitute(s) present for the final vote	Gyula Hegyi, Mario Mauro, Jaroslav Zvěřina
Substitute(s) under Rule 178(2) present for the final vote
Comments (available in one language only)	...

• [1]  PE 350226, 1.2.2005
• [2]  PE 368.274, B6-0049/2006

OPINION OF THE COMMITTEE ON CIVIL LIBERTIES, JUSTICE AND HOME AFFAIRS (24.2.2006)

for the Committee on Budgets

on the Interinstitutional Agreement on budgetary discipline and sound financial management
(2004/2099(ACI))

Draftsman: Gérard Deprez

SUGGESTIONS

The Committee on Civil Liberties, Justice and Home Affairs calls on the Committee on Budgets, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

Financial framework 2007 to 2013

1.   Stresses that no further additional tasks, foreseen or unforeseen, can be financed from subheading 3A 'Freedom, Security and Justice'; emphasises that, for any additional tasks, an increase in appropriations or, where appropriate, use of flexibility reserves must be considered;

2.   Proposes to examine whether certain existing reserves might be removed from the table of the financial framework, for example the reserve for emergency measures in the event of a mass influx of refugees (budget line 18 03 04), which has so far never been used;

Structure of the new multiannual financial framework and agencies

3.   Welcomes the Member States' support for the creation of a specific, autonomous sub-heading under heading 3 of the financial perspective for the area of freedom, security and justice, as requested by Parliament[1];

4.   Supports the request to create binding ceilings for the agencies outside the table of the financial framework; requests, however, that the ceiling take account, firstly, of the fact that certain agencies are new and must be allowed to grow, secondly, that there might be objective needs for the creation of new agencies, thirdly, Parliament's request, which was included in the Constitutional text, to finance Europol from the EU budget;

5.   Proposes the launch of an independent and objective assessment of the European added value of all agencies; is of the opinion that agencies passing this assessment and which fulfil an essential task for the EU for which they have the political support of Parliament should also receive the necessary financial resources from Parliament; proposes to invite the agencies to communicate to Parliament their medium-term strategy for the period up to 2013, together with a financial statement;

Interinstitutional agreement on budgetary discipline and improvement of the budgetary procedure

6.   Calls on the Commission to present, in the documents accompanying the PDB, specific justifications for the expenditure related to the area of freedom, security and justice; proposes that Parliament and Council should, in a trialogue before Council's first reading, find agreement on the actions and their financing for the following year, or, in the absence of agreement, that a second trialogue be organised before Council's second reading;

7.   Proposes the removal from the text of the interinstitutional agreement of the commitment to 'avoid entering items in the budget carrying insignificant amounts of expenditure on operations', because, for political reasons, the institutions often choose to do so;

8.   Objects to the Commission's proposal that both arms of the budgetary authority should inform the Commission by mid-June of their intentions as regards pilot projects and preparatory actions because Parliament, as one arm of the budgetary authority, can only decide its position once the deadline for budget amendments has passed;

9.   Insists on the inclusion of a binding review clause with a clearly defined role for the European Parliament in order to be able to deal with the new political environment that might arise once a new Commission and Parliament are in place; considers the Commission's current proposal on the review to be insufficient;

10. Strongly supports the calls to request certification of the accounts from Member States;

Transitory measures

11.  Doubts that all financial programmes will be adopted and ready for implementation by 1 January 2007; requests the Commission to prepare transitory measures which might include the provisional extension of current programmes.

PROCEDURE

Title	The interinstitutional agreement on budgetary discipline and sound financial management
Procedure number	2004/2099(ACI)
Committee responsible	BUDG
Committee asked for its opinion   Date announced in plenary	LIBE 27.10.2005
Enhanced cooperation
Draftsman   Date appointed	Gérard Deprez 25.10.2004
Discussed in committee	19.1.2005
Date suggestions adopted	22.2.2006
Result of final vote	for: against: abstentions:		47 0 0
Members present for the final vote	Alexander Nuno Alvaro, Roberta Angelilli, Edit Bauer, Mihael Brejc, Kathalijne Maria Buitenweg, Michael Cashman, Giusto Catania, Jean-Marie Cavada, Charlotte Cederschiöld, Carlos Coelho, Fausto Correia, Agustín Díaz de Mera García Consuegra, Rosa Díez González, Antoine Duquesne, Kinga Gál, Patrick Gaubert, Elly de Groen-Kouwenhoven, Lilli Gruber, Adeline Hazan, Lívia Járóka, Timothy Kirkhope, Ewa Klamt, Barbara Kudrycka, Stavros Lambrinidis, Romano Maria La Russa, Henrik Lax, Sarah Ludford, Jaime Mayor Oreja, Claude Moraes, Hartmut Nassauer, Martine Roure, Inger Segelström, Ioannis Varvitsiotis, Manfred Weber, Stefano Zappalà, Tatjana Ždanoka
Substitutes present for the final vote	Panayiotis Demetriou, Gérard Deprez, Camiel Eurlings, Evelyne Gebhardt, Ignasi Guardans Cambó, Sophia in 't Veld, Sylvia-Yvonne Kaufmann, Bill Newton Dunn, Herbert Reul, Marie-Line Reynaud, Kyriacos Triantaphyllides
Substitutes under Rule 178(2) present for the final vote	Emine Bozkurt

• [1]  at point 36 of its resolution of 8 June 2005 on Policy Challenges and Budgetary Means of the enlarged Union 2007-2013 (Texts Adopted, P6_TA(2005)0224).

PROCEDURE

Title	The Interinstitutional Agreement on budgetary discipline and sound financial management
Procedure number	2004/2099(ACI)
Committee responsible   Date announced in plenary	BUDG 27.10.2005
Rapporteur(s)   Date appointed	Reimer Böge 20.9.2004
Previous rapporteur(s)
Discussed in committee	24.4.2006
Date adopted	24.4.2006
Result of final vote	+ - 0	21 3
Members present for the final vote	Reimer Böge, Simon Busuttil, Paulo Casaca, Gérard Deprez, Valdis Dombrovskis, Brigitte Douay, Salvador Garriga Polledo, Neena Gill, Catherine Guy-Quint, Silvana Koch-Mehrin, Janusz Lewandowski, Vladimír Maňka, Mario Mauro, Jan Mulder, Gérard Onesta, Wojciech Roszkowski, Nina Škottová, László Surján, Ralf Walter
Substitute(s) present for the final vote	Lidia Joanna Geringer de Oedenberg, Hans-Peter Martin, José Albino Silva Peneda, Margarita Starkevičiūtė, Peter Šťastný
Date tabled	27.4.2006
Comments (available in one language only)	...