Multiannual financial framework

There have been six multiannual financial frameworks (MFFs) to date, including 2021-2027. The Treaty of Lisbon transformed the MFF from an interinstitutional agreement into a regulation. Established for a period of at least five years, an MFF is there to ensure that the EU’s expenditure develops in an orderly manner and within the limits of its own resources. It sets out provisions with which the annual budget of the EU must comply, ensuring financial discipline. Concretely, the MFF Regulation sets expenditure ceilings for broad categories of spending called headings. On 2 May 2018, the Commission submitted legislative proposals for a new MFF for the period 2021-2027. In the wake of the COVID-19 outbreak, on 27 May 2020 the Commission put forward a recovery plan (NextGenerationEU) that included revised proposals for the MFF and own resources, and the setting up of a recovery instrument worth EUR 750 billion. The package was adopted on 16 December 2020.

Legal basis

  • Article 312 of the Treaty on the Functioning of the European Union;
  • Council Regulation (EU, Euratom) No 2020/2093 of 17 December 2020 laying down the multiannual financial framework for the years 2021-2027[1];
  • Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16 December 2020 on a general regime of conditionality for the protection of the Union budget[2];
  • Council Regulation (EU) 2020/2094 of 14 December 2020 establishing a European Union Recovery Instrument to support the recovery in the aftermath of the COVID-19 crisis[3];
  • Interinstitutional Agreement of 16 December 2020 between the European Parliament, the Council of the European Union and the European Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, as well as on new own resources, including a roadmap towards the introduction of new own resources[4].

Background

In the 1980s, a climate of conflict in relations between the institutions arose out of a growing mismatch between available resources and actual budgetary requirements. The concept of a multiannual financial perspective was developed as an attempt to lessen conflict, enhance budgetary discipline and improve implementation through better planning. The first interinstitutional agreement (IIA) to this end was concluded in 1988. It contained the financial perspective for 1988-1992 (also known as the Delors I package), which aimed to provide the resources needed for the budgetary implementation of the Single European Act. A new IIA was agreed on 29 October 1993, together with the financial perspective for 1993-1999 (the Delors II package), which enabled the Structural Funds to be doubled and the own resources (1.4.1) ceiling to be increased. The third IIA, on the financial perspective for 2000-2006, also known as Agenda 2000, was signed on 6 May 1999, and one of its main goals was to secure the necessary resources to finance enlargement. The fourth IIA, covering the period 2007-2013, was agreed on 17 May 2006.

The Treaty of Lisbon transformed the MFF from an interinstitutional agreement into a Council regulation subject to the consent of the European Parliament. In addition to determining the ‘amounts of the annual ceilings on commitment appropriations by category of expenditure and of the annual ceiling on payment appropriations’, Article 312 of the Treaty on the Functioning of the European Union (TFEU) states that the MFF must also ‘lay down any other provisions required for the annual budgetary procedure to run smoothly’. The MFF Regulation is accompanied by an IIA covering the areas of budgetary discipline, cooperation in budgetary matters and sound financial management.

The fifth MFF, covering the period 2014-2020, was adopted on 2 December 2013. This MFF was the first to be adopted under the new provisions of the Treaty of Lisbon, in accordance with which the Council, using a special legislative procedure, unanimously adopts the MFF Regulation after having obtained the consent of Parliament. It was also the first to see a decrease of overall amounts in real terms. One of Parliament’s preconditions for accepting the MFF was thus a mandatory mid-term revision allowing it to reassess budgetary needs during the MFF period and adjust them if necessary. The agreement also secured enhanced flexibility to enable full use of the amounts planned, an understanding on the way towards a true system of own resources for the EU, budgetary unity and transparency, and adequate parliamentary control and scrutiny. A revised MFF for 2014-2020 was adopted on 20 June 2017 with an agreement on additional support for migration related measures, jobs and growth. It also reinforced the Flexibility Instrument and the Emergency Aid Reserve, which meant that further funds could be shifted between budget headings and years, in order to be able to react to unforeseen events and new priorities.

The 2021-2027 multiannual financial framework

On 2 May 2018, the Commission presented legislative proposals for an MFF covering the years 2021 to 2027. The Commission’s proposal amounted to EUR 1 134.6 billion (2018 prices) in commitment appropriations, representing 1.11% of the EU-27’s GNI. It contained increases for border management, migration, security, defence, development cooperation and research, among others. Cuts were proposed in particular for cohesion and agricultural policy. The overall architecture was to be streamlined (from 58 to 37 expenditure programmes) and the Commission proposed a set of special instruments outside the MFF ceilings to improve flexibility in EU budgeting. The European Development Fund (EDF) would be integrated into the MFF. The Commission also proposed modernising the revenue side, with the introduction of several new categories of own resources

Parliament adopted resolutions on the MFF for 2021-2027 on 14 March[5] and 30 May 2018[6]. On 14 November 2018, Parliament further outlined its negotiating mandate, including amendments to the MFF Regulation and IIA proposals and a complete set of figures with a breakdown by heading and by programme. It specified that the MFF ceiling for commitments should increase from 1.0% (for the EU-28) to 1.3% of EU GNI (for the EU-27), i.e. EUR 1 324 billion (2018 prices), an increase of 16.7% on the Commission proposal. Allocations for the common agricultural policy and cohesion policy should remain unchanged in real terms, while several priorities should be further reinforced, including Horizon Europe, Erasmus+ and LIFE; a new Child Guarantee (EUR 5.9 billion) and a new Energy Transition Fund (EUR 4.8 billion) should be created; financing for decentralised agencies involved in migration and border management should increase more than fourfold (to more than EUR 12 billion). The EU budget’s contribution to the achievement of climate objectives should be set at a minimum of 25% of MFF expenditure for 2021-2027, be mainstreamed across relevant policy areas, and rise to 30% no later than 2027. Mid-term revision of the MFF should be mandatory.

On 30 November 2018 and 5 December 2019, the Council published a draft ‘negotiating box’, comprising horizontal and sectoral issues in the remit of expenditure programmes subject to the ordinary legislative procedure. The Council was in favour of an overall MFF amount of EUR 1 087 billion in commitment appropriations, in 2018 prices (1.07% of the EU-27 GNI), well below Parliament’s expectations.

On 10 October 2019 and 13 May 2020, Parliament updated its mandate following the European elections and requested that the Commission submit a proposal for an MFF contingency plan to provide a safety net to protect the beneficiaries of EU programmes in case the ongoing MFF needed to be extended, considering the disagreement within the European Council.

Meanwhile, on 14 January 2020, the Commission had put forward a proposal for a Just Transition Fund as an additional element in the package of MFF proposals, as part of the European Green Deal.

Following the COVID-19 crisis and the serious economic effects of the necessary lockdowns, the Commission published amended proposals on 27 and 28 May 2020[7] for an MFF of EUR 1 100 billion and an additional recovery instrument, NextGenerationEU (NGEU)[8], worth EUR 750 billion (in 2018 prices), EUR 500 billion of which in the form of grants and EUR 250 billion as loans. The package involved legislative proposals for new financial instruments as well as changes to MFF programmes already on the table. The financing of the additional package was to be secured by borrowing on the financial markets. For this purpose, the Commission also modified the proposal for an Own Resources Decision to enable the borrowing of up to EUR 750 billion. An increase in the own resources ceiling for payments to 1.4% of GNI, together with an additional but temporary 0.6% of GNI, were proposed to cover the increased borrowing and lending activity. Finally, the Commission package included a EUR 11.5 billion increase in the MFF 2014-2020 commitments ceiling for the year 2020, in order to begin mobilising support before the new MFF.

On 21 July 2020, the European Council adopted conclusions[9] on the recovery effort (NextGenerationEU), the 2021-2027 MFF, and own resources. The recovery effort was endorsed at EUR 750 billion for the years 2021-2023. However, the grant component was reduced from EUR 500 to 390 billion and the loan component was increased from EUR 250 to 360 billion. The European Council rejected the upward revision of the MFF ceiling for the year 2020. The overall ceiling for commitments in the 2021-2027 MFF was set at EUR 1 074.3 billion. Furthermore, the conclusions stated that a regime of conditionality to protect the budget and NGEU would be introduced. A new own resource was agreed from 1 January 2021 based on non-recycled plastic packaging waste and work towards the introduction of other own resources in the course of the 2021-2027 MFF was planned, to be used for early repayments of borrowing under the NGEU. The proposed legal basis of the NGEU was Article 122 of the TFEU, which allows the EU to establish measures appropriate to the economic situation with a qualified majority in the Council, without involving Parliament in the legislative procedure.

On 23 July 2020, Parliament called the creation of the recovery instrument a historic move, but deplored the cuts made to future-oriented programmes. It insisted that targeted increases on top of the figures proposed by the European Council must single out programmes relating to the climate, the digital transition, health, youth, culture, infrastructure, research, border management and solidarity. It reiterated, furthermore, that it would not give its consent to the MFF without an agreement on the reform of the EU’s own resources system, with the aim of covering at least the costs related to the NGEU (principal and interest), so as to ensure its credibility and sustainability. Parliament also demanded, as part of the budgetary authority, to be fully involved in the recovery instrument, in line with the Community method.

Trilateral talks involving Parliament, the Council and the Commission started in August 2020 and were concluded on 10 November 2020. The European Council approved the MFF-NGEU agreement on 11 December, after which Parliament gave its consent on 17 December 2020.

Parliament had cleared the way for the adoption and ratification of the Own Resources Decision (and thereby the launch of the EU’s recovery instrument) by providing, on 16 September 2020, its compulsory legislative opinion. All 27 Member States ratified the Own Resources Decision by 31 May 2021, enabling the EU to begin issuing debt on the capital markets under NGEU. EUR 71 billion was already raised in 2021.

A new mechanism to protect the EU budget from breaches to the principles of the rule of law, another condition set by Parliament for its consent, entered into force on 1 January 2021.

Multiannual financial framework (EU-27) (EUR million, 2018 prices)

Commitment appropriations 2021 2022 2023 2024 2025 2026 2027 Total2021-2027
1. Single market, innovation and digital 19 712 19 666 19 133 18 633 18 518 18 646 18 473 132 781
2. Cohesion, resilience and values 49 741 51 101 52 194 53 954 55 182 56 787 58 809 377 768
2a. Economic, social and territorial cohesion 45 411 45 951 46 493 47 130 47 770 48 414 49 066 330 235
2b. Resilience and values 4 330 5 150 5 701 6 824 7 412 8 373 9 743 47 533
3. Natural resources and environment 55 242 52 214 51 489 50 617 49 719 48 932 48 161 356 374
of which: market-related expenditure and direct payments 38 564 38 115 37 604 36 983 36 373 35 772 35 183 258 594
4. Migration and border management 2 324 2 811 3 164 3 282 3 672 3 682 3 736 22 671
5. Security and defence 1 700 1 725 1 737 1 754 1 928 2 078 2 263 13 185
6. Neighbourhood and the world 15 309 15 522 14 789 14 056 13 323 12 592 12 828 98 419
7. European public administration 10 021 10 215 10 342 10 454 10 554 10 673 10 843 73 102
of which: administrative expenditure of the institutions 7 742 7 878 7 945 7 997 8 025 8 077 8 188 55 852
TOTAL COMMITMENT APPROPRIATIONS 154 049 153 254 152 848 152 750 152 896 153 390 155 113 1 074 300
TOTAL PAYMENT APPROPRIATIONS 156 557 154 822 149 936 149 936 149 936 149 936 149 936 1 061 058

Parliament was able to secure, in particular:

  • EUR 15 billion extra compared to the July 2020 proposal, going to flagship programmes: Horizon Europe, Erasmus+, EU4Health, InvestEU, the Border Management Fund, the Neighbourhood, Development and International Cooperation Instrument (NDICI), Humanitarian Aid, Rights and Values, Creative Europe;
  • A progressive increase of the overall ceiling for the 2021-2027 MFF from EUR 1 074.3 to EUR 1 085.3 billion in 2018 prices;
  • A further EUR 1 billion for the Flexibility Instrument;
  • A new procedural step (the ‘budgetary scrutiny procedure’) for the setting up of future crisis mechanisms based on Article 122 of the TFEU, with potential appreciable budgetary implications;
  • Parliament’s involvement in the use of NGEU external assigned revenue (EAR), a general reassessment of EAR and borrowing and lending in the next revision of the Financial Regulation, and of arrangements for cooperation in future MFF negotiations;
  • An enhanced climate tracking methodology to reach the target of at least 30% of MFF/NGEU expenditure to support climate objectives;
  • A new annual biodiversity target and the design of a methodology to measure gender expenditure;
  • A reform of the collection, quality and comparability of data on beneficiaries in order to better protect the EU budget, including NGEU expenditure;
  • Integration of the EDF in the EU budget;
  • Overall levels of funding for agriculture and cohesion of a size comparable to 2014-2020;
  • Creation of the Just Transition Fund;
  • A legally binding roadmap for the introduction of new EU own resources.

The main source for the increases (EUR 11 billion) will come from a new mechanism linked to fines collected by the Union and will result in automatic additional allocations to the programmes concerned in 2022-2027. The overall ceiling of the seven-year MFF will therefore incrementally reach EUR 1 085.3 billion in 2018 prices, i.e. EUR 2 billion higher in real terms than the equivalent 2014-2020 MFF ceiling (EUR 1 083.3 billion in 2018 prices, without the UK, with the EDF).

Further top-ups (EUR 2.5 billion) come from margins left unallocated within the ceilings set by the European Council. EUR 1 billion comes from reflows from the ACP Investment Facility (EDF), to the benefit of the NDICI. EUR 0.5 billion come from decommitted appropriations in the area of research, to the benefit of Horizon Europe (Article 15(3) of the Financial Regulation).

Under the IIA, repayments and interests of recovery debt are to be financed by the EU budget under the MFF ceilings for the 2021-2027 period, ‘including by sufficient proceeds from new own resources introduced after 2021’. This is without prejudice to how this matter will be addressed in future MFFs from 2028 onwards and the express aim is to preserve EU programmes and funds.

On 22 December 2021, the Commission proposed new own resources and a targeted amendment of the MFF Regulation. These measures are mainly aimed at increasing ceilings to accommodate expenditure for the future Social Climate Fund and introducing a new mechanism that allows ceilings to automatically increase from 2025 in order to accommodate any additional revenue yielded by new own resources for the early repayment of NGEU debt.

 

[1]OJ L 433 I, 22.12.2020, p. 11.
[2]OJ L 433 I, 22.12.2020, p. 1.
[3]OJ L 433 I, 22.12.2020, p. 23.
[4]OJ L 433 I, 22.12.2020, p. 28.
[5]OJ C 162, 10.5.2019, p. 51.
[6]OJ C 76, 9.3.2020, p. 103.

Alix Delasnerie