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Lessons to be learnt from the past for the new MFF

The Multiannual Financial Framework (MFF) — the EU’s long-term budget — is sometimes seen as the blueprint for EU’s political and financial priorities for the next seven years. No surprise that negotiations on the MFF take a long time, with Member States and institutions trying to influence the initial Commission proposal during negotiations. Zsuzsanna Csak and James McQuade elaborate on the MFF process, some key lessons that can be drawn from the current MFF and provide an update on some challenges ahead. In this, they draw on the ECA’s briefing papers on the 2021–2027 MFF to which both have significantly contributed.

By Zsuzsanna Csak, Directorate of the Presidency, and James McQuade, Financing and Administering the Union Directorate

ECA’s main messages from the current MFF period

When ECA President Klaus-Heiner Lehne presented on 8 October 2019 the 2018 Annual Report to the European Parliament, he highlighted that the EU stands at an important crossroads and that as the EU we must seize the momentum to deliver results. Helping the EU -and in particular the newly elected European Parliament and the new Commission — as well as its Member States to do so is one of the key aims underlying our audit and review work.

Sometimes, however, we are criticised for not seeing the forest for the trees; issuing too many reports, across different types of products, too many recommendations at different levels. All of this, it is argued by some, dilutes our messages and makes it more difficult to see for outsiders what we — as the EU auditors — stand for. While we may disagree with such criticism, we do agree that summary documents can help get our main messages across.

At the initiative of the ECA Member Mihails Kozlovs, the ECA therefore decided to summarise our views on the multiannual financial framework (MFF) into one succinct document, which was published as ‘ECA Remarks in brief’ on 14 February 2019 (see Box 1). In it, we presented key messages for the EU’s co-legislators to consider when negotiation and discussing the Commission’s legislative proposals for the 2021–2027 MFF (see also Figure 1).

Box 1– What is the Multiannual financial framework?

The Multiannual Financial Framework (MFF) is the long-term budget of the European Union. It sets the maximum funds available for each of the EU’s main spending categories for a period of currently seven years.

Figure 1 — Proposed changes to the EU 7-year budget

Since its publication, many things have changed at EU level and many uncertainties remain. The EU’s main institutions — the European Parliament, the European Council, the Commission and the European Central Bank — have new leadership. Trade relations with the US have deteriorated, and at the time of writing, we still do not know the outcome of the planned withdrawal of the UK from the Union. Meanwhile, pressure is growing to conclude the inter-institutional negotiations on the next MFF and the sectoral regulations. In June 2019, the European Council reconfirmed its aim to reach an agreement between Member States before the end of 2019. Commission President-elect Ursula von der Leyen and the Commissioner-designate for Budgetary Affairs, Johannes Hahn, both highlighted the importance of a timely agreement on the Multiannual Financial Framework. In our ‘ECA Remarks in brief’, we highlighted the negative financial management consequences of a late adoption of MFF legislative proposals for the 2014- 2020 period. But despite these calls for urgency, it now appears that the negotiations of the next MFF may drag on into the German Presidency in the second half of 2020. This means that the EU risks not learning the lessons of the negotiations on the 2014–2020 MFF, when a last minute deal was agreed and adopted only in December 2013.

ECA’s role and views concerning the MFF

On 1 March 2017, the Commission presented a White Paper on the future of Europe. It marked the starting point for a public debate on the future of the European Union. To contribute further to the discussion, the Commission put forward a number of reflection papers on key topics, on the social Europe, the European Monetary Union, Defence, Security and Migration and Globalisation that will shape the EU in the coming years. Early in 2018, at their regular annual meeting with the Commissioners, our ECA Members had the opportunity to discuss the systemic issues we have identified in our audit work over recent years.

While it is not the role of the ECA to assess the political priorities or to provide a view on the amount or allocation of EU funding in the MFF, we wanted to contribute to the debate on the next MFF and to provide the legislators with advice on how to improve EU financial management and the transparency and accountability of the EU budget system. In our February 2018 Briefing paper on the Future of EU finances, we called for an increased emphasis on the value added of the EU budget, along with more flexibility and transparency.

On 2 May 2018, the Commission then published its proposal for the next long-term budget of the EU — the MFF 2021–2027. In the ECA briefing paper on the Commission’s proposal, we noted that the Commission had partially taken account of our proposals. However, we also considered that a number of elements still needed to be tackled, such as developing a comprehensive financial plan, determining the EU’s strategic objectives more clearly, strengthening the performance framework, ensuring adequate accountability and transparency and — last but not least — strengthening public audit in the Union by mandating the ECA to audit all EU bodies.

Subsequently, in 2018, we also issued a number of more detailed briefing papers on Commission proposals on Cohesion policy, the EU research programme and the Common Agriculture policy. In addition, other institutions have requested ECA opinions on ten legislative proposals in relation to the post 2020 spending areas (see Box 2).

Box 2 — What are ECA opinions?

With respect to the Commission’s legislative proposals, ECA perspectives take the form of opinions. We issue opinions either at the request of one of the other EU institutions or, where a proposal has an impact on EU financial management or concerns the methods and procedures for collecting EU revenue, they are mandatory. The mandate to issue such opinions is given to ECA by Article 287(4) of the Treaty on the Functioning of the European Union.

The main objective of our ‘ECA Remarks in brief’ was to summarise our main points regarding the process of setting spending priorities for the EU, the flexibility of the EU budget, and the performance orientation and administrative simplification of programmes as well as the overall EU accountability and audit arrangements. At the time of writing, the EU and the Member States are still negotiating the EU’s spending priorities under the next MFF and scrutinising the related legislative proposals.

Accommodating political priorities into the MFF

Strategic objectives for the EU after 2021 will also need to be set before the start of the next MFF period. The new Parliament, new Commission President and new European Council President are — or soon will be — engaging in that process. This will provide an opportunity to reconsider aspects of the initial MFF proposals and complement them with a comprehensive financial plan incorporating also the sources of finance outside the EU budget that will be used to meet those EU objectives.

Similarly, as we understand it, the new initiatives announced in the Political Guidelines of President-elect Von der Leyen will need to be accommodated within the framework of the existing MFF proposals. This means, as highlighted by the Commissioner-designate, giving a more specific emphasis in the ongoing negotiations to certain elements and identifying targeted adjustments where necessary. However, the ‘clock is ticking’ towards the start of the next MFF in 2021.

As things stand, challenges remain even before the next MFF is adopted and implemented, including finding an agreement of whether (and how) to link payments from the EU budget the Member State’s application of the rule of law. Interestingly, this aspect does not require unanimity among Member States, but can be adopted by qualified majority. Nevertheless, how such rules will be formulated may have an impact on the outcome of the MFF financial envelope, and to which policy area the money will go. The EU institutions and the Member States need to agree each sectoral regulation in the MFF package before implementation can start. However, that may prove difficult before an agreement has been reached on the overall finances available under the next MFF package.

In view of the timeline, the Council presidency is to present a ‘negotiating box,’1 a document laying out a menu of options for leaders on the key points of contention. This document would then be the basis for the discussions of the European Council in December 2019. A key point of contention is the overall size of the EU budget. The net payer countries aim at limiting the EU budget to no more than 1% of the Union’s Gross National Income (GNI). The Finnish Presidency has floated the idea of a budget sized between 1,03% and 1,08% of EU GDP. However, this proposal falls short of both the Commission proposal (1,114%) and the views expressed by the EP (1,3%). But there is still a wide divergence of views among Member States, as again shown at the European Council on 17/18 October 2019.

In the meantime, the EU co-legislators need to ensure that new or renewed spending programmes have strong performance frameworks that make full provision for public scrutiny and audit, as recommended by the ECA. The ECA will continue to contribute actively to the public debate on the future of EU finances based on our audit work, in order to promote a more efficient and transparent EU budget system.

This article was first published on the 4/2019 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.

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