Reflections on European Democracy

An easy way to think of the EU’s budgetary arrangement is as an onion: it consists of several layers, each of which contains (and constrains) the layers it encloses.

The outermost layer is the Own Resources Decision, which regulates the height and composition of the EU’s income as well as the arrangements concerning the UK’s rebate. As the Treaties prohibit the EU from running a deficit, its expenditures can never be higher than the ceiling set by the Own Resources Decision. This is currently 1.24% of the EU’s GNI (Gross National Income).

The layer in the middle consists of the Financial Perspectives, which basically is a contract between the national governments, the Commission and the European Parliament on the main characteristics of the annual budgets for seven years. The Financial Perspectives were created in order to bring more discipline and continuity in the EU’s spending policies, and to allow for better planning. Current Financial Perspectives run from 1999-2006, which is why we are now negotiating on the 2007-2013 Perspectives. For 2005, the Financial Perspectives set the EU’s total payments at 1.09% of the EU’s GNI.

The inner core of the budget, finally, contains the annual budgets. They have to be agreed between the national governments in the Council, and the European Parliament. Eventually, Parliament has to consent with the entire package, but under the current treaties it can only amend the so-called “non-compulsory” part of the budget. Compulsory expenditure consists mainly of agriculture subsidies (about 45% of the budget). Payments under the 2005 budget amount to 1.00% of the EU’s GNI.