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Wednesday, February 06, 2013

The accounting details that could make or break the EU budget

Ahead of tomorrow’s EU summit, which will see the resumption of the tricky long term EU budget negotiations, we put out a briefing laying out our thoughts and expectations. See here for the full piece.

One issue that we did note only in passing in the briefing, but could prove significant: on top of cutting €20bn from his previous proposal in November, European Council President Herman Van Rompuy may also choose to widen the gap between the ‘commitments’ and ‘payments’ headings of the EU budget in the proposal he will submit tomorrow - a move which could help facilitate a compromise. Van Rompuy has kept his cards very close to the chest on this one, so it's difficult to say exactly how it'll play out.

This is all very techy but, for a quick recap, there are effectively two budgets, which are called 'commitment appropriations' and 'payement appropriations': 
  • Commitments refers to amounts that can be authorised in a given year but which are often actually paid out later or over several years - some refer to it as the credit card limit.
  • Payments refer to the amount of funds which will actually be paid out in a given year. This is traditionally what interests national treasuries in the short term - and particularly now the UK - as it is this figure that has an immediate impact on their contributions to the budget.
EU leaders will tomorrow be negotiating ceilings for both commitments and payments for the next budget period (2014-2020). The difference between the commitments and payments in the current 2007-13 budget is close to 5%. Some gap will remain due to projects which were scrapped and ones which are yet to be completed, but an artificial increase in the gap will always be closed somewhat over time (for the reasons below).

So what could an increased gap between the two mean?

-          As a handy Commission doc points out, "The level of commitments determines the payment level for the upcoming years", essentially payments simply "trail" commitments. "Controlling the level of commitments therefore assures control over the future level of payments."
-          For example, increasing the difference between commitments and payments in the 2014-2020 budget period could require higher payments in 2020-2026 period – and therefore just delays the eventual pay-outs and budget increase.

-          More critically, the annual payment ceiling can also be increased through a QMV vote in the European Council and a majority vote in the Parliament. This may be unusual but does present an avenue to increase payments to a level closer to the higher commitments headline.

-          It is worth noting that expenditure is limited by the Own Resources Ceiling (1.23% of EU GNI), which is the revenue side of the budget. However, this could still leave a significant margin. The difference between the own resources limit and the forecast payment ceiling can often amount to tens of billions – leaving scope for a sizable increase if the Council and EP so choose (for example see figures on the current budget period).

In any case, under the current proposals reportedly doing the rounds, the level of commitments will be reduced compared to the current period, which is good news. But, our point here is that, payments will inevitably catch up with commitments one way or another. So, if the level of payments is well below the level of commitments, this is more about finding a neat way of presenting two sets of figures to different audiences in the short term, particularly since the framework leaves scope for future adjustments. Let’s hope the government is aware of these subtleties ahead of tomorrow’s negotiations...

4 comments:

Jesper said...

Not much has changed since the last round.

EU-institutions insist that nothing can be cut from their budgets. Still uncompromising and unwilling to engage.

MEPs aren't doing much to get themselves re-elected by supporting EU-institutions over their electorate.

Scoring national points for elections? There probably is something to that. Not doing anything with the CAP will leave the farmers as the only ones untouched by a faltering economy.

Great message: We refused to re-allocate money from going to farmers so we can't do much, if any, economic stimulus by investing in things like infrastructure etc. The young and/or unemployed will not be so impressed.

If CAP isn't touched now then it will never be touched.

Will Monti the reformer refuse to reform CAP? Will he remain credible to reform Italy if he refuses to reform CAP?

Netposition when it comes to payment seems, for some reason, to be the most important for most political parties in Sweden. The giving up control of bigger sums is somehow unimportant compared to the easy headline about net. Being bribed with ones own money comes to mind :-(

At present it seems France is out in the cold a bit. Wouldn't be surprised if France were the ones getting blamed for a possible failure to agree.

A bit strange if a nation were to be blamed for a failure but it would be perfectly in line with the 'divide & conquer' strategy used by EU-institution. I'm not sure how their divide and conquer works well with the stated objective of bringing people and nations together.

Rik said...

Things go easier than I expected. The culture has to be changed and reducing the budget when everybody does that is simply a first step (no the EU isnot that holy that it is entitled to an exception).
Also the wages will likely see a major change.
Budgetary hardly relevant but very good towards the respective homefronts. Especially in connection with the protests by EU workers. How do I look awful and like a spoilt brat for dummies.

Jesper said...

Only just now realised the process that Van Rompuy uses this time around.

Does he not know that parliaments have to approve the deals and by keeping information away from them it makes their duty to scrutinize a lot more difficult?

Disgraceful. The justification given would be appropriate for children at a kindergarten, not for a summit with heads of state dealing with a serious matter.

christina speight said...

This is typical EU sleight-of-hand. Fiddle with the categories and pretend to have made a cut when everything goes on just as before. No wonder Soros agrees the euro is broke!

Has Rompuy not heard of "accruals" with liabilities being part of the budget.?