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. The MFF Regulation sets expenditure ceilings for broad categories of spending called headings. After its initial proposals of 2 May 2018 and in the wake of the COVID-19 outbreak, on 27 May 2020 the Commission proposed a recovery plan (NextGenerationEU) that included revised proposals for the MFF 2021-2027 and own resources, and the setting up of a recovery instrument worth EUR 750 billion (in 2018 prices). The package was adopted on 16 December 2020 following interinstitutional negotiations. In the light of new developments, the MFF was revised in December 2022 and then again more substantially in February 2024.

Legal basis

• Article 312 of the Treaty on the Functioning of the European Union (TFEU);
• Council Regulation (EU, Euratom) 2020/2093 of 17 December 2020 laying down the multiannual financial framework for the years 2021-2027;
• 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;
• 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.

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 to be adopted unanimously, subject to the consent of the European Parliament, under a special legislative procedure. 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 TFEU states that the MFF must also ‘lay down any other provisions required for the annual budgetary procedure to run smoothly’.

The fifth MFF, covering the period 2014-2020, was the first to see a real-term decrease in overall amounts. One of Parliament’s preconditions for accepting it was therefore a mandatory mid-term revision allowing for a reassessment and adjustment of budgetary needs during the MFF period, if necessary. The agreement also secured, inter alia, enhanced flexibility to enable full use of the amounts planned and an understanding on the way towards a true system of own resources for the EU. A revised MFF for 2014-2020 was adopted on 20 June 2017 with additional support for migration-related measures, jobs and growth. The Flexibility Instrument and the Emergency Aid Reserve were also reinforced, allowing for further funds to 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 gross national income (GNI). It included increases for border management, migration, security, defence, development cooperation and research. 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 2018 and 30 May 2018. 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’, also comprising horizontal and sectoral issues that were normally in the remit of expenditure programmes subject to the ordinary legislative procedure (which was criticised by Parliament, for example, in paragraphs 14 to 16 of its resolution of 10 October 2019). 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 the event that the ongoing MFF needed to be extended, given the disagreement within the European Council.

Meanwhile, on 14 January 2020, the Commission 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 May 2020 for an MFF of EUR 1 100 billion and on 28 May 2020 for an additional recovery instrument, NextGenerationEU (NGEU), worth EUR 750 billion (in 2018 prices), with EUR 500 billion 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. 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 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 from breaches of the rule of law would be introduced. A new own resource was agreed from 1 January 2021 based on non-recycled plastic packaging waste. Work towards the introduction of other own resources over the course of the 2021-2027 MFF was planned, to be used for early repayment of borrowing under NGEU. The proposed legal basis of NGEU was Article 122 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.

Parliament immediately reacted to these conclusions in a resolution adopted on 23 July 2020, in which it called the creation of the recovery instrument a historic move, but deplored the cuts made to future-oriented programmes. It insisted on targeted increases on top of the figures proposed by the European Council and reiterated 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 NGEU (principal and interest), so as to ensure its credibility and sustainability. Parliament also demanded to be fully involved as budgetary authority 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 Council Regulation on the MFF 2021-2027 was adopted on 17 December 2020, following Parliament’s consent. A new mechanism of conditionality to protect the EU budget and NGEU from breaches of the rule of law, which was another prerequisite for Parliament’s consent, entered into force on 1 January 2021.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.

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

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 and Visa Instrument, the European Border and Coast Guard Agency (Frontex), the Neighbourhood, Development and International Cooperation Instrument – Global Europe (NDICI-Global Europe), Humanitarian Aid, Rights and Values, and Creative Europe;
• a legally binding roadmap for the introduction of new EU own resources;
• 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 (explained below);
• 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 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[1];
• a new annual biodiversity target (7.5% in 2024 and 10% in 2026 and 2027) 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.

Other components of the MFF 2021-2027 corresponding to Parliament’s priorities include:

• integration of the EDF into the EU budget;
• overall levels of funding for agriculture and cohesion of a size comparable to 2014-2020;
• creation of the Just Transition Fund.

The additional EUR 15 billion includes a EUR 11 billion progressive increase, the main source of which is a new mechanism linked to fines collected by the EU, resulting 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). Complementary sources include: margins left unallocated within the ceilings set by the European Council (EUR 2.5 billion); reflows from the ACP Investment Facility (EDF), to the benefit of NDICI-Global Europe (EUR 1 billion); and decommitted appropriations in the area of research, to the benefit of Horizon Europe (EUR 0.5 billion)[2].

Under the IIA, it was agreed in 2020 that repayments and interests of recovery debt would 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’, without prejudice to how this matter will be addressed in future MFFs from 2028 onwards. The express aim was to preserve EU programmes and funds. On 22 December 2021, the Commission proposed new own resources and a targeted amendment of the MFF Regulation (subsequently withdrawn) aimed at, inter alia, introducing a new mechanism that would allow 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. Parliament adopted an interim resolution concerning this amendment on 13 September 2022.

The Commission stated that it would present a review of the functioning of the MFF by 1 January 2024, and, as appropriate, proposals for a revision. In its communication of 18 May 2022 on Ukraine relief and reconstruction, it recognised that the ‘unforeseen needs created by war in Europe are well beyond the means available in the current multiannual financial framework’. On 19 May 2022, Parliament thus requested ‘a legislative proposal for a comprehensive MFF revision as soon as possible and no later than the first quarter of 2023’.

As a first step, Council Regulation (EU, Euratom) 2022/2496 amended the MFF in December 2022 as part of a package adopted by Parliament under an urgent procedure on 24 November 2022. It extended the budgetary coverage, thus far applicable to the loans to the Member States, to macro-financial assistance loans to Ukraine, for the years 2023 and 2024: in case of default, the necessary amounts would be mobilised from the ‘headroom’, above the MFF ceilings, up to the limits of the own resources ceiling.

To set the agenda for a far more comprehensive revision, on 15 December 2022 Parliament adopted a resolution on ‘Upscaling the 2021-2027 Multiannual Financial Framework: a resilient EU budget fit for new challenges’, setting out its key demands.

On 20 June 2023, the Commission proposed a targeted revision covering most of these demands (six months before its review had initially been planned):

• a reserve of EUR 50 billion to deal with the war in Ukraine and its humanitarian, economic and budgetary consequences (grants, loans and guarantees);
• additional funding for migration, global challenges and natural disasters – with the ceilings of Headings 4 and 6 to be increased by EUR 2 billion and EUR 10.5 billion respectively, and the Solidarity and Emergency Aid Reserve to be increased by EUR 2.5 billion;
• a new European Union Recovery Instrument (EURI) over and above the MFF ceilings, in order to address the problem linked to the repayment of EURI debt in a context of steep acceleration of inflation and interest rates;
• a Strategic Technologies for Europe Platform (STEP) to increase Europe’s strategic autonomy following global supply chain disruptions – with the ceilings of Headings 1, 3 and 5 to be increased by EUR 3.5 billion, EUR 5 billion and EUR 1.5 billion respectively, and research decommitments to be further used in Heading 1;
• an increase of EUR 3 billion in funding for the Flexibility Instrument to create more budgetary space for reacting to unforeseen circumstances;
• additional funding for administration (EUR 1.9 billion), raising the ceiling of Heading 7 accordingly.

On 3 October 2023, Parliament adopted its mandate stressing that the revised MFF must be in place by 1 January 2024. However, the European Council of 15 December 2023 ended in deadlock.

Once a political agreement was finally found, the MFF revision was published on 29 February 2024. It includes cuts to Horizon Europe (only partly offset by reusing the last MFF research decommitments), EU4Health (mitigated by the MFF Article 5 mechanism) and the direct management of the common agricultural policy and cohesion policy, as well as limited fresh money for STEP.

However, this is the first time that a mid-term MFF review has led to a net increase in spending ceilings. The main positive outcomes include: EUR 50 billion for Ukraine for 2024-2027, increased funding for migration and external action and for the European Defence Fund (under STEP), an increase in funding for the special instruments (Flexibility Instrument and EU Solidarity Reserve for reconstruction after extreme weather events and natural disasters, now separate from the Emergency Aid Reserve for emergency assistance to non-EU countries), and the establishment of an uncapped EURI special instrument protecting programmes from significant cuts. Some of the costs of EU joint borrowing are to be covered in the annual budgetary procedure (the European Council set a non-binding benchmark of 50%). In order to use the EURI special instrument for these purposes, roughly half of the costs must be covered by special instruments or redeployments from programmes. The latter operates in two steps: the first is the mobilisation of resources equivalent to the amount of decommitted funds and the second is a ‘last resort’ mechanism of additional national contributions.

Further details can be found in the Commission communication on the technical adjustment of the MFF.

For more information on this topic, please see the website of the Committee on Budgets.

 

Alix Delasnerie

04-2024