Finances of the EU

The Constitution introduces a normative hierarchy for the financial provisions of the Union: the financial resources at the Union’s disposal are governed by the European law on own resources. These own resources limit the expenditure specified in the European law on the multiannual financial framework in the medium-term. The annual ceilings for each category of expenditure as determined by the multiannual financial framework are binding for the Union’s annual budget. Thus budgetary discipline is improved and the balance between the two institutions of the Union exercising budgetary functions, the Council and the European Parliament, is maintained and guaranteed.

The system of own resources is determined by a European law of the Council to be adopted unanimously after consulting the European Parliament. This law (as before in the EC Treaty) will not enter into force until it is ratified by all Member States. In this way new categories of own resources can be established or existing categories abolished. The law on own resources can determine that certain implementing measures are adopted by the Council with a qualified majority after obtaining the consent of the EP.

Since 1988 the European Parliament, Council and European Commission have been concluding inter-institutional agreements with a multiannual (most recently seven-year) Financial Perspective establishing the ceilings for the most important EU expenditure headings. This multiannual budgetary planning is now enshrined in the Constitution. The multiannual financial framework is adopted unanimously by a European law of the Council after obtaining the consent of the European Parliament. It determines the annual ceilings for appropriations for commitments and payments within the framework of the EU’s own resources. The European Council may unanimously adopt a European decision authorising it to act by a qualified majority.

The former distinction between compulsory and non-compulsory expenditure and the associated different procedural regulations ('final say' of the Council in case of compulsory expenditure, 'final say' of the European Parliament in case of non-compulsory expenditure) have been abrogated. A new balance between the Council and the European Parliament has been established by a special co-decision procedure providing for a limited 'final say' of the European Parliament:

• The Commission submits its draft budget not later than 1 September to the Council and the European Parliament;
• The Council forwards its position to the European Parliament not later than 1 October;
• Within 42 days the European Parliament can approve the position of the Council, take no decision or propose amendments.
• In that last case, the Conciliation Committee has 21 days to propose a joint compromise:
  • If the Conciliation Committee cannot reach an agreement, the Commission has to submit a new draft budget.
  • If the Conciliation Committee submits a joint compromise, the Council and the European Parliament have to pronounce on it within 14 days:
    • If it is approved by the European Parliament and the Council, the budget is deemed to have been adopted;
    • If it is rejected by the European Parliament and the Council, the Commission has to submit a new draft budget;
    • If it is approved by the Council, but rejected by the European Parliament, the Commission has to submit a new draft budget;
    • If it is approved by the European Parliament, but rejected by the Council, the European Parliament can decide to confirm its amendments by a majority of its component members and 60 per cent of the votes cast, and thus has the 'final say'.