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					                EUROPEAN PARLIAMENT
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                                      Committee on Budgets




                            2007 BUDGETARY PROCEDURE




     6.3.2006




                 WORKING DOCUMENT N° 2
                 on political priorities for the 2007 Budget


                 Committee on Budgets


                 Rapporteur: James Elles




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                                            "Imagination is more important than knowledge."
                                                                        Albert Einstein


     1.      BACKGROUND

     1.   The first years of the European Union budget in the 1970s were spent mostly on the
          development of the CAP. Then came the Structural Funds predominance in the 1980s, not
          least to help the transition of the new Mediterranean arrivals. The tempo changed with the
          fall of the Berlin Wall and the collapse of the Soviet Union when external programmes
          were developed to assist infrastructures in Central and Eastern Europe with such actions
          as Phare and Tacis.

     2.   During this latter period, from 1984 onwards, tremendous steps were taken in building on
          the foundations of the Rome Treaty of 1957, with no less than four Treaty revisions in the
          space of the next 20 years - the Single European Act, Maastricht, Amsterdam and then
          Nice - the fastest period of voluntary sovereignty-sharing that the world has ever seen.
          Changes not only introduced vast new competences for the European Union to manage
          such policies as the single market, the single currency, the environment and an emerging
          foreign policy. The financial perspective also evolved as a means of providing a
          framework, also starting in 1984, in which expenditure could be envisaged for the rapidly
          developing European policies over a long time period.

     3.   In the meanwhile, the world has not stood still. The fall of the Berlin Wall in November
          1989 started the process of Central and Eastern European enlargement of the European
          Union which has still to welcome two Eastern countries, Bulgaria and Romania, expected
          for January 2007. Furthermore, huge advances in technology took place, which are
          currently reshaping the global marketplace. The world wide web, only just over a decade
          old with the introduction of the browser system in 1995, has fundamentally not only
          altered the way in which people work and do business, but also has brought in over 2
          billion consumers into the global market. As a result, barriers are being flattened and
          competition is more focussed and vigorous for European countries than at any other time
          in the history of the EU.

     4.   Globalisation is no new phenomenon, but is a fact of life. As recently described by a
          leading European industrialist, 'it is the phenomenon of the gradual and worldwide
          elimination of physical, political, societal, cultural , linguistic and other borders, which
          separate economic regions, cultural or scientific communities, political regimes and other
          entities'. With the resulting intensity in global competition comes the central question on
          the capability of entrepreneurs and societies to adjust sufficiently to the changes
          underway. While most businesses are coping with the challenges this brings, there is less
          certainty about the success of societies to adjust. The saying that everything is being
          internationalised except governments has an undeniably strong ring of truth about it.

     5.   The policy debate about Europe's adjustment to these trends is picking up, in particular in
          the wake of the French and Dutch votes on the Constitutional Treaty. Issues such as the
          vital necessity to invest in research and promote innovation, and providing the right
          environment in which SMEs can flourish are increasingly recognised as major priorities

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     for Europe's competitiveness. The urgent need to assure long-term energy supplies and
     the related environmental factors will continue to require clear solutions. Not least the
     effect of demographic change and immigration will be a theme of growing importance in
     the minds of European policy makers. Europe should not just manage the process of
     globalisation, it should try to lead it!

6.   Why mention these subjects in a priorities paper for the annual budget? The reason is
     simple. As the EU completes its discussions on a new financial perspective, probably
     running to 2013, it is essential for policy makers to focus on what the real challenges will
     be for the EU in the years ahead, and not be limited to old notions of what were priorities
     a decade ago. The first budget of the new FP should be strategic in nature, looking at
     those areas of external and internal policies where funding can make a significant
     difference and which provide real value for money. This is of particular importance
     should the Union eventually be landed with a FP which is more a holding operation than
     a fundamental shift in policy consideration.

7.   A critical assessment of the current FP proposed for the next seven years reveals that
     never have the global challenges been greater - and yet the resources likely to be
     available to meet them are insufficient, especially in the area of research and innovation.
     It is a financial perspective more for the 1990s than the 21st century. This makes it all the
     more important to ensure that a detailed review will take place in 2008/2009 with proper
     preparation of expenditure priorities for the next decade.

8.   This is why the rapporteur considers that the debate on the 2007 budget should develop
     with the following three strands in mind:
        – Policy priorities
        – Qualitative value for money
        – Begin preparing for the review


2.      POLICY PRIORITIES FOR THE BUDGET 2007

9.      For 2007, the first annual budget of the new financial perspective, the rapporteur sees
        the following priorities:
        –      External Relations – the EUs role in a globalised world
                Partnership/Cooperation agreements
                European neighbourhood policy & Pre-accession instruments
                Development Policy; Democratisation and Human Rights
                Common Foreign and Security Policy
        –      The Security dimension -
                External e.g. energy security, terrorist threats
                Internal e.g. Border controls, immigration
        –       Internal Policies -
                  Lisbon Agenda incl. Research and Innovation
                  Environment


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                        Citizens and communication
            –        Agencies

     2.1.   External Relations

     Introduction:

     10. The EU's external relations policies have faced a number of challenges over the period of
         2000-2006, not least budgetary ones. Not only have the resources available been under
         severe pressure due to unexpected demands on the budget for traditional policies, added
         over time as international developments have occurred which required EU support.
         Furthermore, fresh challenges are leading to new policies which create the need for
         additional expenditure in a world very different from only a decade ago.

     11. It seems ironic that the European Council should have reached a common position on the
         2007-2013 FP which implies a reduction of some 20% for the external instruments
         compared to the Commission's original proposals while still expecting the EU to finally
         take decisive steps towards becoming a significant "global player".

     12. The rapporteur is convinced that a significant budgetary priority for 2007 must be to
         support Europe's relationship with the rest of the world through active engagement. It is
         time for the EU to spend more of its energies in finding out what is happening beyond its
         frontiers and learn what consequences there are for its policies. In doing so the message
         to other countries, and particularly to our neighbours, must build on already existing
         agreements (such as Association agreements in Eastern Europe and the Balkans, and the
         Barcelona process to the south or the strategic partnership to the East). In restricted
         budgetary circumstances, priorities will need to be established. The following four areas
         are relevant in this context:

     Partnership and cooperation agreements

     13. There has been a proliferation of strategic agreements between the Union and third
         countries or regions in recent years. This increase in the scope and complexity of the
         Europe's external relations partly reflects on-going changes and new necessities in a
         globalising world. However, the rapporteur believes that for the EU to fully assume its
         role as a credible global partner, its external relations must first and foremost be based on
         a coherent, over-arching strategy which clearly defines the Union's interests and strategic
         priorities in the 21st century. A first step towards such a broader strategy could be an
         assessment of existing and envisaged agreements, with particular attention given to their
         purpose, effectiveness and the Union's interests and strategic objectives involved.

     14. Before this backdrop, the rapporteur believes that the EU's broadest, deepest and
         strategically most important partnership - namely that with the United States - should be
         placed on a new strategic footing, allowing both transatlantic partners to pursue their
         shared interests and respond to shared global challenges jointly and with far greater
         effectiveness. However, despite the renewed determination of the EU and US
         administrations to shape a common agenda, there has been little or no progress in
         adapting the EU's relationship with the United States to the 21st century. As noted in the

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    Böge report on policy challenges and budgetary means, 'this approach is not reflected in
    the Commission proposal and the European Parliament should participate in decisions on
    such matters if they have budgetary implications'.

European Neighbourhood Policy & Pre-accession Instrument


15. These policies should remain a high priority for 2007: budgetary resources should be
    made available to continue to promote democracy, free trade and security essentially
    through liberal engagement on our part, through trade and economic reform policies, and
    through financial assistance programmes.

16. For the co-decision instruments, the question of policy influence of the Parliament is of
    high importance and is currently being dealt with in the respective committees. Your
    rapporteur fully supports the lead committees' efforts to steer the available resources to
    priority areas (rather than leaving this entirely to Commission and Council under
    comitology procedures). It is, however, very important that sufficient leeway is left for
    political judgment in the budgetary procedure: the budget structure to be proposed by the
    Commission, and possibly changed by the Parliament, is therefore relevant. The
    rapporteur also considers that the question of political "allocation criteria" for how the
    neighbourhood policy resources should be divided among countries, policies, regions,
    and how this will tie in with the annual budget procedure, is a crucial one.

17. The rapporteur is conscious that some of these hard choices will and should be settled at
    the level of the co-decision acts currently being dealt with. How would a 20% reduction
    under heading 4 be dealt with? What would be the relationship between the financial
    envelopes of the three main co-decision acts: Neighbourhood, Stability Instrument and
    Development Instrument? What would be the resulting effects on the Pre-accession
    Instrument and humanitarian aid that are not co-decided? These are difficult questions
    which can only be answered once the new FP and its flexibility provisions are known.


Development Policy; Democratisation and Human Rights

18. With the number of people living in extreme poverty having more than doubled over the
    last three decades, an effective and coherent development policy for the Union must be
    considered a crucial element of Europe's engagement with the wider world. The
    rapporteur would like to reiterate the call in the Böge Report for sufficient resources to be
    made available in order to honour existing commitments to poverty reduction and, most
    importantly, the Millennium Development Goals (MDGs). Furthermore, the promotion of
    democracy, good governance and human rights should be viewed as an integral part of
    any sustainable development policy and instrumental in successfully completing the
    MDGs. This should be reflected in the budget's priorities.

19. In the light of the currently proposed reduction under heading 4, the rapporteur believes it
    to be more important than ever to ensure that the Union's aid is allocated and
    implemented as effectively as possible. In particular, attention should be focused on
    improving mechanisms for measuring the results and impact of external aid programmes
    so as to ensure the highest possible quality of EU aid. Furthermore, the rapporteur

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         suggests to examine how the added value of Community aid may be maximised by
         enhancing the coordination, complementarity and coherence of member states'
         development policies and aid. This should include a detailed look at the programmes on
         democratisation and human rights.


     Common Foreign and Security Policy

     20. Actions in the field of CFSP should remain a high priority in order to further enhance the
         Union's contribution to maintaining peace, security and democracy, including actions in
         the field of conflict prevention and resolution. The rapporteur stresses the importance he
         attaches to the new provisions foreseen in the joint declaration of November 2005, which
         include consultation and information meetings with the Presidency chairman of the
         Political and Security Committee, and expects the Council to fully comply with these
         provisions. In this context of consultation, he places great emphasis on the a priori
         approach called for by the European Parliament in the 2006 Brok report on the CFSP
         which the Council should honour. The rapporteur would also like to underline the
         importance of good management of CFSP funds and, for the moment, notes that the
         Commission has been challenged by the Council as regards the legality (legal bases) of
         certain actions. The rapporteur therefore recalls the European Parliament's previous
         demand that the "grey zone" between Community competence and expenditure - vis-à-vis
         Member States competence and expenditure - needs to be better clarified, remaining
         within the bounds of what is permissible under the Treaties.


     2.2 The security dimension


     This dimension gains importance under the new financial perspective. For the sake of
     convenience, it can be divided into external and internal aspects.


     External aspects: energy security as an example

     21. Recent events have reminded us that security of energy supply cannot be taken for
         granted. The European Union is extremely dependent on its external energy supplies,
         with imports currently accounting for 50% of its demand. This figure is projected to rise
         to 70% by 2030 if current trends persist. 77% of EU demand for oil and 51% of EU
         demand for gas is met from imports and there will be an increased demand from third
         countries that will compete for the energy resources required by EU Member States. At
         the same time, EU energy consumption is projected to grow by 22% in the period 1990 to
         2020.

     22. The EU is also facing environmental challenges like the Kyoto target of an 8% reduction
         in CO2 by 2010. Furthermore, rising energy prices have a direct and important impact on
         the consumer and on the competitiveness of the European economy. In view of these
         challenges, the relevance of nuclear power will have to be reassessed. Furthermore, the
         European Community has taken legislative action on a number of energy issues like
         security of electricity supply, the use of bio-fuels, the promotion of renewable energy

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       sources, demand management measures, the improvement of energy efficiency and the
       liberalisation of energy markets. Yet, implementation of many of these measures by the
       Member States is not completed. The current energy programme 2003-2006 "Intelligent
       Energy for Europe"1 aims at contributing to the pursuit of the 3 main objectives of
       European energy policy: security of supply, competitiveness and environmental
       protection.


Internal aspects: border controls and immigration

23. European citizens need security in their everyday lives. The Commission's new approach
    to replace the multitude of instruments and budget lines in this field by three main
    framework programmes2 is certainly welcomed by the rapporteur, as it provides more
    consistency and transparency in this complex area.

24. Given the fact, however, that Council has more than halved the Commission's initial
    proposal for funding of the new heading 3 "Citizenship, freedom, security and justice"
    from EU 20,945 million to EUR 10,270 million, decisions will need to be taken on where
    the available resources should be concentrated in 2007. This decision will even be more
    important as it will lay the cornerstones for the future orientation of the Union's internal
    security. "Value for money" will be an important guiding principle for assessing the
    allocation of scarce resources in this field. In addition, the effects of immigration on the
    European citizens will certainly have to be dealt with, and will thus be a priority for the
    rapporteur.

2.3.     Internal policies

Lisbon agenda - research and innovation

25. Although crucial parts of the Lisbon Agenda clearly involve decisions that are of a
    legislative rather than budgetary nature, as for example the services directive, and
    financing at EU level is complimentary to national financing, the Community budget can
    and should make an important contribution to key areas such as research an innovation,
    innovative measures for SMEs and life-long learning:

26. The rapporteur considers that the Parliament's input to the 2006 Spring Council, taking
    stock of developments both at national and EU level, should , as pointed out in the past
    by the Committee on Budgets, aim to prioritise different actions in order that resources
    are not spread too thinly. In this respect, the Commission must also take its responsibility
    and clearly point out- also in budgetary terms - what choices have been made and on
    what grounds in its forthcoming APS and PDB.

27. The rapporteur recalls that the budgetary ambitions, with a direct bearing on the
    outcomes we hope to achieve, are closely linked to the outcome of the current

1
 ) OJ L 176 of 15 July 2003, p. 29-37.
2
 Freedom of movement and solidarity in the area of external borders, asylum and immigration programme
COM(2005)0123; Security programme COM(2005)0124; Justice and fundamental rights programme
COM(2005)0122

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            negotiations with the Council on the financial perspective. This is strongly noticeable
            under heading 1A, which should be a central part of the Community contribution to
            Europe's efforts in this field. The 7th research framework programme and the
            Competitiveness and Competition programme will undoubtedly have to be looked at in
            the course of the budgetary procedure. In addition, it will need to be asked whether the
            proposed European Institute of Technology will be an effective use of funds or simply
            deflect attention from existing projects such as the European Research Council.

     28. The rapporteur underlines that the very notion of "innovation" and, indeed,
         "imagination", deserves to be promoted whenever possible through the budget. In this
         respect, continued emphasis should also be given to pilot projects and preparatory actions
         in this area.


     Environment

     29. Within the next Financial Perspective environmental policy will be financed under
         Heading 2 "Preservation and management of natural resources" together with the CAP, in
         accordance with the Commission's proposal which provides for a thematic and more
         visible structure of the Financial Perspective which is accessible to the European citizen.
         The European Parliament's negotiation position 1 in the Financial Perspective stresses the
         European Union's environmental policy as an essential instrument which contributes to
         the realisation of the Lisbon and Gothenburg objectives. The rapporteur considers that the
         proposed budgetary support for environmental policy in the coming period will give the
         European Union a leading role in the world in important areas such as mitigating the
         effect of climate change or preserving natural resources. A sustainable environmental
         policy is one of the main challenges for which there is a real European added value.


     Citizens and communication

     30. The current response to the so-called    "crisis of trust" has been rather predictable. The
         Commission has presented new policy papers for new communication strategies asking
         for new money to put them into practice. The Council has cut funds for those
         communication lines and Parliament has reinstated the allocations and tried - sometimes
         successfully - to even increase these funds. Quite regularly, however, one could see that
         execution of the communication lines in the annual budgets has left a lot to be desired.

     31. Certainly, communication is a key factor in helping European citizens understand the EU
         better. Instead of trying out new concepts all the time and developing new costly
         strategies, which are then poorly implemented, the rapporteur thinks it essential to assess
         in-depth where real value for money lies.

     32. Direct information for the citizens about their rights in the European Union, be it as a
         worker, student or pensioner, is not well developed. It would be helpful for citizens to be
         informed about the specific advantages the common market means to their every day
         lives, about transfer of pension rights, acknowledgement of professional diplomas or the

     1
         Texts Adopted, 8.6.2005, P6_TA-PROV(2005)0224

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     consumption of social benefits acquired in another Member State. Instead of producing
     abstract glossy brochures, the Union should first try to fulfill these basic communication
     needs of its citizens.

33. The rapporteur is convinced that the potential for synergies between the communication
    activities of Commission and Parliament still has not been fully developed. The value of
    European Union Houses as a means of using scarce resources effectively needs to be
    more carefully considered.

Agencies

34. In the 1996 Budget, the rapporteur raised the point concerning the need for Parliament to
    ensure political and budgetary control over the decentralised agencies. Ten years later,
    the number of agencies has increased from 5 to 25 and the types of agencies have been
    diversified (decentralised agencies, regulatory agencies, executive agencies). Although
    the Parliament's control powers have been formalised in the new Financial Regulation,
    the rapporteur is of the opinion that such a new form of EU governance should not
    develop so as to prejudice operational programmes. Therefore he fully supports the
    request made by the rapporteur on FP-IIA to have a binding mechanism for the Agencies
    under each heading of the new financial framework.

35. The rapporteur is mindful that most of Agencies' founding regulations are adopted under
    co-decision on a multi-annual basis, while they receive subsidies decided on an annual
    basis in the context of the budgetary procedure. Under tight ceilings and in the context of
    ABB (policy area approach), the specialised committees will have to indicate their
    priorities between the funding of operational programmes and the financing of the
    agencies.

36. The rapporteur welcomes the proposal finally made by the Commission for a tough
    policy on agencies and expects the provisions to be laid down before the 2007 budgetary
    procedure. He intends to develop his views on existing and future Agencies in a specific
    working document to be presented in the context of the annual meeting of the Committee
    on Budgets and the Committee on Budgetary Control with the Agency directors.

3.      QUALITATIVE VALUE FOR MONEY

37. The December agreement of the European Council has clearly shown that the battle for
    resources has begun. Council figures would mean a decrease of resources available
    between 2007 - 2013 by over 15% as compared to what the Commission thought
    necessary in its original proposal. For the rapporteur it is absolutely necessary in this
    situation to start looking at the quality of European Union expenditure. Do we get value
    for money?

38. To the rapporteur, the beginning of the new financial perspective offers a significant
    opportunity for reassessment: if a programme is known not to be successful or is no
    longer a priority, why not remove it? At the same time, an open mind should be kept to
    introduce new programmes if they are needed for the EU to keep up with the pace of
    globalisation.


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     39. The rapporteur is of the opinion that a qualitative value for money should compensate the
         absence of quantity in budgetary means. The European Budget is financed by the
         European tax payers to fund activities which are expected to bring a European added
         value for the European citizens. In this sense, the rapporteur believes that the
         responsibility of qualitative and cost benefit aspects of the expenditure belongs to the
         Budgetary Authority. He considers that under a tight financial perspective with very little
         room for new actions, time has come to start looking at the quality of European
         expenditure and value for money. This will be the subject of the next working document
         WD3.

     40. As already announced when he outlined his priorities for B’ 2007, the rapporteur is
         willing to ask for cost benefit analysis on certain programmes , in view to make a
         political evaluation of EU spending under certain areas. The aim will be to highlight the
         performance of these programmes or actions financed by the EU Budget on the basis of
         some criteria:

          -    did the policy achieve the objectives set up by the Budgetary Authority ?
          -    what is the impact assessment compared to the quantity of funding involved ?
          -    what part of the funding has been dedicated to administrative expenditure and what
               part to operational expenditure ?
          -    were human and financial resources efficiently used ?
          -    what the European added value of the programmes / action ?

          Such cost benefit analysis and impact assessment should be carried out during the first
          semester of the year 2006 in order to proceed to the evaluations before EP’s first reading
          on the Draft Budget for 2007, in view of the political decision. The rapporteur is
          convinced that the new financial perspective offers an opportunity to develop a new
          concept of cost-benefit spending.

     4.        BEGIN PREPARING FOR THE REVIEW

     41. Both the European Council and the European Parliament have asked for a mid-term
         review of the next multi-annual financial framework (MFF). Part III of the December
         2005 European Council conclusions (paragraph 79) reads as follows:

              Europeans are living through an era of accelerating change and upheaval. The
              increasing pace of globalisation and rapid technological change continues to offer new
              opportunities and present new challenges. Against this background, the European
              Council agrees that the EU should carry out a comprehensive reassessment of the
              financial framework, covering both revenue and expenditure, to sustain modernisation
              and to enhance it, on an ongoing basis.

     42. Both the Parliament and the Council share the view that the financial framework setting
         up mid-term political priorities needs to be adjusted to a fast developing world in order to
         allow the EU to maintain its political and economic position at internal level to meet the
         Lisbon objectives and at external level to meet the Millenium Goals, to achieve a
         successful Neighbouring Policy and to take leadership in the globalisation process.

     43. The European Parliament's concern for the review is closely linked to the duration of said


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       review. This is clearly outlined in para. 3 of the Parliament's negotiating position 1, there
       should be a correspondence between the duration of the financial perspective and the 5-
       years mandates of the Commission and of the European Parliament for reasons of
       democratic responsibility and accountability.

44. Without prejudice to either the outcome of the future IIA or to the contents of the next
    financial perspective, the rapporteur considers that the Budget 2007, as the first budget of
    the next period, represents an opportunity to launch the new programmes within the
    scope of adjustments to new needs which might appear in the first part of the period. This
    will be the subject of a more detailed working document later in the budget process.

45. The review of all aspects of EU spending and resources planned for 2008 will offer a real
    opportunity to have a close look at the ways in which our money is spent. There will
    never be more willingness to accept changes than in times when resources are scarce.
    Only a comprehensive reassessment of revenue and expenditure will enable us "to shake
    up the system" in order to meet the challenges of our fast changing world.




1
    Texts Adopted, 8.6.2005, P6_TA-PROV(2005)0224.

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