Application of the multiannual fi nancial framework The terms for application of the multiannual fi nancial framework are

set out in the Interinstitutional Agreement (IIA) between the European Parliament, the Council and the Commission on budgetary discipline and sound fi nancial management signed on 17 May 2006 (2), which, in par-

ticular, lays down the rules for the annual and other adjustments and for revision of the fi nancial framework.

Other budgetary instruments enhancing fl exibility and ensuring budget- ary discipline have also been established or renewed by the IIA, namely

(1_{) Point 15 of the Interinstitutional Agreement.}

the Emergency Aid Reserve, the European Union Solidarity Fund, the Flexibility Instrument and the European Globalisation Adjustment Fund. These instruments are mobilised only in case of need. In that case, the relevant commitment and payment appropriations can be entered in the budget over and above the ceilings set in the fi nancial framework, within the limits set for each of those instruments.

2.1. Technical adjustments

Each year, the Commission makes a technical adjustment to the fi nancial framework for the next year. This operation has a dual function:

the fi nancial framework is expressed at constant prices, so it has to be —

adjusted to take account of infl ation each year in order to maintain the original purchasing power of the ceiling for each heading. Starting with the 2007-13 fi nancial framework, this adjustment is based on a fi xed defl ator of 2 % a year, which means that the amounts in current prices are already set for the duration of the fi nancial framework; the margin for unforeseen expenditure, expressed as a percentage of —

GNI, must be updated to take account of actual economic activity, on which the volume of own resources available depends. At this point it is possible to check the compatibility between total appropriations for payments and available own resources.

From the procedural point of view, this technical adjustment is made prior to the start of the budgetary procedure for year n+1 on the basis of the most recent economic data and forecasts available.

In order to set the annual budgetary procedure in a stable framework and to ensure budgetary discipline, no further adjustments are made for the year concerned.

A second (new) technical adjustment has been introduced in the IIA. If it is established in 2011 that a Member State’s cumulated GNI for the years 2007-09 has diverged by more than +/- 5 % from the cumulated GNI estimated when drawing up the IIA, the Commission will adjust the amounts allocated from funds supporting cohesion to the Member State concerned for that period, within the limits set in the IIA (point 17).

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2.2. Adjustments connected with implementation

When notifying the two arms of the budgetary authority of the techni- cal adjustments to the fi nancial framework, the Commission may also present proposals for adjusting the level of payment appropriations in the light of implementation of the programmes, to ensure an orderly progres- sion in relation to commitment appropriations.

2.3. Adjustment of Structural Funds, Cohesion Fund,

Rural Development and the European Fund for Fisheries

The IIA signed in May 2006 renewed the special measure introduced in the previous IIA in respect of structural measures at the start of the new programming period. In the event of a delay in adoption of these programmes, the budgetary authority undertakes to authorise before 1 May 2008, on a proposal from the Commission, the transfer to sub- sequent years of appropriations not used in 2007, in excess of the corre- sponding ceilings on expenditure (point 48 of the IIA).

2.4. Updating of forecasts for payment appropriations after 2013

The ceiling for appropriations for payments is established on the basis of payment schedules for the different categories of appropriations for com- mitments. Any incorrect estimate could cause an imbalance between the two corresponding ceilings. In particular, if commitments are not cleared as quickly as expected at the beginning of the period, payments may need to be stepped up later. In such cases steps must be taken to ensure suffi - cient means to meet the corresponding payments in the following years.

The IIA sets 2010 as the year for updating the forecasts for payment appropriations after 2013. This update will take into account, inter alia, real implementation of budget appropriations for payments and commit- ments and the implementation forecasts.

2.5. Adjustments connected with excessive government defi cit

If the Council has decided, in accordance with Article 104 of the Treaty establishing the European Community, that an excessive government defi cit exists in a benefi ciary Member State and has established that the

Member State has not taken effective action in response to a Council rec- ommendation, it may decide to suspend some or all of the commitments from the Cohesion Fund to the Member State concerned with effect from 1 January of the year following the decision to suspend. In case of lifting such a suspension, the Council, acting on a proposal from the Commis- sion, may decide on a transfer of suspended commitments to the follow- ing years. Suspended commitments from year n cannot be rebudgeted beyond year n+2.

2.6. Adjustment of the fi nancial framework to cater for enlargement

If new Member States accede to the European Union during the period covered by the fi nancial framework, the European Parliament and the Council, acting on a proposal from the Commission, will jointly adjust the fi nancial framework to take account of the expenditure requirements resulting from the outcome of the accession negotiations.

2.7 Revision of the fi nancial framework

In order to allow the Community to deal with unforeseen circumstances, the fi nancial framework may be revised, provided the own resources ceil- ing is not exceeded (i.e. the revision must remain within the margin for unforeseen expenditure). The decision to proceed with such a revision is taken jointly by the two arms of the budgetary authority in accordance with the voting rules under Article 272(9) of the EC Treaty (i.e. with the Council acting by a qualifi ed majority and the European Parliament by a majority of its members and three fi fths of the votes cast), on a proposal from the Commission. However, if the revision equals an amount greater than 0.03 % of GNI, the Council’s decision must be unanimous. Under the Interinstitutional Agreement, this procedure is subject to a series of conditions:

as a general rule, the revision must be proposed and adopted before —

the start of the budgetary procedure for the year, or the fi rst of the years, concerned;

to ensure budgetary discipline, the institutions must, prior to any revi- —

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the heading concerned or by offsetting appropriations between differ- ent headings of the fi nancial framework;

no revision affecting compulsory expenditure may lead to a reduction —

in the amount available for non-compulsory expenditure;

fi nally, any revision must maintain an appropriate relationship between —

commitments and payments.

2.8. Emergency Aid Reserve

The purpose of the Emergency Aid Reserve is to provide a rapid response to specifi c aid requirements of non-member countries following events which could not be foreseen when the budget was established, fi rst and foremost for humanitarian operations, but also for civil crisis management and pro- tection where circumstances so require. The annual amount of the Reserve is set at EUR 221 million for the duration of the fi nancial framework in constant prices. The Reserve is entered in the general budget as a provision. If some or all of the Reserve is to be mobilised, the corresponding commit- ment appropriations will be entered in the budget, if necessary over and above the ceilings laid down in the fi nancial framework.

2.9. European Union Solidarity Fund

A special fi nancial instrument was set up in November 2002 by means of a separate Interinstitutional Agreement (1) and renewed by point 26 of the current IIA to allow rapid fi nancial assistance in the event of major disasters occurring on the territory of a Member State or of a candidate country. The annual amount to be budgeted to the Fund may not exceed EUR 1 billion each year in current prices. On 1 October each year, at least one-quarter of the annual amount should remain available in order to cover needs arising until the end of the year. The portion of the annual amount not entered in the budget may not be rolled over in the following years. If, on a proposal by the Commission based on the relevant legisla- tive act, the two arms of the budgetary authority take a joint decision to deploy the Fund, the corresponding commitment appropriations are entered in the budget, if necessary over and above the ceilings laid down in the fi nancial framework.

2.10. Flexibility Instrument

This instrument, fi rst introduced in the Interinstitutional Agreement of 6 May 1999 (1), is intended to cover, for a given fi nancial year, clearly

identifi ed expenditure which could not be fi nanced within the limits of the ceilings available.

The Flexibility Instrument can be mobilised up to an annual ceiling of EUR 200 million in current prices. However, the portion of the amount which is not used in year n may be carried over up to year n+2.

The decision to deploy this instrument is taken jointly by the two arms of the budgetary authority in accordance with the voting rules under Arti- cle 272(9) of the EC Treaty, on a proposal from the Commission. The decision is taken, for a given year, during the corresponding budgetary procedure.

2.11. European Globalisation Adjustment Fund

The December 2005 European Council decided to establish a European Globalisation Adjustment Fund, which is intended to provide additional support for workers who suffer from the consequences of major struc- tural changes in world trade patterns, to assist them with their reintegra- tion into the labour market. The IIA (point 28) sets out the budgetary provisions required to deploy the Fund, which may not exceed a maxi- mum annual amount of EUR 500 million in current prices. This amount can be drawn from any margin existing under the global expenditure ceiling of the previous year and/or from cancelled commitment appro- priations from the previous two years, excluding those related to head- ing 1B of the fi nancial framework (‘Cohesion for growth and employ- ment’). The appropriations will be entered in the general budget of the European Union as a provision through the normal budgetary procedure as soon as the Commission has identifi ed the suffi cient margins and/or cancelled commitments.

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