Explanatory Memorandum to COM(2023)337 - Amendment of Regulation (EU, Euratom) 2020/2093 laying down the multiannual financial framework for the years 2021 to 2027 - Main contents
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| dossier | COM(2023)337 - Amendment of Regulation (EU, Euratom) 2020/2093 laying down the multiannual financial framework for the years 2021 to 2027. |
|---|---|
| source | COM(2023)337 |
| date | 20-06-2023 |
1. CONTEXT OF THE PROPOSAL
1.1. Mid-term review and revision of the Multiannual Financial Framework
As part of the overall political agreement on the 2021-2027 Multiannual Financial Framework, the Commission issued in December 2020 a declaration undertaking to present by 1 January 2024 a review of the functioning of the Multiannual Financial Framework, which may be accompanied, as appropriate, by relevant proposals for the revision of Council Regulation (EU, Euratom) 2020/20931 (the MFF Regulation) in accordance with the procedures set out in the TFEU.2
In line with this commitment, and with the statement adopted together with the 2023 annual budget3, the Commission has adopted a Communication on the “Mid-term revision of the Multiannual Financial Framework 2021-2027”4, assessing the functioning of the Multiannual Financial Framework until now, including an assessment of whether the EU budget can continue to provide common means to address common challenges. This assessment concludes that, for the Union to deliver on all its objectives, including the most urgent ones, until the end of 2027, a targeted revision of the 2021-2027 Multiannual Financial Framework (MFF) is necessary.
At the same time, the proposal for an amendment to Regulation (EU, Euratom) 2020/2093 presented in December 20215 has become obsolete due to the outcome of the legislative negotiations on the Social Climate Fund6 and in the light of the unprecedented and unexpected challenges that have materialised in 2022, notably the fallout of Russia’s brutal war of aggression against Ukraine and macroeconomic developments. For these reasons, the Commission is now putting forward a new proposal to the European Parliament and the Council, replacing the earlier proposal, which will be formally withdrawn in due course.
1.2 Reasons for and objectives of the proposal
The Union has faced a series of unprecedented and unexpected challenges since 2020. Barely after the COVID-19 pandemic, the Union was faced with Russia’s brutal war of aggression against Ukraine, the ensuing energy crisis and the related spike in inflation and interest rates. These challenges could not have been anticipated at the time of the agreement on the MFF. The Commission has swiftly acted and used all means at its disposal, including redeployments and reprogramming, on top of existing budgetary flexibilities. However, the limited budgetary flexibilities embedded in the MFF are nearly exhausted and redeployment possibilities are reaching their limits, hindering the EU budget’s capacity to address even the most urgent challenges.
The geopolitical and economic evolution have brought new challenges which require increased EU action. The European Union needs to confirm its support to Ukraine on a multiannual basis. Against the background of current strategic dependencies, accelerating Europe’s twin transition should provide the opportunity for the Union to increase its resilience and regain leadership in key sectors through smart public and private investment in strategic sectors. If it is to deliver on the Union’s shared priorities and needs, the EU’s long-term budget needs to be reinforced for the period 2024-2027 to provide the most essential funding to respond to these challenges.
1.2.1. Unwavering and long-term support to Ukraine: the Ukraine Facility
The EU budget provided tremendous support through flexibilities and re-prioritisations but the 2021-2027 MFF was not designed to address the consequences of a war in Europe. Ukraine’s liquidity needs for macro-financial stability remain high, and investment in Ukraine’s fast recovery and reconstruction should increase progressively as the situation evolves. Sustaining economic activity and rebuilding basic infrastructure would generate employment and revenues, give refugees a perspective to return home and lower the volume of international assistance needed.
To cater for Ukraine’s immediate needs and short-term recovery as well as long-term reconstruction, the Commission proposes a regulation establishing a Ukraine Facility7, an integrated and flexible instrument with an overall maximum capacity of up to EUR 50 billion in current prices.
Support will be provided in the form of repayable (loans) and non-repayable support and provisioning for budgetary guarantees. This will ensure stable and predictable funding while providing an appropriate framework ensuring prioritisation of reforms and investments through a Ukraine Plan, the sustainability of Ukraine’s finances, as well as the protection of the EU budget. Loans to Ukraine will be financed by borrowing on financial markets and backed by the so-called ‘headroom’ of the EU budget, hence over and above the MFF ceilings and within the limits of the own resources ceiling. The non-repayable support and provisioning for budgetary guarantees will be financed under a new thematic special instrument, the Ukraine Reserve, providing the necessary resources to the Ukraine Facility, over and above the MFF ceilings. This flexible approach is needed for catering for the country's evolving needs until 2027.
1.2.2. Managing migration, strengthening partnerships with key third countries and addressing emergencies
Russia’s illegal war of aggression against Ukraine has had first and foremost a devastating effect on Ukraine and its people, but it also had major global implications, affecting our partners’ secure and affordable access to food and energy. This came on top of a multiplication of geopolitical crises and natural disasters, and put a significant strain on the resources available under Heading 6 ‘Neighbourhood and the World’. The Union’s capacity to respond to pressing global challenges as well as humanitarian crises in third countries needs to be restored.
In a context of heightened global economic and political instability, global migration trends are increasing, and the migratory pressure at the Union borders continues its upward trend. This requires enabling the EU budget to continue to provide sustained financial support to address the root causes of migration, improve border management and maintain effective migration partnerships with third countries – whether countries of origin and transit, or those hosting large numbers of refugees.
Concerning the internal dimension of migration as well as border management, the New Pact on Migration and Asylum8, currently in the interinstitutional phase, will provide a new and durable EU framework for asylum and migration management. Based on the current state of the discussions and in line with the objective of the co-legislators to work together to adopt the reform of the EU migration and asylum rules before the end of the 2019-2024 legislative period9, the implementation of the New Pact on Migration and Asylum will require additional financing, in particular for the screening and border procedure, reception capacity, relocations and returns.
The Commission thus proposes to increase the expenditure ceilings of Heading 4 ‘Migration and Border Management’ and of Heading 6 ‘Neighbourhood and the World’ with respectively additional EUR 1 693 million and EUR 9 056 million for the period 2024 to 2027.
1.2.3. Promoting long-term competitiveness in strategic technologies: the Strategic Technologies for Europe Platform (STEP)
The development and manufacturing of strategic deep digital, clean and biotechnologies is essential to meet the objectives of the green and digital transitions. In light of the international competition to build strategic value chains, the Union needs a more structural answer to the investment needs of its industries through a new Strategic Technologies for Europe Platform (STEP)10, which should help preserve a European edge on critical and emerging technologies relevant to the green and digital transitions, from computing-related technologies, including microelectronics, quantum computing, and artificial intelligence, to biotechnology, and biomanufacturing and net-zero and other clean technologies.
The STEP Platform will create the necessary conditions for a more effective, efficient and targeted use of existing EU funds. It will also help to direct existing funding towards the relevant projects and speed up implementation on a subset of areas that are critical for Europe’s leadership while preserving a level playing field in the single market and thereby cohesion. To ensure a quick deployment of financial support, the STEP Platform will reinforce and leverage existing EU instruments, speeding-up the implementation of cohesion policy funds and maximising the use of InvestEU, the Innovation Fund and the European Innovation Council towards European strategic technologies.
The global landscape has changed. Russia poses and will continue to pose in the coming years a threat to the security of Europe. Therefore, the STEP will reinforce the research strand of the European Defence Fund, which will boost the innovation capacity of the European defence technological and industrial base, thus contributing to the Union strategic autonomy.
To boost the investment capacity dedicated specifically to the priority of strategic technologies, the STEP Platform should be supported between 2024 and 2027 by budgetary reinforcements of InvestEU, the Innovation Fund, the European Innovation Council under Horizon Europe and the European Defence Fund. The levels of expenditure of the relevant MFF ceilings (Heading 1 ‘Single Market, Innovation and Digital’, Heading 3 ‘Natural Resources and Environment’ and Heading 5 ‘Security and Defence’) should thus be increased as appropriate.
1.2.4. A sustainable solution for NextGenerationEU funding costs
The unexpected and sharp increase in current interest and forward rates since 2022 as a result of tighter monetary policies to curb inflation is affecting all bond issuers, including the EU. As a consequence, the funding costs to be borne by the Union budget as a result of borrowing for NextGenerationEU are expected to exceed the estimates initially planned at the time of the adoption of the Multiannual Financial Framework11.
NextGenerationEU funding costs are inherently different from ‘traditional’ EU spending programmes. They are highly dependent on interest rate fluctuations. Moreover, up to 2026, additional volatility comes from uncertainties on the timing of the amounts to borrow, which depend mostly on the disbursements for the Recovery and Resilience Facility.
At the same time, once the bonds are issued, interest expenditure cannot be postponed, re-planned or cancelled. While the existing legal framework provides for the necessary mechanisms to ensure that the Union will cover its obligations towards bondholders in all circumstances, the EU budget should be equipped with the means and tools to pay these costs in the most efficient manner.
A specific flexibility mechanism is thus needed to address this volatility. A new thematic special instrument (the ‘EURI Instrument’) should be established, over and above the MFF ceilings, until the end of the MFF, for the sole purpose of covering NextGenerationEU funding costs exceeding the amounts initially planned in 2020 under the expenditure ceiling of Heading 2b.
1.2.5. Maintaining a functioning administration to deliver on the EU’s political priorities
The resources of the European administration (heading 7) are under severe pressure due to additional tasks given to the Union, rising energy prices and high inflation.
The numerous new initiatives introduced over the last two years have given substantial additional tasks to the Union since the start of this Multiannual Financial Framework without a corresponding increase in staff. The European administration will not be able to continue delivering on an ever-increasing number of tasks with the current level of resources.
High inflation has a severe impact on administrative expenditure. Despite exceptional efforts to reprioritise and reduce costs to contain administrative expenditure, the current ceilings of heading 7 ‘European Public Administration’ will not be sufficient to address the needs due to the inflationary pressures.
To meet the Institutions’ legal duties and to handle the additional responsibilities assigned by the co-legislators to the Commission, it is therefore necessary to raise the ceiling of Heading 7 ‘European Public Administration’ by EUR 1 621 million, including an increase of the sub-ceiling ‘Administrative expenditure of the institutions’ by EUR 1 331 million.
1.2.6. Enhancing the Union budget’s capacity to respond to crises and unforeseen developments
The ‘Solidarity and Emergency Aid Reserve’ (SEAR), a thematic special instrument which helps tackling emergencies in Member States and non-EU countries, has been put under heavy pressure since 2021. In light of the increasing occurrence and magnitude of major natural disasters, in particular due to climate change, and of humanitarian crises, the annual amount of the Solidarity and Emergency Aid Reserve should be increased.
As budgetary margins were largely depleted in the very first years of the MFF, it has been necessary to mobilise the Flexibility Instrument to nearly its full availability. The high pressure in all expenditure Headings until the end of the MFF requires an increase of the Flexibility Instrument to ensure that the EU budget can respond to unforeseen needs that may arise.
2. LEGAL ELEMENTS OF THE PROPOSAL
• Legal basis
Article 312 TFEU constitutes the legal basis for the adoption of the Multiannual Financial Framework.
• Subsidiarity
The initiative falls under a policy area where the EU has exclusive powers (under Article 312 TFEU). Therefore, the subsidiarity principle does not apply.
• Proportionality
The proposal complies with the proportionality principle in that it does not go beyond the minimum required to achieve the stated objectives at the European level and which is necessary for that purpose. The changes are proportionate to the significant series of unexpected events and new challenges which occurred since the adoption of Regulation (EU, Euratom) 2020/2093 in December 2020.
• Relationship with pending proposal
The present proposal for an amendment of Regulation (EU, Euratom) 2020/2093 replaces the proposal of 22 December 2021 (COM(2021)569) which will be withdrawn.
3. DETAILED EXPLANATION OF THE SPECIFIC PROVISIONS OF THE PROPOSAL
Chapter 1 – General Provisions
Article 2 – Compliance with the ceilings of the MFF
The first paragraph of Article 2 refers to Annex I containing the table of the Multiannual Financial Framework ceilings. Annex I to the Regulation is replaced by the Annex to this proposal.
The first sub-paragraph of the second paragraph is amended to introduce the reference to the ‘EURI Instrument’ (new Article 10a) and the ‘Ukraine Reserve’ (new Article 10b), with the principle that these instruments are not included in the Multiannual Financial Framework and that their financing is provided over and above the ceilings of the Multiannual Financial Framework, both for commitment and corresponding payment appropriations.
The third paragraph of Article 2 was amended in December 202212 as part of an exceptional support package to Ukraine to allow the mobilisation of guarantees for financial assistance to Ukraine for the years 2023 and 2024 over and above the MFF ceilings. This paragraph is further amended to extend the budgetary coverage from the headroom to the guarantee for financial assistance to Ukraine in the form of loans which is available until 2027 under the proposed Ukraine Facility. Accordingly, if the Union has to honour repayment obligations from the resources of the budget in case Ukraine fails to provide the due payment on time, the necessary amounts will be mobilised over and above the Multiannual Financial Framework ceilings, up to the limits of the own resources ceiling.
Chapter 3 – Special instruments
Section 1 - Thematic special instruments
Article 9 – Solidarity and Emergency Aid Reserve
The second paragraph is amended to provide for the new maximum annual amount of the Solidarity and Emergency Aid Reserve, increased to EUR1 739 million (in 2018 prices).
Article 10a – EURI Instrument
This new Article is introduced to provide for the ‘EURI Instrument’, a new thematic special instrument.
The specific items of expenditure for which the EURI Instrument may be used are the interest and coupon payments due in respect of the funds borrowed on the capital markets in accordance with Article 5 i of the Own Resources Decision (EU, Euratom) No 2020/205313, corresponding to the funding costs of NextGenerationEU borrowing for non-repayable and repayable support through financial instruments.
The mobilisation of the EURI Instrument should take place when the costs of NextGeneration borrowing in a given year are in excess of the amounts planned in December 2020.
For legal certainty, the specific amounts set as thresholds for the mobilisation of the EURI Instrument for the years 2024, 2025, 2026 and 2027 should be set out expressly in absolute value in the Regulation (EU, Euratom) 2020/2093.
| 2024 14 | 202515 | 202616 | 202717 | |
| Annual threshold in current prices (EUR million) | 2 071.4 | 2 677.8 | 3 744.6 | 4 980.3 |
| Annual threshold in 2018 prices (EUR million) converted on the basis of the 2% fixed annual deflator set out in Article 4 i of the MFF Regulation. | 1 840.0 | 2 332.0 | 3 196.0 | 4 168.0 |
The EURI Instrument will cover any amount of the NextGenerationEU funding costs in excess of these thresholds.
Given the uncertainty of the evolution of the parameters determining NextGenerationEU funding costs (timing of the actual disbursements of non-repayable support and evolution of the interest rates), it is not possible to set a fixed maximum amount for the EURI Instrument.
The mobilisation of the EURI Instrument will take place in the framework of the annual budgetary procedure (budget and/or amending budget), and the appropriations will be entered over and above the MFF ceilings, both for commitment and corresponding payment appropriations.
Article 10b – Ukraine Reserve
This new Article is introduced to provide for a new thematic special instrument: the ‘Ukraine Reserve’.
The Ukraine Reserve will provide for the expenditure for non-repayable support and provisioning of budgetary guarantees, for Ukraine under the proposed ‘Ukraine Facility’, providing the required flexibility to match Ukraine’s evolving needs.
The mobilisation of the Ukraine Reserve should take place annually in the framework of the annual budgetary procedure (budget and/or amending budget), considering the best needs estimates given war developments, Ukraine macro-financial performance, absorption capacity and debt sustainability. The appropriations will be entered over and above the MFF ceilings both for commitment and corresponding payment appropriations.
To provide the Union and Ukraine with sufficient programmability for the implementation of the Ukraine Facility, the Ukraine Reserve should include a maximum amount for the period 2024-2027, as well as minimum annual indicative amounts. It is also necessary to set out maximum amounts that may be made available annually for the Ukraine Reserve through the period 2024 to 2027 to ensure compliance with the own resources ceiling laid down in Article 3(1) Council Decision (EU, Euratom) 2020/2053.
For consistency with the implementation of the Ukraine Facility, although the 2021-2027 MFF is laid down in 2018 prices, the amounts should be expressed in current prices.
Section 2 –Non-thematic special instruments
Article 12 – Flexibility Instrument
The first paragraph is amended to provide for the new maximum annual amount of the Flexibility Instrument, increased to EUR 1 562 million (in 2018 prices).
4. BUDGETARY IMPLICATIONS
4.1. Increase of the expenditure ceilings for the years 2024 to 2027
The proposal has the following consequences on the levels of the annual ceilings for commitment appropriations of Headings 1, 3, 4, 5, 6, and 7, including the sub-ceiling for the administrative expenditure of the institutions, which are increased by the following amounts (in 2018 prices):
Taking into account the mechanism of adjustment of the payment ceilings provided under the Single Margin Instrument (Article 11), the present proposal requires an increase of the ceiling of the MFF in payment appropriations in 2026 and 2027, as detailed below (in 2018 prices).
| EUR million | ||||
| 2024 | 2025 | 2026 | 2027 | |
| Increase of ceiling in payment appropriations | 7 725 | 2 772 |
The annual expenditure ceilings in commitment and payment appropriations of the 2021-2027 MFF should thus be amended for the years 2024 to 2027, and Annex I to Regulation (EU, Euratom) 2020/2093 be modified accordingly.
4.2. Special Instruments
Special instruments, including the new special instruments ‘EURI Instrument’ and ‘Ukraine Reserve' included in this proposal are mobilised in accordance with the procedures laid down in the Regulation (EU, Euratom) 2020/2093 and, as applicable, the relevant basic acts.
As expenditure in relation to special instruments is entered ‘over and above’ the Multiannual Financial Framework expenditure ceilings, the present proposal has no immediate budgetary implications in this regard.