Benefits outweigh costs of flexibility in EU multiannual financial framework

20-03-2020

Budget flexibility can be defined as the capacity to reorient resources quickly to meet changed circumstances, unexpected events or new policy priorities. There are three different ways of introducing flexibility in the budgetary process: by relaxing constraints on annual budgets and enhancing the capacity of legislative bodies to set annual spending priorities (legislative flexibility), by giving more discretion to executive units on how to execute their allocations (executive flexibility), and by setting up specific mechanisms to deal with large, unforeseen expenditure needs (e.g. contingency reserves for natural disasters and crises). A comparison of flexibility practices at the national and EU level reveals that the EU budget suffers from both limited legislative flexibility (little discretion given to the Council and the Parliament to set annual spending priorities) and executive flexibility (limited capacity conferred on the European Commission to adjust allocations according to needs and circumstances). Debates on EU budget flexibility tend to focus on the first problem and underestimate the second. Any attempt to enhance EU legislative budget flexibility requires reconsideration of the structural aspects of the multiannual financial framework (MFF). To date, focus has been on changing the rules related to the use of budgetary margins, but there are other ways to give EU budgetary authorities more capacity to set annual spending priorities, such as shortening the duration of the MFF, reconsidering the length of spending programmes, allowing for some adjustment of annual ceiling on payments or institutionalising a MFF mid-term review. Enhancing executive budget flexibility demands changes to the design of EU spending programmes, particularly the establishment of less detailed allocation rules and the creation of in-programme flexibility tools (such as performance or programme reserves). Finally, any discussion about enhancing EU budget flexibility must take into account the possible implications or 'costs' in terms of budgetary control and budgetary stability.

Budget flexibility can be defined as the capacity to reorient resources quickly to meet changed circumstances, unexpected events or new policy priorities. There are three different ways of introducing flexibility in the budgetary process: by relaxing constraints on annual budgets and enhancing the capacity of legislative bodies to set annual spending priorities (legislative flexibility), by giving more discretion to executive units on how to execute their allocations (executive flexibility), and by setting up specific mechanisms to deal with large, unforeseen expenditure needs (e.g. contingency reserves for natural disasters and crises). A comparison of flexibility practices at the national and EU level reveals that the EU budget suffers from both limited legislative flexibility (little discretion given to the Council and the Parliament to set annual spending priorities) and executive flexibility (limited capacity conferred on the European Commission to adjust allocations according to needs and circumstances). Debates on EU budget flexibility tend to focus on the first problem and underestimate the second. Any attempt to enhance EU legislative budget flexibility requires reconsideration of the structural aspects of the multiannual financial framework (MFF). To date, focus has been on changing the rules related to the use of budgetary margins, but there are other ways to give EU budgetary authorities more capacity to set annual spending priorities, such as shortening the duration of the MFF, reconsidering the length of spending programmes, allowing for some adjustment of annual ceiling on payments or institutionalising a MFF mid-term review. Enhancing executive budget flexibility demands changes to the design of EU spending programmes, particularly the establishment of less detailed allocation rules and the creation of in-programme flexibility tools (such as performance or programme reserves). Finally, any discussion about enhancing EU budget flexibility must take into account the possible implications or 'costs' in terms of budgetary control and budgetary stability.

Údar seachtarach

This paper was drafted as a contribution to the EPRS expert seminar on 'EU Budget 2021-27: Challenges and opportunities', held on 28 January 2020. Its author is Eulalia Rubio, Institut Jacques Delors.