I. What is at Stake

Since 1988 the Community budget has been contained within a medium-term financial framework accepted jointly by the Council, Parliament and the Commission. Subject to a guaranteed ceiling of own resources, this arrangement has produced a steady evolution in the broad categories of expenditure in accordance with the priorities set for the development of Community policies. The rules and procedures which were also laid down by interinstitutional agreement have undoubtedly helped to ensure more trouble-free annual budgetary procedures.

This financial framework system has demonstrated its worth in political, economic and budgetary circumstances which have after all undergone far-reaching changes over the past decade. It is the Commission’s strong opinion that this arrangement must be continued.

The new financial framework to be laid down for the period immediately after 1999 will have to provide coherent coverage, within reasonable budget limits, for the development of Community policies and the impact of the Union taking in new members, along the lines set out in this communication.

An assessment needs also to be made of whether the current financing system should be amended, in particular to take account of likely changes in budgetary circumstances.

The new financial framework will have to satisfy three major concerns. It must:

• cover a sufficiently long period of time;

• be capable of financing essential requirements;

• ensure the sound management of public finances.

The Commission is assuming that there will be a first wave of accessions towards the middle of the period covered by the new financial perspective (2000-2006).

1. Covering an adequate period

The period covered by the new financial framework must be long enough to cater for:

• the likely impact of changes to certain Community policies;

• the impact of the first enlargement and the subsequent transitional arrangements for the countries concerned;

• the development of pre-accession aid for all the applicant countries.

The period to be covered is therefore 2000-2006.

2. Financing essential requirements

The reform of the common agricultural policy to make it more consumer-friendly will, in the first instance, entail additional expenditure. However, given the content of the proposed reform, these costs should be relatively low and the level of agricultural expenditure should be stabilized.

The existing fifteen Member States will continue to give priority to cohesion with greater thematic, geographical and financial concentration of aid. There will also be efforts to improve efficiency through simplification of the implementation of aid, improved division of responsibilities and systematic evaluation of results.

Other Union priorities whose financial implications will have to be accommodated in the new framework are:

• the development of a number of internal policies intended to serve priority objectives shared by all the Member States and where there is an obvious added value;

• giving the Union a higher profile on the world stage, by continuing cooperation with third countries, economic and financial development aid and humanitarian aid;

• financing a modernized Community administration where human resource and financial costs will be kept under control.

The new accessions will entail substantial extra costs for the existing fifteen members. However, enlargement is likely to take place in stages. Prior to this, pre-accession aid will be stepped up to support the necessary adjustment processes in the applicant countries and to spread them over time.

3. Sound management of public finances

Public finances will have to be kept on a tight rein in all the Member States in order to consolidate sound growth. The same applies to the Community budget.

This budgetary discipline is not incompatible with the considerable challenges that will have to be met by the new financial perspective.

There are various indications that it should be possible to cover the development of priority measures to be financed from the Community budget over the period 2000-2006 without raising the own resources ceiling from its level of 1.27 % of GNP.

• The 1999 budget should be adopted well beneath the 1.27% ceiling, leaving a fairly substantial margin right from the beginning of the period.

• With economic growth forecast to be running at 2.5% a year for the period 2000-2006 for the existing fifteen Member States and at 4% a year between now and 2006 for the applicant countries, if the own resources ceiling is maintained at its 1999 level in terms of GNP, by the end of the period there would be potential additional resources slightly in excess of ECU 20 billion (1997 prices).

• Disregarding pre-accession aid and on the basis of the working assumptions used, the initial round of accessions would not begin to have any budgetary impact until about 2002-2003. In any case, transitional arrangements will be in force, particularly as regards the common agricultural policy, through the rest of the period covered by the financial perspective. Allocations to the new members for structural measures will only increase gradually.