The budget of the EU is adopted for a number of years – the so-called multi-annual financial framework (MFF). The multiannual framework determines the maximum spending of the EU within a certain time period. The EU budget consists primarily of cohesion policy and agricultural subsidies and the EU budget is financed by the EU's own resources, including contributions from each Member State. The EU also adopts an annual budget within the multiannual financial framework. The budget for 2011 foresees EUR 126.5 billion in payments.
Allocation of EU resources
The EU budget is financed through the EU's own resources. According to the Lisbon Treaty, the budget must be balanced. Consequently, the EU funding sets an upper limit on the expenditures through the own resources.
The EU's own resources consist primarily of the following elements:
Fees etc. that accrue due to EU trade with third countries under the Common Agricultural Policy.
Customs revenues from EU trade with third countries.
Contributions from Member States calculated as a percentage of their VAT revenues.
Contributions from Member States calculated as a percentage of their gross national income (GNI).
Allocation of EU expenditure
The bulk of EU spending benefits the individual Member States directly through various programmes and funds. Cohesion policy and agricultural subsidies are the largest items and represent about 75 per cent of total EU expenditure.
EU expenditure is allocated to six budget categories:
Strengthening the EU’s competitiveness (7.2 % / € 25.3 bn.)
Cohesion policy, which is allocated according to the three overarching goals: the convergence objective, the regional employment and competitiveness objective and the objective of European territorial cooperation. (33.3 % / € 116.9 bn.)
Agricultural subsidies, which are divided into two pillars: Pillar I - direct support for European farmers and market measures as well as Pillar II - support for regional rural development. (50.8 % / €33.1 bn.)
Freedom, security, justice and citizenship. (1.3 % / € 4.5 bn.)
The EU as a global player. (1.1 % / € 21.2 bn.)
Administration. (6 % / € 0.9 bn.)
Negotiating the EU budget
Since the late 1980s, the EU's annual budgets have been established within a multiannual budgetary framework. The multiannual financial framework (MFF) is decided by the Council, the European Parliament and the European Commission and places a limit on EU expenditures.
The current multiannual financial framework has been agreed for the period of 2007-2013. It is foreseen that the next multiannual financial framework will cover the period from 2014- 2020. During negotiations of the annual budgets, the Council, the European Parliament, and the European Commission have to reach an agreement within the expenditure ceilings which the multi-annual financial framework determines.
In addition to the multiannual financial framework, an annual budget is decided by the Council and European Parliament. The European Commission must prepare a draft annual budget and submit it to the Council and the European Parliament. The Council and the European Parliament have to agree on the annual budget. In the event that the Council and the European Parliament cannot agree, the EU adheres to the budget from the previous year until agreement is reached.
The negotiations on the multi-annual financial framework for the period after 2013 began when the European Commission put forward its proposal in June 2011. The multi-annual financial framework must be adopted by the Council acting unanimously, after the European Parliament has given its approval by a majority of its members. During the Danish Presidency in the first half of 2012, the negotiations of the multiannual financial framework will be conducted.