The budget of the European Union I.

1. The budget of the European Union I. Introduction to the European Union Written by Endre Domonkos 1 st Semester, Academic Year 2010/2011

2. I. Features of the EU budget I. • The budget of the European Union is unique, different both from that of international organisations and nation states. • One the one hand, it is more extensive than the budgets of traditional international organisations, which usually only cover their own operations and administration. • On the other hand, it is confined to fewer areas than a national budget: while Member State budgets have 30 to 50% of GDP at their disposal, the redistributes a little more than 1% of its total GDP. • Another difference is that the Community budget finances public goods or services to an insignificant degree. • Unlike in the case of international organisations, the EU’s budget has important regulatory and resource distribution functions; of course the EU’s budgetary competences are more limited than those of Member States but its redistributional role is exceptional, especially because it redistributes between Member States, or to be more precise, between their producers and consumers. • The common budget is calculated in Euro (formerly in ECU), and it totals about EUR 110-120 billion annually. • The budgetary year (called ‘financial year’ in the Treaty) coincides with the calendar year, starting on 1 January and ending on 31 December. • The draft budget is prepared by the Commission, and is approved by the Council and the Parliament.

3. I. Features of the EU budget II. • Unlike national budgets, the Community budget can have no deficit; revenue and expenditure must always be in balance. • The European Commission’s so-called MacDougall Report of 1977, which reinforced the regulatory, stabilising and redistributional functions of the common budget, laid down its fundamental principles: - According to the principle of externality, the costs and incomes of certain activities may occur simultaneously in different Member States, which may entail the need for compensation. - According to the principle of indivisibility, due to reasons of economy of scale, the financing of certain activities may not be divided among Member States, but must be implemented at Community level. - According to the principle of cohesion, citizens of all Member State must be guaranteed a minimum standard of services, prosperity and development, which necessitates the transfer of resources from more prosperous countries to poorer ones. This means the implementation of the objective of economic and social cohesion, as laid down in the Treaty. - According to the principle of subsidiarity, a given issue (expenditure item) should be solved (financed) as closely as possible to the citizens, unless there is an advantage in action at higher level.

4. II. The revenue of the EU budget I. • While between 1958 and 1970, the common budget was financed from Member State contributions, in 1970, so-called ‘own resources’ were introduced to finance the common budget. • The significance of these own resources was that the revenue of the common budget was made independent from the contributions of the Member States, which enabled the automatic (normative) financing of the common budget. • This meant that the common budget was less dependent on the willingness of Member States to make contributions. • Due to the insufficient level of own resources, the so-called fourth resource (the GNP-based contribution of Member States) was introduced in 1980, supplementing the other three sources of financing. • Since 1988, the former own resources cover a gradually decreasing part of the budget, which increases the importance of the fourth source of revenue. • This means that the proportion of automatic financing has fallen, while direct contributions by Member States have grown to represent a higher percentage of revenue, which has put budgetary debates on different level. • The revenues of the common budget can be divided on the following: 1). Customs duties, agricultural duties (levies); 2). VAT-based resources; 3). GNI-based resource (formerly GNP resource).

5. II. The revenue of the EU budget II. 1). Custom duties, agricultural duties (levies): • All custom duties levied (according to common customs tariffs) on imports from third countries are paid into the common budget. • The collection of customs duties is the responsibility of the Member State through which the import is made, and it can only reserve for itself a fixed percentage (currently 25%) of the duties collected to cover its administrative expenditure. • Agricultural duties, which are now also considered part of customs duties, have traditionally been considered as separate category of own resources, as they used to be called agricultural levies. • Agricultural levies were continuously changing duties payable upon importation, which served to compensate for the difference between lower prices in the world market and the higher Community prices Agricultural levies imposed on imported produce under the Common Agricultural Policy were paid into the common budget by the importer. • Agricultural levies, as a drastic instrument restricting trade, were practically abolished from 1995 when, according to the decisions taken at the Uruguay Round of GATT, they had to be converted into customs duties. Thus, the difference now between the first and second source is, in practical terms, that agricultural duties are often adjusted, so-called variable duties, while industrial duties are stable (and usually very low). • Customs duties and levies on agricultural produce accounted for 1,5%, while customs duties on other products yielded 10,1% of the revenues of the 2005 budget.

6. II. The revenue of the EU budget III. 2). VAT-based resources: • Revenue from value-added tax (VAT) cannot really be considered a Community tax, because the rate at which is collected is a pre-set rate of the VAT tax base (1% in earlier years, 0,75% from 2002 and 0,5% from 2004 on) which is not added the national VAT rates. Member States transfer their payments on a monhtly basis according to the annual budgetary perspectives and not according to actual economic figures. VAT-based contributions made up 14,4% of the revenues of the 2005 budget. 3). GNI-based resource (formerly GNP resource): • This source of income was introduced by the 1998 budgetary reform in order to supplement own resources. • This became necessary during the EC’s financing crisis in the mid-eighties, when the ratio of customs duties and agricultural levies in the revenue fell from 50% in 1980 to 34% in 1987 and VAT-based contributions rose to 66%. This significantly distorted the Member States’ financial burden compared to their national product, which was rather unfavourable for some poorer Member States, and the financing of Community expenditure was no longer guaranteed. • That’s why the so-called ‘fourth resource’ was introduced, which is set on the basis of Member States’ GNP (gross national product), and is aimed at counterbalancing the former three own resources in a way that Member State contributions amount to a predeterminated rate of the GNP (set at maximum 1,27% of the EU GNP for the 2000-2006 budgetary period). The EU decided to switch to GNI-based statistics in 2002. • Due to the differences between the GNP- and GNI-based calculations, the new ceiling for the 2000-2006 budgetary period was set at 1,24% of GNI. However, the budget is usually well below that ceiling. 75% of the revenues of the EU budget come from GNI-based resource.

7. III. Expenditure of the EU budget I. • Until 1999, Community expenditure was divided into six headings. • AGENDA 2000 adopted at the March 1999 Berlin summit, added another heading: pre-accession aid. With a view to the forthcoming enlargement of the Union, another item was added from 2002 (expenditure allocated for new Member States, which, although technically a separate heading, is in essence part of the first six. a.) Common Agricultural Policy (CAP): • The biggest, though diminishing, part of the budget is absorbed by the CAP. (CAP expenditure has fallen from 75% of the budget in the ’80s to under 50% today.) • The exorbitant extent of CAP expenditure is a constantly debated issue, primarily because of the distorting nature of guaranteed prices. • The EU has only been able to cut back the proportion of CAP expenditure since the ‘80s by considerably increasing other items in the budget. • Agricultural spending has not been reduced in real terms; on the contrary, it has grown, although to a smaller extent than other budgetary items. • The importance of the CAP in the EU budget is indicated by the fact while the agricultural sector produces less then 3% of the EU’s GDP, agricultural spending represents almost 50% of the common budget. • In 2005, 42,6% of the EU budget went to finance the Common Agricultural Policy.

8. III. Expenditure of the EU budget II. b.) Structural operations: • One of the fundamental aims of the European Union, as laid down in the Treaties, is to reduce disparities between the levels of development of the various states and regions and to achieve economic and social cohesion. • With the accession of poorer, backward countries and as a result of their pressure, the objective of regional policy has become increasingly important, which has increased the role of structural operations. • In recent years, about one third (in 2005 it was 36,4% of the EU budget) of the Community budget has been allocated to such expenditure (Structural Funds, Cohesion Fund) compared to one tenth in the early ‘80s. c.) Internal policies: • This includes the financing of practically all common and Community policies and actions, with the exception of the first two points, amounting to about 6-7% of the budget in recent years. • Most of internal policy-related expenditure finances research and technological development. • In 2005, 7,8% of the EU budget went to finance internal policies (with 55,8% were spenton research and technological development). d.) External action: • This heading includes budgetary support and development aid to third countries, which make the EU the world’s biggest provider for aid.

9. III. Expenditure of the EU budget III. • Pre-accession aid to prepare Central and Eastern European candidate countries (CEECs) for membership has been separate budgetary heading since 2000. In 2005 4,5% of the EU budget went to finance external action. e.) Administrative expenditure: • Operating and administrative expenditure amounts about 5% of the common budget. In 2005, 5,4% of the budget was given to administrative tasks. f.) Reserves • A part of the budget is always reserved for unexpected expenditure. In the 2005 budget, 0,4% has been earmarked for reserves. g.) Pre-accession funds: • With a view to the priority of eastward enlargement and the extensive and special tasks it would entail, the Berlin European Council of March 1999 decided to introduce this item in the common budget from 2000; this heading is treated separately from external activities, and encompasses the so-called pre-accession aid of the older PHARE and the newer SAPARD and ISPA funds, aimed at preparing the candidate countries of Central and Eastern Europe for membership. • Pre-accession funds were set up specifically for candidate countries. Once a candidate country accedes to the EU, it falls under the ‘new Member States’ heading and can only use unspent pre-accession aid left over from previous years within a certain deadline (a rule that also applied to the then new Member States that became full members on 1 May 2004). Pre-accession aid amounted to 1,8% of the 2005 budget.

10. III. Expenditure of the EU budget IV. h.) Expenditure earmarked for new Member States: • According to the decisions of the March 1999 Berlin summit, the European Union’s budget was calculated on the working hypothesis of the accession of New Member States between 2002 and 2006. • In order to avoid unexpected problems in the common budget, the hypothetical expenditure incurred by the membership of new countries was to be earmarked in the budget as from 2002. • It’s important to emphasize that the Community budget made enlargement possible from that date. • As enlargement only took place on 1 May 2004, these budget appropriations remained unspent in 2002 and 2003. • This heading is only theoretically a separate one; it covers the expenditure of the first six items earmarked for new Member States, which had to be placed under a separate budgetary heading because of transitional differences and the element of uncertainty concerning the actual numbers and date of the new accession. • Following the enlargement of 2004, this is not considered as a separate heading. • It should be noted that the Union budget is calculated in two ways, according to two appropriations. • Each year there is an annual budget based on commitments and another one based on payments, with two different total sums. • Commitment appropriations include sums committed in a given fiscal year, even though some of this sums are only spent in the following years. Payment appropriations take stock of items to be spent in a given year on the basis of the commitments of the given year and of the commitments carried over from previous years.

11. IV. The key issues of budgetary debates in the eighties and nineties I. • Since the mid-eighties, the debate on the common budget between the Member States has focued on three important and recurring issues. • The Common Agricultural Policy, its exorbitant costs and the outdated and sometimes unfair structure of its financing have been the subject of heated debate for quite a while. • The debate is fundamentally between the main beneficiaries of the Community’s agricultural policy (states such as France, which have a large agricultural sector producing mainly temperate products), the net contributors (states with relatively small agricultural potential, e.g. the United Kingdom), and the countries producing less-subsidisied products (e.g. Portugal). • Although the ratio of CAP expenditure within the common budget was reduced during the nineties, it was done by drastically increasing the budget as a whole an not by cutting subsidies in real terms. • Strong Member State agricultural lobby groups have always managed to prevent comprehensive reforms to the financing of agriculture, although external factors (such as WTO obligations and the need for maintaining competitiveness on the world market) have made increasingly pressing. • The extent of structural and cohesion expenditure has been another key point in the budgetary debate. • There is a gap between the less prosperous Member States, also known as cohesion countries (at the time Greece, Ireland, Portugal and Spain), and others.

12. IV. The key issues of budgetary debates in the eighties and nineties II. • After they joined the EU, these four countries have always said that, due to their lower level of development, the single market and economic and monetary union posed more difficulties for them than for more developed Member States; thus, they argued that – according to the principle of economic and social cohesion – the more prosperous Member States should compensate for the costs of continous alignment through the common budget’s redistributional , i.e. structural measures. • The amount of – and not the need for – these financial transfers was what poorer and richer Member States always debated. • A persistent problem was created by certain constantly apparent, often seemingly unjustified, differences between the contributor/beneficiary status of Member States. • EU members benefit from agricultural and structural policies, the two biggest expenditure headings in the community budget, to various extents, according to the redistributional logic of these policies. • These differences in the balance of payments into and transfers from the common budget, the so-called difference of net contributions, is a major source of tension, but the main reason for disagreement is that, contrary to proclaimed objectives, these balances often do not reflect the level of income and development of the different Member States. • It should be also noted that sharing net contributions fairly seems to be practically impossible even today, since financial support to poorer Member States does not necessarily stay inside the beneficiary country. Companies from more developed Member States are involved as contractors in many of the investments financed from the common budget and, therefore, part of Community funding to less prosperous countries is indirectly transferred back to the budget of the donor states (for example in the form of taxes).

13. V. The system of multi-annual financial perspective I. • In order to solve the above controversy, to make the common budget more efficient and fair, three large reform packages have been adopted since the late ’80s. • Sharing the common objective of ensuring the stable operation and financing of EU policies for longer, thus assisting better planning, these packages set longer-term (5 to 7 year) budgetary planning periods. • It became standard practice to adopt comprehensive financial perspectives (the last two times for a 7-year period) on the basis of estimated own resources. • These financial perspectives include ceilings for the overall budget and its key headings, which then serve as a framework for the annual budgets of subsequent years. • These multi-annual budgetary packages, so called financial perspectives or multiannual financial frameworks, are adopted at summit level meetings of Heads of State or Government. • The peculiarity of multi-annual financial perspectives, which are not institutionalised in the Treaties and thus have no primary legal base, is that they are not always adopted by a unanimous vote because, on issues of such great significance, Member States respect each other’s interests as much as possible. • Thus, the adoption of financial perspectives for a given budgetary planning period is preceded by heated debates lasting one to two years, which can usually only be resolved by complicated packages or compromises.

14. V. The system of multi-annual financial perspective II. • However, the resulting financial perspectives guarantee stable and transparent financing for many years ahead. • Another advantage is that the predetermined financial framework makes it easier for the Council and Parliament to agree on the annual budget and reduces the chances of conflicts between the institutions in establishing the budget. • Before the introduction of budgetary packages, in the ’80s, the Council and Parliament regularly failed to come an agreement on the annual budget in time, by the beginning of the financial year. • Since multi-annual financial perspectives have been used, the annual budget has always been adopted on time. • This is partly facilitated by the inter-institutional agreement between the Council and the Parliament, acknowledging and confirming the financial perspectives adopted by the Member States, in which Parliament in practice gives its consent to the perspectives, on which it is therefore consulted. • These longer budgetary planning periods also give ample time to review expenditure and revenue, to make necessary changes, to solve problematic issues and to introduce reforms (e.g. in respect of own resources or the aim and functioning of various policies).

15. VI. The Delors I and Delors II package I. • During the Presidency of Jacques Delors, the European Commission put forward two major packages of reform proposals. • These proposals, which are also known as the Delors I and Delors II package, formed the basis for the decisions taken by the Member States for the financial perspectives of subsequent years. • The Delors I and Delors II packages overhauled the common budget and made the use of multi-annual financial perspectives standard practice. • The first longer-term budgetary framework was adopted by the Brussels European Council in February 1988, to boost revenue and rein in spending on agriculture. • This Delors I package for the budgetary period 1988-1992, increased revenue by introducing the GNP-based resource, and allocated the extra funds primarily for structural policy. In order to limit agricultural spending, it was decided that CAP expenditure should not grow by more than 74% of the Community’s GNP growth. • The Delors I package also introduced an overall ceiling for the Community’s overall expenditure, set at 1,2% of the total annual gross national product of the Member States. • The introduction of the GNP-based resource solved the acute problems of financing and ensured the stability of the common budget. • At the same time, it also reduced the Community feature of the budget by accentuating Member State contributions. The reduced role of former own resources and the increased ratio of Member State contributions later sharpened the debate and conflict between the Member States.

16. VI. The Delors I and Delors II package II. • The Delors II package, for the period 1993-1999, was adopted by the Edinburgh European Council in December 1992, allowing an increase in the EU’s overall expenditure from 1,2% to 1,27% of GNP by 1999, a gradual increase in the resources of the Structural Funds from ECU 19.7 billion in 1993 to 27.4 billion in 1999, and the creation of a Cohesion Funds of ECU 15.1 billion for the period 1993-1999, to provide financial help for projects in the fields of environment and transport infrastructure in the four least developed Member States (Greece, Ireland, Portugal and Spain). • Another change introduced by the Delors II package was aimed at easing the VAT contribution burden of the less prosperous Member States. • The role of this source of income, which had put a greater burden on countries with a higher rate of consumption, was modified, reducing VAT-based contributions for countries with GNP per capita below 90% of the Community average, and increasing VAT contributions for the other Member States. • As a general rule, it was also decided that the maximum share of Member States’ VAT revenue called in by the Community should be gradually reduced from 1.4% (1994) to 1% (1999). • The Delors II package was an important step for ensuring the financial burden would be shared more evenly between Member States according to their economic strength, even if this was done by reducing the ratio of former own resources again. • The new VAT-based resource system meant unfavourable changes for Denmark, for example. • The United Kingdom continued to pay an unfairly large sum into the Community budget and so was permitted to keep its entitlement to a rebate of about 2/3 of its net contributions (i.e. negative net balance), which was institutionalised in 1984. Despite the annual reimbursement, the UK remained a net contributor.

17. VI. The Delors I and Delors II package III. • Overall, the Delors packages favoured the poorer Member States, which was only possible because of the willingness of more prosperous countries – especially Germany – to finance the closer integration of backward regions in the single market and economic and monetary union, and thus create a more united and stronger European Union in the common market of all Member States. • The success of this policy was demonstrated by the gradual-catching up of less developed countries and their integration into the economic and monetary union. • This generous approach was possible in a favourable economic environment but the recession of the ‘90s, increasing unemployment and budgetary difficulties, exacerbated by the austerity and restrictive measures necessitated by the preparations for monetary union, changed that optimistic climate. • At the same time, finding a solution to the applications for membership submitted by CEECs also became an increasingly urgent task as the need for eastward enlargement began to be generally accepted. • In addition to enlargement and the demand for a revision of net contributions, the need for the financial reform of the most expensive policies also became evident as a result of other internal and external factors requiring restructuring, such as the obligations agreed to at the Uruguay Round GATT. • In the mid-nineties, it became clear that the comprehensive reform of the common budget and its main items – agricultural and structural policy – was inevitable, and that issue would have to be solved before the next budgetary planning period starting in 2000. • This resulted in a programme package published by the European Commission on 16 July 1997, which became known as AGENDA 2000. This document was supposed to provide a solution to both traditional budgetary problems (agricultural policy financing, support for disadvantaged regions, and the issue of net contributions) and the new problems arising from enlargement, which would only further complicate things.

18. VII. The financial provisions of AGENDA 2000 I. • The Delors II package set the expenditure of the EU budget until 1999, thus Member States had to adopt new financial perspectives for the years after 2000. • The Madrid European Council (December 1995) requested the Commission to carry out an in-depth analysis of the impact of the EU’s forthcoming Eastern enlargement on its policies and on that basis propose a financing system for the next financial perspective. • The Commission launched AGENDA 2000 on 16 July 1997 with a view to the financial implications of enlargement and the pressing need to reform the Common Agricultural Policy as well as structural and cohesion policy. • This action programme included the Commission’s proposals for budgetary perspectives for the period 2000-2006, as well as for carrying out enlargement. • AGENDA 2000 was a complex financial package for a 7-year period, the Member States tried to defend their own resources until the last moment. • Finally, on 26 March 1999, at the Berlin European Council, the Head of State or Government finally adopted the new financial perspective for the period 2000 to 2006. • The final text of AGENDA 2000, as adopted by the European Council, differed from the original version on a number of points. • Some of the Commission’s reform proposals (particularly in the area of Common Agricultural Policy) were toned down, while in other areas (such as spending ceilings) Member States’ demands were more rigorous than the Commission’s proposals.

19. VII. The financial provisions of AGENDA 2000 II. • It has to be acknowledged that the created budgetary framework opened the way to eastward enlargement, while it secured a sound financial basis for key policies. • Member States decided to achieve this through covering the costs of enlargement primarily from the surplus revenue yielded by economic growth and only to a smaller extent from the reform of the budget and internal policies. • This meant maintaining – or freezing- expenditure at 1999 levels in real terms and allocating surplus revenue generated by economic growth to the financing of the enlargement process. • In the Berlin package, Member States intended to ensure that in 2000-2006 period, Community Funding would not fall (although it should not increase either), while New Member States should also receive aid, although not what they would have been entitled to under the old rules given their lower level of development. • With this arrangement Member States managed to solve the greatest contradiction: new Member States can enjoy the benefits of economic and social cohesion (i.e. Structural and Cohesion Funds), while the revenue of the poorer and old Member States from the Community budget will not be immediately or radically cut down either. • Despite all of these achievements, the failure to carry out a comprehensive structural and financial reform of the other key area, the Common Agricultural Policy, and the low level of agricultural support foreseen for new Member States made the sustainability of the financial framework uncertain. • Another major factor of uncertainty was to foresee the total number of countries that would become Member States between 2000 and 2006, in which year they would join and exactly how many countries each wave of enlargement include.

20. VII. The financial provisions of AGENDA 2000 III. • AGENDA 2000 was thus originally based on the hypothesis of enlargement with 6 new Member States by 2006. • This was due to the fact, when AGENDA 2000 was adopted in March 1999, the EU was negotiating with only six candidate countries. • However it’s important to emphasize that the Helsinki summit of December 1999 decided to open negotiations with another six applicants. Moreover, the Member States declared that second-wave countries in the so-called ‘Helsinki group’ could catch up with applicants in the ‘Luxembourg group’, which four of them did. • AGENDA 2000 introduced a number of changes concerning the structure of the budget. • On the revenue side, the four own resources were maintained, but the rate of contributions was adjusted. • The most important new measure was that the maximum call-in rate for the VAT-based resource would be gradually reduced from 1% to 0.75% in 2002 and 0.50% in 2004, which would be compensated for by increasing the GNP-based resource. • It was also agreed that the percentage of traditional own resources (customs duties and agricultural duties) retained by the Member States by way of collection (administrative) costs would be increased from 10% to 25% in 2001. • While further reducing the role of real own resources, the Berlin European Council requested the Commission to undertake by 2006 and in-depth analysis of the possibilities of improving the system of own resources, including the introduction of new resources for the next financial perspectives from 2007.

21. VII. The financial provisions of AGENDA 2000 IV. • These changes in the revenue side favoured poorer countries with a higher rate of consumption, but moved in the direction of a more equitable sharing of the financial burden by Member States (e.g. increasing the contributions of Denmark or Belgium). • The interests and needs of net contributors (primarily Germany), who emphasized the excessive rate of contributions and asked for a reduction in their payments to the common budget, also had to be taken into consideration. • This was mainly done by reining in spending on agricultural policy and structural measures. • Despite the foreseeable high costs of enlargement, the financial framework laid down by AGENDA 2000 kept the overall ceiling on expenditure at 1.27% of GNP (or 1.24% of GNI) for the entire period 2000-2006. • This 1.27% ceiling included the possibility of a larger total budget, as the maximum budget had never been exhausted in previous years. • The ceiling on expenditure set by the Delors II package for 1999 was 1.27% of GNP, but actual spending amounted only 1.15%. • During the 1993-1999 period, Community expenditure peaked in 1996 and 1997, when the EU budget redistributed 1.17% of Community GNP. This meant that about 0.1% of GNP remained unspent in previous years, which gave the EU some room for increasing spending. • AGENDA 2000 did calculate with these available resources as the other main source of financing enlargement next to surplus revenues generated by economic growth.

22. VII. The financial provisions of AGENDA 2000 V. • When adopting AGENDA 2000, the Member States emphasized that the budgetary balance guaranteed by the 1.27% ceiling the Community’s commitment to the implementation of budgetary discipline in connection with monetary union. • It was also an instrument for the net contributor States that wanted to restrain any excessive spending that they would have to finance. • In order to establish a clear distinction between different types of expenditure, the cost of enlargement was included in the 2000-2006 financial perspectives in two separate new headings: 1) pre-accession aid to candidate countries; 2) spending reserved for possible new Member States. • The Council decided to disallow any reallocation of resources between the budget lines for old Member States, candidate countries and new Member States. • AGENDA 2000 was based on comprehensive compromises between Member States. • Despite the 18 months of debates on issues like reducing the financial burden of Germany (and, to some extent, the Netherlands, Austria and Sweden) or adjusting support for cohesion states (Spain, Portugal, Greece and Ireland), the gap between the position and demands of the Member States was so wide that no radical changes were possible in these areas. • AGENDA 2000 made only the most necessary changes and in practice upheld the status quo: Germany was unable to achieve a significant reduction in the level of contribution, the special rebate to the United Kingdom was maintained (although the portion paid by Germany, the Netherlands, Austria and Sweden was reduced by one quarter of their normal share), support to cohesion states was not reduced although a ceiling was introduced, while France’s strict opposition towards agricultural reform was reflected.

23. VII. The financial provisions of AGENDA 2000 VI. • It must be noted that the enlargement-related budget lines of AGENDA 2000 had to be modified in line with developments during the enlargement process. • By 2002, it had become clear that neither the hypothetical date of first accessions (2002) nor the number of new members (6) would be the same as had been assumed originally. The Nice European Council in December 2000 made it clear that the earliest possible date of new accessions would be 2004, while the conclusion of the Laeken summit in December 2001 made it very likely that the number of new Member States would exceed six. • This meant that the budget lines of AGENDA 2000 affecting the new Member States had to be finalised during the negotiations with the candidate countries, with the Berlin financial perspectives as a basis. • The final deal reached in the accession negotiations (concluded on 13 December 2002 with 10 new countries) concerning the 2004-2006 period was about 1.5 billion euros below the figure foreseen for the new Member States for that period in the Berlin financial perspectives, even though the original calculations were 6 and not 10 new countries. • This also resulted in the new Member States being entitled less Community funding in agricultural subsidies and structural measures than older Member States. The differentiation would be phased out gradually, by 2013 in agriculture and by 2007 in structural policy. • Net contributors increasingly pushed for freezing their contribution to the EU budget. • In December 2003, six net contributors (Austria, France, Germany, the Netherlands, Sweden and the United Kingdom), in a letter to the European Commission, called for the capping of the bloc’s future budget, saying the expenditure side of the budget should not exceed 2% of the EU’s gross national income.

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