The EU Budget

The European Union is the most dynamically developing integration association in the world. Today, this union combining twenty-eight countries is comparable to the United States of America in the context of its economic potential. These days, it is a kind of federation of European countries with the same institutional structures as in the normal state. The European Union has the Parliament, Central Bank, Court of Auditors, the Court, and the Council of Ministers that are supranational structures. In the book Uniting Europe, it is stated that “apart from law, a second feature that distinguishes the EU from other international bodies and that reflects the depth of the integration process is its budget”.

It is formed according to certain principles and allows finance arrangements for the development of integration. The European Union has its currency, namely the euro, which replaced the national currency of member countries constituting the Economic and Monetary Union. Accordingly, the euro has become official and the only means of payment in these countries. The process of centralization of funds, combination of financial instruments, improvement of the financial institutions of the European Union, as well as integration processes in Europe continue. The EU budget plays the major role in these processes. The purpose of the paper is to study the formation of the budget, sources of budget revenues, expenditure of funds, and the role of a single budget in the context of further European integration.

The Legal Framework of the Budget Ensuring

Legal regulation of budgetary relations in the European Union is grounded on a set of regulations of primary and secondary law of the EU that are different by the legal nature and force. Founding documents play a fundamental role in other regulations of the primary law of the EU in parts governing the financing of the activities of the European Union. After the Lisbon Treaty was introduced, the legal basis of the system of resources and the overall budget law of the EU is contained in Section II. Article 310 occupies a special place in the section. It fixes the budgetary and financial principles of the European Union. The remaining six chapters in this section are directed to their specification.

Sources of primary law containing the rules governing budgetary relations include financial provisions specified in the Accession Treaty of the new members of the European Union. Among the acts of secondary law aimed at implementing the provisions of the constituent documents, a special role in the budget regulation is played by the Council decisions on resources, the budget agreement between the EU institutions, and the Financial Regulations adopted in accordance with the requirements of the Memorandum of Association determining the order of formation, allocation, and budget expenditures. The above documents define the legal bases of maintenance of the European Union with the means necessary to attain its objectives and conduct its policies.

Formation of the Budget of the European Union

The European Parliament and the Council adopt the annual budget of the European Union. The long-term financial framework and the annual budget are composed in the euro. The budget of the union is fully financed by own resources. In the book European Union Budget Reform, it is affirmed that “the revenue of the EU is guaranteed through a system of ‘own resources’ rather than national (essentially voluntary) contributions”. It is worth noting that there are several sources of own resources. The first one includes duties, additional payments, additional or compensatory fees, premiums or additional payments, customs duties on the basis of the common customs tariff, or other charges defined by the EU institutions in relation to trade with third countries, as well as customs duties on goods. The next source includes proceeds from the application of the rate uniform for all member states to the volume of VAT, which is levied on the basis of a harmonized tax base determined in accordance with the EU standards. The tax base for this calculation should not exceed 50% of the GNP of the member states. Another source is preceded from the application of the interest rate to the volume of GNP of each member state.

Additional revenues of the European Union include revenues not related to the above categories. In other words, these are revenues from taxation of wages of employees of the EU authorities, the income from the financial sanctions imposed by the Council and the Commission of the member states of the union, and others. In such a way, all these sources form the revenue part of the budget of the European Union at the present stage, which are used to finance its activities.

Budget expenditures of the EU are also regulated by the constituent contract. In the book The European Union, it is stated that “almost 95 per cent of the budget went directly to the beneficiaries of EU policies – to farmers’ regions, third countries, research, and so on”. In the provisions, it is assumed that the budget expenditures are authorized for the full fiscal year in accordance with special regulations. The treaty on the functioning of the EU makes it impossible to adopt any acts by the union that may have significant implications for the budget with no guarantees that the costs arising from these instruments can be financed under the Union’s resources and in compliance with the specified multi-year financial framework plan. In such a way, the financial plan defines the structure and limits of expenditure of the European Union for several years and serves as the basis for developing the annual budget.

The Basic Principles of Formation of the European Union Budget

The existence of an independent fund of financial resources in the form of a common EU budget, which is managed by supranational bodies, is a hallmark of European integration. In fact, the unified budget is the main financial instrument of the European Union approved jointly by the Council and the Parliament. With the help of a single budget, there is the redistribution of the national income that allows managing cash resources and influences the pace and level of economic development of the union. Due to this, there is the realization of a single economic and financial policy in the EU. Nowadays, the main method of control of the economic situation in the community is not subsidization of industries with the exception of the Common Agricultural Policy, whereas it is the implementation of investment policies and funding programs aimed at the structural cohesion.

The budget system of the European Union performs functions similar to the tasks of national budgets such as income equality and economic regulation. The joint budget is the instrument of organized regulation of integration processes. In such a way, only collective management is possible. Accordingly, the country’s contribution to the common budget does not influence the distribution of funds. Thus, only those decisions are accepted, which are important for the further economic and social cohesion of the union. Nevertheless, a single budget should not be considered as a means of subsidization of weak regions. “The rich” countries of the European Union are ready to spend money for the implementation of the medium- and long-term goals aimed at improving the situation in the less successful countries and regions. However, it is only if this method improves the investment climate and brings social and economic stability for the entire group as a whole.

As national budgets, the EU single budget is formed in accordance with certain principles explained in the financial regulations of the union. Development of financial regulations which include the definition of drawing up procedures and implementation of the budget as well as the rules of reporting and inspection are assigned to the Council. The regulation proposed by the Commission must be approved unanimously by the Council after consulting with the Parliament and obtaining the conclusion by the Court of Auditors. Talking about the current regulation, it was adopted in December 1977. For a quarter of a century, numerous additions and changes were made in it.

There are several principles of formation of the unified budget. The first one and the most important is the principle of unity. According to it, all expenditures and revenues of the European Union should be combined in a single budget document. The next one is a principle of universality. In accordance with it, all revenue received in a single budget should not be used to finance specific budgetary measures. Budget revenues form a common fund of the European Union, out of which all the activities are financed. All income and expenditure must be listed in a single budget. The third one is the annual principle, namely to provide the necessary control over the receipt and use of financial resources, while the budget is developed for one fiscal year which coincides with the calendar year. However, within a single budget, there is funding for long-term programs designed for several years. In this case, the concept of differentiated appropriations is applied, which is grounded on payment allocations and payment appropriations. Unlike the differentiated appropriations, undifferentiated appropriations constitute the amount of funds allocated for operations which should be fully completed in the current fiscal year.

Another principle is a principle of equilibrium. During budgeting, planned revenues and expenditures for each fiscal year must be balanced. Accordingly, the financial regulation prohibits borrowings to cover budget deficit. If at the end of the fiscal year the excess of receipts over expenses is recorded, the surplus is transferred to the next year. Therefore, if budget deficit is observed, its value is transferred to the account of EU spending in the coming year. Today, normal is a situation when budget revenues exceed costs.

The next one is a principle of the specification. According to this principle, all the expenses of the union are allocated to specific sections. The principle of specification determines the horizontal and the vertical structure of the budget. The budget nomenclature allows grouping expenditures by section, subsection, and items. Another important principle is a principle of a single currency. Before the introduction of the euro in cashless transactions, the budget of the European Union was composed in ECU (European Currency Unit). However, since 1 January 1999, the EU budget is calculated in the euro. Before the single currency was introduced in the cash turnover in 2002, a considerable amount of expenditure was conducted in national currency. With the euro adoption, the national currency was calculated in accordance with the euro.

Implementation of the EU Budget, Effectiveness, and the Problem of Budgetary Control

Execution of the budget is assigned to the Commission which is responsible for budget performance in the limits of the appropriations. In addition, the competence of the Commission includes the right to adjust the monetary cash in the treasury of the union throughout the year and demand the pre-schedule introduction of the amounts from the member countries to cover temporary cash shortages. At the same time, the Commission has no right to allow the excess of expenditure over income for the whole fiscal year.

It must warn the Council in advance on the possible shortage of funds, and the Council must take a suitable decision that is either spending cuts or further arrangement of expenses on the member states. Talking about practical implementation of the budget, it is assigned to officials of the Commission. In fact, each official performs a different function separately and independently from the other one. During the financial year, the Commission notifies the Parliament, the Council, and the Court of Auditors of the financial performance by providing monthly and quarterly reports on revenues and expenditures. The control over the execution of the budget is assigned to the Court of Auditors. Despite the presence of numerous controlling apparatus, the control over budget funds is sometimes done highly inefficiently.

The Union budget is a tool for involvement of European countries in the development of integration processes within the EU. The budget of the European Union became instrumental in financing the economic development of the countries, which lacked economic indexes for the accession to the internal market and Economic and Monetary Union. Moreover, the budget is a means of involving the economically developed EU member states to a higher stage of integration development by providing them with targeted revenues from the total budget. Consequently, the general budget of the European Union is focused at ensuring financing of the areas that are a priority in terms of the communitarian strategy of the European Union.

Conclusion

The budget of the European Union has functions that are similar to the tasks of the budget of a single country. It executes income equality and economic regulation. The budget of the European Union is a financial instrument of an organized regulation integration process. Therefore, it involves only collective management. The distribution of funds is determined not by the contribution of a particular country to the common budget but the value of the relevant decisions for the social and economic strengthening of the association.