Select Committee on European Communities Sixth Report


2 March 1999

    By the Select Committee appointed to consider Community proposals, whether in draft or otherwise, to obtain all necessary information about them, and to make reports on those which, in the opinion of the Committee considers that the special attention of the House should be drawn.

Ordered to Report


11666/98 COM(98) 560:  Financing the European Union: Commission report on the operation of the own resources system.


1.  Decisions on the next phase of the European Union's development are approaching rapidly. At the Berlin European Council on 24-25 March 1999, the German Presidency hopes to reach agreement on the proposals for Agenda 2000[1]. In the Commission's words, these proposals outline "in a single framework the broad perspectives for the development of the Union and its policies beyond the turn of the century, the horizontal issues related to enlargement, and the future financial framework beyond 2000 taking into account the prospect of an enlarged Union". They propose a timetable for the negotiations leading to enlargement, reforms to the Common Agricultural Policy and the Structural and Cohesion Funds which the Commission sees as an essential part of the package, and a new financial perspective[2] for the years 2000-2006 within which the Commission contends that the pre- and post-accession costs of enlargement can be contained.

2.  The Committee has already enquired into various aspects of the proposals. In November 1997, we reported on The financial consequences of enlargement[3]. Since then, we have reported on CAP Reform in Agenda 2000 - The transition to competition: measures for rural development and the rural environment[4] and on The Reform of the Structural Funds and the Cohesion Fund[5].

3.  The present enquiry was prompted by the Commission's report on Financing the European Union: Operation of the Own Resources System[6], which reviews the current system for financing the European Union and considers possible changes for the next financial perspective. We thought that it would be helpful to take stock of the position on the financial aspects of Agenda 2000, concentrating on the potential sources of funding and the problems of budgetary imbalance, including the UK abatement. The enquiry was conducted in a very limited timescale (in January-February 1999) so that a Report could be made to the House and debated before the 24-25 March European Council. We were therefore unable to take account of any developments which occurred after 21 February 1999.

4.  Part 2 of the Report is a Summary of the Opinion of the Committee, highlighting what we consider to be the most important elements of our Opinion. Part 3 provides background. Part 4 summarises the evidence of the witnesses on the major issues which arose during the enquiry, and sets out the Opinion of the Committee on those issues.

5.  The enquiry was carried out by Sub-Committee A. The membership of the Sub-Committee during the enquiry is listed at Appendix 1. We are grateful to all our witnesses and particularly to those who gave oral evidence: Ms Patricia Hewitt MP, Economic Secretary to the Treasury; EU Commissioner Erkki Liikanen; Mr Joan Colom I Naval, the rapporteur to the Committee on Budgets of the European Parliament; Professor Iain Begg; and officials from HM Treasury. The witnesses are listed at Appendix 2.

6.  Because the Report inevitably contains some acronyms, as well as some terms which have acquired a particular meaning in the context of EU financing arrangements, readers may find the Glossary in Appendix 3 helpful. They will also wish to note two general points:

  • Since the ecu was converted to the euro at par, we have used the term "euro" throughout, except where witnesses, quoted directly, referred to "ecu". At the end of January 1999, the exchange rate was 1 euro = £0.69 (£1 = 1.44 euro): we have used this rate in our conversions, but witnesses quoted may have used slightly different rates.
  • We refer for convenience to the "EU budget", though this is not a term to be found in the Treaties. Each of the three Treaties establishing the Communities[7] makes provision for a budget or budgets. They are brought together as "the budget of the European Communities" by the Financial Regulation[8]. The Treaty on European Union provides[9] for administrative and (where desired, by unanimity) operational expenditure relating to the Second and Third Pillars to be charged to "the budget of the European Communities".

1   9984/97 COM(97) 2000: Commission Communication: Agenda 2000: The EC Budget 2000-2006; and Reform of the Structural and Cohesion PolicyBack

2   In the framework of own resources laid down in Article 201 of the EC Treaty. Back

3   HL Paper 41, 10th Report Session 1997-98. Back

4   HL Paper 84, 18th Report Session 1997-98. Back

5   HL Paper 138, 30th Report Session 1997-98. Back

6   11666/98 COM(98) 560. Back

7   Article 78 ECSC, Article 199 EC and Article 171 Euratom. Back

8   Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities [1977] OJ L 356/1, as amended; made under Article 78h ECSC, Article 209 EC and Article 183 Euratom. Back

9   Articles J11 and K8. Back

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