History

History

• The MFF born out of a crisis 
• Own resources: major changes over time 

The MFF born out of a crisis

The idea of creating a multiannual financial framework was born out of the EU budget crisis of the late 1970s and 1980s. In 1979, 1984, 1985 and 1987 the Council and the European Parliament were not able to agree in time on the following year's EU budget. This triggered the use of the cumbersome system of provisional twelfths which caused delays in the implementation of programmes and in the reimbursement of payments to the Member States.

Decreasing revenue, increasing expenditure

One of the reasons for the EU budget crisis was that revenue decreased while expenditure increased. On the revenue side, notably the dismantling of tariffs led to a reduction of the volume of own resources. On the other hand, agricultural market policy became increasingly expensive, new policies were launched (such as the common fisheries policy) and new members acceded to the Community (Greece in 1981, Spain and Portugal in 1986).

The success of the MFF

Efforts to bring revenue into line with expenditure, essentially by trying to raise additional own resources and to restrict expenditure turned out to be insufficient. Only the adoption of the first multiannual financial framework (the "Delors I package" running from 1988 to 1992) provided for conditions which ensured a smooth and successful budget procedure.

2 new features

 This was achieved by

• establishing legally binding expenditure ceilings and
• creating a new category of own resource: the Member States' contribution based on Gross National Product (GNP) which balanced expenditure needs within the own resources ceiling.

1988, the first year of the Delors I MFF, was the last time that the provisional-twelfths arrangements had to be applied. Since then three further multiannual financial frameworks have been agreed upon, each of which covered seven years.

 Time-line

Own resources: major changes over time

Since the EU is not allowed to be in deficit, financial resources are indispensable for the European Union. The types of revenue have changed considerably over time. At its beginning, from 1958 onwards, the European Economic Community was financed almost exclusively by Member States' contributions. In 1970 these financial contributions were gradually replaced by own resources consisting of customs duties and sugar levies only (the so called traditional own resources). From 1975 onwards, own resources based on value added tax (VAT) were added.

Increasing pressure 

This system came under increasing pressure in the 1980s. Notably the dismantling of tariffs led to shrinking yields of own resources which were not able to cope with the increasing expenditure. In 1988, when the first multiannual financial framework came into force, a new category of own resource was therefore created: the Member States' contribution based on Gross National Product (GNP) which was later replaced by Gross National Income (GNI). This own resource was designed to balance the expenditure needs within the own resources ceiling.

Contributions and corrections

Today, national contributions based on the Member States' GNI account for around 75% of EU revenues whereas the traditional own resources and the VAT-based own resources cover about 13% and 11% respectively. The remaining 1% or so are formed by other revenues, including fines on companies for breaching competition laws. Over time, more and more corrections to the own resources provisions have been introduced in order to compensate budgetary imbalances of some Member States.