EU multiannual financial framework 2014 - 2020

The financial support that Latvia currently receives from the common budget of the European Union (EU) and contributions that Latvia has to make into the EU budget are set in the EU multiannual financial framework for the years 2007 – 2013. Negotiations regarding the next budget planning period for 2014 – 2020 have started this year.

On 29 June, the European Commission (EC) came up with proposal for the EU budget 2014-2020. The following draft budget is oriented on achievement of the strategy "Europe 2020" objectives. The objective of the strategy „Europe 2020” is to ensure such growth over the nearest decade that would allow the EU economy to become smart, sustainable and inclusive. Due to these reasons the title of the new EC budget proposal is „Investing today for growth tomorrow”.

EC budget draft includes several innovative solutions regarding both the expenditure and revenue side. Budget total proposed for the next seven years is 1,025 billion EUR (~720 billion Lats) in commitments and 971.5 billion EUR (~683 billion Lats) in payments. The budget structure will be aligned with the objectives of the strategy “Europe 2020”, leaving the structure of the current budget unchanged. Outside the budget framework the EC proposes to plan expenses of 58 billion EUR (~40.6 billion Lats) for Emergency Aid Reserve, European Globalisation Fund, Solidarity Fund, Flexibility Instrument, Reserve for Crisis in the agricultural sectory, European Development Fund and ITER (Nuclear Fusion Reactor) and GMES (Global Monitoring for Environment and Safety) projects.

According to the Lisbon Treaty, the EU budget has to be fully self-financed, while at the moment 85% of the budget financing depends on Gross National Income (GNI) based contributions from member states. EC proposes to create a new system of own resources, which would be based on income from financial transactions tax and a new VAT based own resource. The new system would partially finance the budget and completely replace the current complex VAT based own resource. This would allow decreasing the share of GNI based funding. Commission also proposes to simplify the system of rebates for several net contributors, including the UK rebate.

Main areas of Multiannual Financial Framework

Innovative elements of the budget proposal are mostly concerned with reaching „Europe 2020” objectives, respectively proposing changes in such areas of the EU budget as Cohesion policy, Common Agricultural Policy, Research Policy, External Action Instruments, and creation of new Connecting Europe facility. As always the budget proposes support for Education Policy, European Security and Citizenship and administrative expenses of the European Commission. The budget is divided into six categories covering all policy areas. For example, Cohesion Policy falls under Category 1, but Common Agricultural Policy under Category 2.

(Table: comparison between current and proposed budget framework)

* Current prices (http://ec.europa.eu/budget/figures/fin_fwk0713/fwk0713_en.cfm )

** EC proposal (http://ec.europa.eu/budget/library/biblio/documents/fin_fwk1420/MFF_COM-2011-500_Part_I_en.pdf)

Cohesion policy

The proposal is to allocate 376 billion EUR (~263.2 billion Lats) for Cohesion policy instruments during the next financial period. At the same time EC proposal foresees the capping of funds to 2.5% of GNI to be set for allocation of cohesion financing to Member States.

The Cohesion policy is divided into several instruments and allocation categories. The policy instruments are Cohesion Fund (CF), the new Connecting Europe Facility, European Social Fund (ESF) and European Regional Development Fund (ERDF). It is proposed to allocate the money within the framework of the fund depending on the level of regional development in three categories – convergence regions (GDP below 75% of the EU average), new transition regions (GDP between 75% and 90% of the EU average) and competitiveness regions (GDP above 90% of the EU average). The range of supported activities and the size of co-financing varies depending on the type of region. European Territorial Cooperation is separated and is aimed at the development of cross-border activities, improvement of cooperation between marine regions and enforcement of regional policy.

In the framework of ESF and ERDF 162.6 billion EUR (~113.8 billion Lats) are provided for convergence regions, which includes Latvia. Financing of 68.7 billion EUR (~48 billion Lats) is offered for the needs of Cohesion fund. Part of this money will be allocated to Latvia, as this is a supplement to the support for convergence countries which they receive from other funds. Allocation of 11.7 billion EUR (8.2 billion Lats) is planned for Territorial Cooperation Fund.

Creation of new Connecting Europe Facility is planned within the draft budget, aimed at making infrastructure projects on the European scale more important and ensuring better connectivity within Europe. Priority infrastructure projects of the new fund include several projects of strategic importance to Latvia include:

• multi-modal railway connection Tallinn-Riga-Kaunas-Warsaw;
• Baltic Energy market interconnection plan in the electricity field;
• Baltic Energy market interconnection plan in the field of natural gas, including the construction of a liquefied gas terminal in a Baltic country.

All in all, an allocation of 50 billion EUR (~35 billion Lats) financing is planned for the Connecting Europe facility.

In order to ensure mutual strengthening of EU support, it is proposed to sign partnership agreements with each member state that would create a powerful incentive for achieving the strategy „Europe 2020” objectives, as it would detail the terms and conditions for receiving funds.

More detailed information available at http://www.esfondi.lv/events.php?id=496

Common Agriculture policy and Fisheries policy

In its proposal the EC proposes amendments to the Common Agriculture Policy (CAP), which are aimed at a support system that is fairer and provides for more equality between Member States, at the same time ensuring a tighter connection between agricultural and environmental policies. The total financing proposed by the EC for CAP is 386.9 billion EUR (~271 billion Lats). Regarding the financing for fisheries, the draft budget offers to establish a European Marine and Fisheries Fund with financing of 6.7 billion EUR (~4.7 billion Lats).

The main amendment proposed by the EC in CAP is during the planning period to gradually adjust by 1/3 the direct payments (DP) for the EU member states, which currently receive DP below 90% of the EU average support level. Thus the Comission proposes that during the next seven year period, DP in Latvia would increase from 67 LVL/ha to 100LVL/ha or by approximately 50% by year 2020.

The EC proposal also provides for „greening” of direct payments, which means that 30% of payments would be made conditional on environmentally friendly activities.

In order to adapt to new challenges and ensure the ability to provide support to the agricultural sector in cases of unforeseen global market volatility, the EC offers not only restructuring of existing market instruments, but also outside the budget framework to set up an Agriculture Emergency reserve and to expand the scope of the Globalisation Fund. The proposal is to have 3.5 billion EUR (~2.5 billion Lats) for Agriculture Emergency reserve and to allow, within the framework of Globalisation Fund, to use up to 2.5 billion EUR (~1.7 billion Lats) for the needs of agriculture sector.

More detailed information available at http://www.zm.gov.lv/index.php?sadala=40&id=11404

Research policy

With regards to research policy it is planned to create a new strategic framework for research, innovations and development of technologies. Generally the Commission has planned such support for this sector which would allow, by combining the EU and national budgets as well private sector investments, to allocate 3% of GDP to research and development. The EU multiannual financial framework for 2014–2020 provides for allocation of 80 billion EUR (~56 billion Lats) to this policy. This programme will allow the scientific research institutions from Latvia to take part in the European research programmes and to receive financing for their research.

External Action instruments

The Lisbon Treaty marks a new stage in the relationship of the EU with the rest of the world. As a result of the Lisbon Treaty, the position of High Representative was created in the EU with European External Action Service reporting to it. Setting up a professional service allows for better cooperation with international partners and protection of European values – democracy, rule of law and human rights – and safeguarding these.

In order to strengthen the position of the EU as a global player, the EC proposal provides for increase of the external action budget up to 70 billion EUR (~49 billion Lats). Outside the financial framework, it is planned to allocate 30.3 billion EUR (~21 billion Lats) for financing of European Development Fund and 2.5 billion EUR (~1.7 billion Lats) for Foreign Aid Reserve. Within the framework of this programme, Latvia can improve security and stability in its neighbouring regions as well as participate in provision of aid within the framework of development cooperation and receive support for its nationals in the countries where Latvia is not represented by an embassy of its own.

Education policy

In its budget proposal, the EC also offers to increase the financing for Community programmes in the areas of education and training by setting up an integrated programme for education, life-long learning and youth. The proposed amount is 15.2 billion EUR (~10.7 billion Lats) for education and training purposes and 1.6 billion EUR (~1.12 billion Lats) for culture. Within the framework of these programmes, Latvia ensures the possibility for students to study within the framework of Exchange programmes (i.e. ERASMUS), promotes requalification of unemployed persons and improves the qualification of teachers.

European Security and Citizenship Policy

Taking into account the ever increasing significance of internal policies, including security, migration and control of external borders, the new financial framework proposes setting up a two-pillar instrument system: Migration and Asylum Fund and Internal Security Fund. The financing planned in the draft budget is 8.2 billion EUR (~5.7 billion Lats) for internal affairs and 444 million EUR (~ 312 million Lats) for civil defence. Latvia, within framework of this policy, is developing the efficiency of external border control posts.

Administrative expenses

Currently administrative expenses make up 5.7% of the total amount of the EU budget. In the new draft budget, the EC proposes to continue reforms in the areas of human and financial resources management by simplifying and streamlining the administering of EU institutions. The EC proposes to decrease the number of employees in each institution and agency by 5%. By year 2014 the EC proposes to implement several amendments to the EU Staff regulatory framework, including a new method of salary calculations, an increase of working hours from 37.5 to 40h per week, as well as raising the retirement age.