The budget represents the object of different negotiations between the member states and the European Union’s institutions, on the basis of some clear defined rules. In 1988, after a few years of annual negotiations, EU passed to multi-annual “financial perspectives”, or ensemble solutions, for which the European Committee did proposals, and the “budgeting authority” – the Council of Europe and the European Parliament negotiated some agreements. So being, the budgetary politics was conglomerated into periodic strategically negotiations, including the ones regarding the national expenses and benefits, the commune agricultural politics (CAP), regional disequilibrium and expansion.budgetary politics, EU communitary budget, public policy

Dumitru TODOROI

Elena GLODEANU

English

Research Papers in Economics

 20                                                                        Finance – Challenges of the Future 
THE BUDGET OF THE EUROPEAN UNION – PRESENT 
AND FUTURE 
 
Prof. Dumitru TODOROI, PhD 
Academy of Economical Sciences of Moldavia 
Elena GLODEANU, PhD Student 
Faculty of Economics and Business Administration 
University of Craiova 
1. Introduction 
 
From the historical point of view, 
the budgets had an important weight in 
the evolution of the modern state and 
they remain fundamental for the 
contemporary government. The source of 
the European Union money (EU), the 
way that these are being spent and the 
processes trough which they are 
distributed are the objective of some 
intense political negotiations. The 
budgets have a political weight, because 
the money represent the engagement of 
the resources for giving public services. 
The realization of a project first needs 
some political decisions to be made 
regarding the allocation  and distribution 
of resources between the member states 
as well as the regions and social groups 
from these states.  
The political aspects of the creation 
and management of the budgets had a 
considerable weight in the evolution of 
EU, from different reasons: 
  mainly, the creation of an 
autonomous source of financing for the 
European Community (EC) was essential 
for the creation of a Community which 
could overpass the traditional model of 
an international organization;  
  secondly,  the budget related 
problems got together in an inevitable 
way with the debates regarding the role 
and the competence of the EU 
institutions, or between the European 
level and the national governance 
equilibrium; 
  thirdly,  the budgetary fluxes 
towards the member states are very 
visible, so there can be established 
relatively easy the “winners” and “losers”. 
Because of that, it is probable that the 
budgetary politics could be influenced in 
a greater measure than the process of 
creating the norms in the national political 
conflicts and in the national electoral 
competition; 
  fourthly, the objectives of the 
budget and the rules that government the 
utilization of the public finances from the 
Union are related to more bigger 
problems regarding the nature of the EU 
and it’s evolution as a political regime. 
The changing ideas regarding the 
role of the public finances in integration, 
shape the political agenda in domains as 
economical and monetary union, regional 
politics and social politics. The budget 
played an important role in the 
consolidation of the market integration, in 
facilitating the agreement in different 
domains, but also in the dynamic of 
politics of the integration. 
An analyze   of the budgetary 
politics allows underlining the relationship 
that exists between the political 
integration and the economical one. If the 
financial resources are a medium of 
consolidating the integrity of the market, 
the budget is a useful way of measuring 
the positive integration. 
 
2. A summary of the communitarian 
budget 
 
In the first years of the European 
Community, the budget was a financial 
instrument similar to the traditional 
international organizations. The 
budgetary treaties from 1970 and 1975 
lead to a fundamental change of the Year VII, No.8/2008                                                                                                     21 
political frame in the budgetary 
processes. Trough these treaties it has 
been established the constitutional frame 
of the Union, especially regarding the 
calendar, the procedures of adopting the 
budget and also the competences that 
the European organisms have. 
In the same time was also created 
a system of “own resources” that gave 
EC an autonomous source of income. 
One of the fundamental laws was that 
this foundation of incomes must apply to 
all member states, regardless of their 
size, weight, types of expenses or their 
possibility of payment. 
The later budgetary treaties 
modified the institutional frame trough 
which there were taken decisions 
regarding the budget. 
The European Parliament (EP) 
was given important budgetary 
competences, including the right to 
increase, reduce or distribute the 
expenses in domains classified as 
“unnecessary” expenses, to adopt or 
decline the budget and to make the 
annual discharge from holding of the 
Committee.    
After 1970, the development of the 
budget as a real instrument of European 
public politics was limited by an 
elementary fact, which influences also in 
the present the European finances. The 
EU’s budget was and will remain small 
with the national gross product (NGP) of 
the Community and with the level of 
public expenses from the. From the year 
1995, the European budget increased 
only with 8.2% in real terms, and the 
share from the gross national income has 
decreased, considering the fact that in 
the same time the national budgets 
increased in medium with 23%, so they 
almost tripled themselves. 
At the European Council from 
Bruxelles from 11-13 February 1977 it 
has been established a level for the 
Community budget of 1,2% from the 
national gross income for expense and of 
1,3% for orders and it was confirmed   
that the member states can retain 10% 
from the traditional  own resources 
incomes to cover the collecting costs. 
Even if the budget has a small macro 
economical signification for the Union as 
a whole, it is very important for the 
member states which receive 
considerable transfers from the structural 
funds. 
  
The balance between transfers/contributions from/to the EU budget in 2007 
 
Source: Data updated from the official site of the European Committee 
  
Like it results in the graphic above 
there exists countries like Poland, Spain 
and even Romania, for which the 
considerable transfers for the cohesion 
politics, from the European Union’s 
budget, have an important weight, even if 
we can not say the same thing about  22                                                                        Finance – Challenges of the Future 
their contribution to the communitarian 
budget. 
The low size of the EU’s budgetary 
resources, emphasizes an important 
aspect of the European political regime, 
so the significance of establishment as a 
main instrument of public powering the 
Union. The expansion of the 
establishment politics was an alternative 
at the creation of some extensive fiscal 
resources at the EU level, reflecting a 
perspective which limited the public 
financial role in integration. 
This perspective was not from start 
dominant. In the ’70, obtaining some 
considerable financial resources for the 
budget, in a shape of fiscal federalism 
was considered essential for entering. It 
was anticipated that will be required a 
higher budget to face the external shocks 
and of the fiscal stabilization, which the 
member states could not handle any 
more trough maintaining their own 
national currency. 
In contrast, the opinion suggesting 
the possibility of a powerful public 
communitarian politics with limited 
financial resources gained ground in the 
’80 while the Keynesian economical 
politics were discredited in favor of the 
monetarist approaches. The Keynesian 
economical paradigm privileged the role 
of budgets in the macro economic 
holding, while the monetarist paradigms 
were not giving a central role to the 
public finances. From the mid ’90, the 
member states have subordinated 
themselves the national budgets to the 
fiscal frame of the Economical and 
Monetary Union. This rule and other 
pressures on the national expenses did 
that many member states to accept with 
reticence important transfers of financial 
resources to the level of the EU.     
The creation of the budgetary 
politics in the Union is based on 
“historical decisions”, like, great wide 
solutions, an annual budgetary cycle, and 
thousand of holding administration 
decisions in every expense sector.  
The administration of the budget 
takes many level of government, from the 
European Comity, to the central 
government agencies, regional and local 
from the member states. The European 
Comity is responsible of the realization of 
the budgetary project every year, as well 
as the required proposals for shaping 
“great compromises”. In a traditional way 
the European Comity was a “supporter” 
of a greater EU budget, for financing the 
joining politics, but in the ’90 was obliged 
to pay more attention to the EU’s 
expenses. In addition, the European 
Comity tries to play the role of honest 
intermediary in the budgetary battles, the 
member states asking it to write sensible 
thematically reports, like “own resources” 
and the net fluxes towards the member 
states. 
 
3. Handling the communitarian budget  
 
The fight for the communitarian 
budget resources and the inter-
institutional battles regarding the 
budgetary power tend to put into shade 
some things like optimizing the 
resources, the responsibility and quality 
of the financial handling of the European 
Comity. These have become concerns 
more and more important of the 
budgetary politics, as the financial 
resources of the budget increased. In the 
’90 there have been made tries to 
improve the financial handling, but these 
proved to be unsatisfactory for preventing 
the bad financial handling, which 
developed to be an “explosive” matter in 
1999, when the Santer Comity was 
forced to resign. The Court of Accounts 
made several notices about the financial 
handling of the communitarian budget. 
The handling of a budget which 
implies kind of 400.000 individual 
authorizations of expenses and 
payments represents a major challenge. 
The execution of the EU’s budget is 
characterized by a fragmentation of the 
responsibilities between the European 
Comity and the public authorities from 
the member states: 80% of the budget is 
handled in the name of the Union by the 
member states. The European Comity 
must be sustained in a great part on the 
deliver and application capacity of the Year VII, No.8/2008                                                                                                     23 
authorities from the member states. But 
the handling culture and the public 
finances vary a lot from a member state 
to another. 
In the same time the complexity of 
the European norms, especially the 
agricultural ones, the border union and 
the regional politics, create little 
entrances that can be exploited by those 
who intend to fraud the EU’s budget. It is 
not known for sure until what level the 
fraud affects the EU’s budget: frequently 
there are some sayings between 7% and 
10% of the budget, but these were not 
proven in a convincing way. The 
investigations about the frauds suggest 
that some member states action very 
slow in the investigations of the fraud of 
the EU’s budget cases, because, in a 
paradox way, these would mean the 
involvement of some supplementary 
national resources to obtain less money 
from the communitarian budget.  
The agreement from 1974 
regarding the creation of the Court of 
Accounts underlined the institutional 
engagement in the favor of a more 
systematic responsibility. The reports of 
the Court of Accounts were n a constant 
way criticizing the financial handling of 
the European Comity. Knowing that the 
constant reports regarding fraud will 
decrease the public trust into the 
European integration, the European 
Comity and the European Council started 
to give more and more attention to this 
problem. So in March 2000 it was 
proposed a White Book regarding the 
reform strategy, in which one of the four 
priorities was referring to the reform of 
the financial handling and the control 
systems. This included a series of 
interconnected process, especially the 
agreement regarding a new financial rule 
codex, the creation of a new internal 
audit service in the European Comity, the 
creation of a new internal audit capacity 
in every service, the passage towards an 
activity budget, the decentralization of 
handling responsibility, at a higher lever 
of creation in financial handling, 
modernizing the accountant system as 
well as introducing in a systematical way 
of some new system of information and 
handling. 
The Court of Accounts analyze 
every year the process of reform trough 
it’s annual report. This recognizes the 
existence of some progresses, but 
underlines the major problem 
represented by those parts of the budget 
which have a basis on a handling 
separated to the member states one. 
    
4. Conclusions 
 
The budgetary politics of the EU 
has elements of continuity, but also, 
change factors. From 1988, the multi 
annual compromises become normal, 
under the shape of a commune financial 
perspective, today being a part of the 
acquis. Trough tough and long 
negotiations it has been reached a 
settlement on a medium term of the 
annual budgetary cycle of the European 
Union, reducing so the danger of 
controversies and inter-institutional 
conflicts. 
The Union’s Budget does not 
correspond to the fiscal federalism 
principles and is improbable to evolve in 
this direction in the future. The fiscal 
federalism would require a lot higher 
budgetary resources then those available 
in the actual context of political forces 
from the Union. The several tries of the 
European Comity to reorientate the EU’s 
budget towards the European public 
goods and so to reduce the redistributive 
aspects in the frame of nowadays “the 
EU’s distributive ways” are being slowed 
down by the inflexibility of the actual 
budgetary inflexibility. The member 
states protect the distributive interest 
groups, but are criticizing the expense 
programs which benefits can not be 
given. 
In what regards the whole 
institutional process we consider that it is 
worth to mention four characteristics of 
the recent evolutions: 
 mainly, the European Comity it 
has to sustain high pressure of improving  24                                                                        Finance – Challenges of the Future 
the quality of financial handling done by 
these; 
 secondly, even if the importance 
of the Economical and Financial 
Business Council is increasing, the 
budgetary arena, the center of the 
negotiation process of the multi annual 
agreements is constituted by ministers of 
finance, heads of states and 
governments. But in the member states 
frame, the ministries of finance impose a 
considerable influence over the creation 
of national preferences in the budgetary 
matters. 
 thirdly, in the shade of “great 
compromises”. In the European 
Parliament it has been installed as a 
second arm, of equal importance, of the 
budgetary authority and as an influent 
guardian of the budgetary execution; 
 fourthly, the institutional 
structure established in 1988 has proven 
until now to be durable. 
 
 
 
 
REFERENCES 
Laffan, B.  The Finances of the European Union, London: Macmillan, 1997 
Lindner, J.  Conflict and Change in EU Budgetary Politics, London: Routlege, 
2005 
Shackleton, M.  Financing the, European Community , London: Pinter, 1990 
*****  http://ec.europa.eu/budget 
 

The budget of the European Union - present and future

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