European policy consultants
Rural development and renewable energy

Commission to bring forward proposals on 'financial discipline' - reining in the cost of the CAP to meet budget restrictions.

The Commission is expected to table a proposal at the end of March to trigger ‘financial discipline’ in 2014. This will mean a reduction in direct payment levels.

This has arisen because there is no longer an acceptable margin between the spending requirements and the new budget ceilings.

The long-term budget ceilings agreed by EU leaders at the Summit on 8th Feb were lower than the Commission’s original proposal, making financial discipline unavoidable for 2014. This will be the first time that this mechanism has kicked in to reduce farmers’ direct payments.

In the current framework period (2007-13), there has always been a buffer margin, usually around €300, million below the budgetary ceilings. This has allowed the Commission to react to market crises.

It remains to be seen whether the commission wil introduce a linear cut across the board or a ‘tiered system’ which would mean that the first €5 000 of farmers’ receipts would be exempt. Eurinco anticipates that such a threshold will again form part of the proposals.

Discussions on the long-term budget (Multi-annual Financial Framework or MFF) are continuing, following the decision by the European Parliament to reject the deal reached by EU leaders on 8th February.

EU Budget Commissioner Janusz Lewandowski has suggested that the draft amending budget
covering the shortfall in payments for 2012 (over €17.5bn) is likely to be tabled at the end of March. But this top-up mechanism will now have to be within the ceiling of just over €11bn.

Under the terms of their accession agreements, some member states which are still phasing in their direct payments next year, such as Bulgaria, Romania and Croatia are exempt from reductions in direct support.

Financial discipline was a new mechanism, introduced in June 2003 under the Fischler Reform, which guarantees that direct payments are reduced by a fixed percentage if forecasts indicate that the budget ceilings will be exceeded. At the time, the Commission stated its intention to include an exemption threshold of €5 000.

The compulsory modulation that applied from 2007-2013 also included the €5 000 threshold and it seems likely that the Commission will adopt the same approach on financial discipline.