The financing of the European Union

1. The main sources of the EU budget

The EU has an annual budget of around €150 billion per year which represents around 1% of EU Member States Gross Domestic Product (GDP).

The EU budget is funded from three main sources:

  • Customs duties on imports from outside the EU and sugar levies, also known as the Union’s traditional "own resources".
  • A standard percentage on the harmonized VAT base of each EU country
  • Member State contributions, based on a percentage of their Gross National Income.

2. Where does the money come from?

The "Multiannual Financial Framework" (MFF) provides a basis for the annual budgetary procedure. It lays down maximum amounts ("ceilings") for each broad category of expenditure for a clearly determined period of time (several years). For the period 2014-2020, the MFF sets a maximum amount of EUR 960 billion for commitment appropriations and EUR 908 billion for payment appropriations. Due to budgetary discipline for the EU, this is respectively 3.4% and 3.7% less than under the MFF for 2007-2013.

The main priorities of the MFF are:

  1. Smart and inclusive growth: competitiveness and cohesion for growth and development (450,7 billion - 125,6 billion go to competitiveness und et 325 billion to cohesion)
  2. Sustainable growth - natural resources: common agricultural and fisheries policies, rural development and environmental measures (373,2 billion)
  3. Security and citizenship: justice and home affairs, border protection, immigration and asylum policy, public health, consumer protection, culture, youth, information and dialogue with citizens (15,7 billion)
  4. Global Europe: all external action ("foreign policy") by the EU, including development assistance (58,7 billion)
  5. Administration: the administrative expenditure of all the European institutions, pensions and EU-run schools for staff members' children (61,6 billion)

3. The budget procedure in detail

Based on the multiannual financial framework in force and the budget guidelines for the coming year, the European Commission prepares the draft budget, and submits it to the Council and Parliament. The budgetary authority, comprised of the Council and the Parliament, amends and adopts the draft budget.

In case of disagreement between Parliament and Council a specific Conciliation Committee is convened with the task of reaching agreement on a joint text within a period of 21 days, subject to the approval of both arms of the budgetary authority. If the joint text is rejected by the Council, the European Parliament has the right to ultimately approve the budget.

4. Who manages the budget?

Ultimate responsibility for implementing the budget lies with the European Commission. But in practice, some 76% of the budget is spent under what is known as 'shared management', with individual EU countries actually distributing funds and managing expenditure. National governments are equally responsible for protecting the EU’s financial interests. This involves cooperation with the Commission and its Fraud Office (OLAF).

5. Audits of expenditures

Expenditure by Member States is audited by the Commission, which can reclaim funding if irregularities are found. Every Directorate-General of the Commission has an internal audit unit that ensures the DG's procedures comply with the rules.

Every year there is also an independent external audit of the EU’s annual accounts and resource management by the European Court of Auditors, resulting in a report for the Parliament and Council.

6. What about Luxemburg?

For the financial period 2014-2020, Luxemburg was the ninth-biggest net contributor to the EU-budget. Luxemburg’s contribution amounts to 0.29 % of its gross national income (GNI).

In 2013, Luxemburg’s contribution to the EU-budget amounted to 321 million euros, according to the European Commission. In 2012, the contribution was 276 million and in 2011, 293 million euros.

  • Updated 22-06-2015