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date: 16 October 2019

Budgetary Treaties and European Union Politics

Summary and Keywords

In Europe, two budgetary treaties were adopted in 1970 and 1975, respectively. They changed the budgetary procedures on the founding treaties of the European Communities (EC). The main reason was the introduction of the concept of “own resources” in 1970 to replace national financial contributions. It was decided that customs duties, agricultural levies, and a certain percentage of the value-added tax (VAT) in the Member States should go to the EC budget. Since that would remove the budget control of the national parliaments, it was argued that the European Parliament should have budgetary powers. The argument was especially developed by the European Parliament. The Member States eventually accepted the argument, but with some hesitation, so in the end the Parliament got less than it demanded. The Member States focused on control and the Parliament focused on legitimacy. The Commission fought for its own prerogatives.

Apart from empowering the European Parliament, the second budgetary treaty in 1975 also created the European Court of Auditors. And prior to the signing of the treaty, the institutions (Commission, Council, and Parliament) had also agreed to introduce a conciliation procedure as a part of the budgetary process. This was done by an inter-institutional agreement outside the new treaty.

Tracing the processes of adopting the two treaties shows that there was a great deal of inter-institutional bargaining, but also inter-governmental bargaining within the Council of Ministers, where France arguably was the “laggard” in 1970, joined by Denmark in 1975, after the first enlargement in 1973. The United Kingdom, preoccupied with its renegotiation of membership and a referendum in June 1975, had a relatively low profile in the negotiations.

Scholars have debated the explanatory power of the liberal intergovernmental approach (with emphasis on the role of the Member States), contrasting it with some institutionalist approach considered better suited to explaining these treaty reforms. Leading scholars have especially applied sociological and historical institutionalism.

Keywords: European Communities (EC), treaty reform, budgetary procedures, Commission, Council, European Parliament, consultation procedure, Court of Auditors, European Union politics

Introduction

European integration started in the 1950s based on three treaties, first the Treaty of Paris, which established the European Coal and Steel Community (ECSC) in 1951, and then the two treaties of Rome, which established the European Economic Community (EEC) and the European Atomic Energy Community (EURATOM) in 1957. From the entry into force of the latter two treaties in 1958, there were thus three European Communities (EC). The three communities shared the assembly (which began calling itself the European Parliament from 1962) and the European Court of Justice (ECJ) but they had separate councils (of ministers) and executives, the High Authority in the case of the ECSC, and two so-called commissions for the other two communities. However, the Merger Treaty in 1965 merged these institutions, so from 1967, when that treaty entered into force, the EC had one council and one commission. The Merger Treaty, though, did not merge the treaties or communities as such (Gerbet, 2007, p. 236; Laursen, 2012, 2019).

The following two treaty reforms after the Merger Treaty dealt with the budgetary provisions of the treaties, in 1970 and 1975. The full names of these two treaties, often called the budgetary treaties, were the treaty amending certain budgetary provisions (Treaty of Luxembourg) in 1970 and the treaty amending certain financial provisions (Treaty of Brussels) in 1975.

Table 1. The Budgetary Treaties

No.

Name

Signed

In Force

Published

Main Changes

1

Treaty amending certain budgetary provisions (Treaty of Luxembourg)

April 22, 1970

January 1, 1971

Official Journal L 2, 02.01.71

It granted the Assembly certain budgetary powers and established “own resources”

2

Treaty amending certain financial provisions (Treaty of Brussels)

July 22, 1975

June 1, 1977

Official Journal L 91, 06.04.78

It gave the Assembly the power to reject the budget. It created the Court of Auditors

Note. Information compiled by the author.

While several studies have been performed on the founding treaties, fewer exist on the first treaty reforms, the Merger Treaty, and the budgetary treaties. The next treaty reform, the Single European Act (SEA) in 1987, was met with greater scholarly interest, arguably because it was considered more important. Also, the SEA negotiations were the first where most of the negotiations took place in an intergovernmental conference (IGC).

The Oxford Handbook of the European Union has articles on the main treaties, from Paris to Lisbon, but no articles on the Merger Treaty or the budgetary treaties (Jones, Menon, & Weatherill, 2012). A book on the constitutionalizing of the European Union lists all treaties except the budgetary treaties (Christiansen & Reh, 2009), even though the budgetary treaties started the empowerment of the European Parliament in the EU’s institutional structure. The Penguin Guide to the European Treaties mentions the Merger Treaty and budgetary treaties in the introductory chapter, but does not analyze them, nor includes the treaty texts (Church & Phinnemore, 2002). The SAGE Handbook on European Union Politics has no entries on the treaties as such (Jørgensen, Pollack, & Rosamond, 2007).

There was a difference in the way the early treaties were negotiated. The Merger Treaty and budgetary treaties were negotiated by the Committee of Permanent Representatives (COREPER) and the ministers from the Member States in the Council (Smith, 2002). The IGC, formally required by the treaties for treaty amendment, only met briefly at the end of the process when these treaties were signed. From the SEA onward, new treaties were negotiated by IGCs, and the founding treaties of Paris and Rome had also been negotiated by designated intergovernmental conferences, even if that name may not have been used at the time, the first one chaired by Jean Monnet of France and the second one by Paul-Henri Spaak of Belgium.

Many introductory texts on European integration do not mention the budgetary treaties or they only mention them briefly without any detail. Some will cover the question of so-called own resources, which was a central issue in connection with the first budgetary treaty in 1970, without going into detail about the actual negotiations of the treaty (e.g., Bitsch, 1996; Gerbet, 2007). This article therefore covers the issues that required two new treaties and tries to open the black boxes of the negotiations.

At least one book chapter focused specifically on the budgetary treaties (Knudsen, 2012) as well as a few book chapters that focused on the first budgetary treaty (Rittberger, 2005; Knudsen, 2011). These are important contributions to the literature on the budgetary treaties. Pollack’s book, taking a principal-agent approach to European integrations, also looked at the negotiations (Pollack, 2003, pp. 210–216).

Among existing books on budgetary politics in the EU, an early one covers the 1969–1970 negotiations in some detail (Coombes, 1972), and at least one slightly more recent book is quite informative of early developments (Strasser, 1992). These works of course also inform the account and analysis offered in this article.

Some books on budgetary politics barely mention the treaties (Wallace, 1980; Shackleton, 1990) or just mention them briefly (Begg & Grimwade, 1998). Among French-language texts, one gives due attention to the budgetary treaties (Petit, 2012), and one looks at current practices of “budgetary federalism” without dealing with its historical origins (Barbier-Gauchard, 2008)

The Budgetary Provisions of the Founding Treaties

First, it is necessary to start with the budget provisions in the founding treaties: the Paris Treaty and the Rome Treaties.

The Treaty of Paris empowered the High Authority “to procure the funds necessary to the accomplishment of its mission:

  • by placing levies on the production of coal and steel; (and)

  • by borrowing.”

It might also receive grants (Article 49).

The levies were intended to cover:

  • The administrative expenses,

  • The non-reimbursable assistance provided concerning readaptation,

  • Servicing charges on the High Authority’s loans, and

  • Expenditure to encourage technical and economic research (Article 50).

The levies were to be assessed annually.

The revenue side of the budget, levies on production of coal and steel, was unique.

Another unique aspect concerned the administrative expenditure. Each of the European Coal and Steel Community’s (ECSC) four institutions was to draw up an estimate of its administrative expenditures, and these would be put together in a general estimate to be adopted by a committee composed of the president of the Court, the president of the High Authority, the president of the Assembly, and the president of the Council. The European Court of Justice (ECJ) president was given the job of presiding over this “Committee of the Four Presidents” (Article 78).

This meant two different procedures for operational expenditures, which was the responsibility of the High Authority, and administrative expenditures, which was the responsibility of the Committee of the Four Presidents (Strasser, 1992, p. 24).

The ECSC treaty included the appointment of an Auditor to serve for 3 years, “to exercise his functions in complete independence.” His annual report to the High Authority would also be transmitted to the Assembly (Article 78).

The European Economic Community (EEC) treaty established a different system. Revenues, at least initially, would be based on national contributions. Article 200 stipulated:

The revenues of the budget shall comprise, apart from any other revenues, the financial contributions of the Member States fixed according to the following scale:

Belgium 7.9

Germany 28

France 28

Italy 28

Luxembourg 0.2

Netherlands 7.9.

There was a separate slightly different scale for the European Social Fund. The scales could be amended by the Council by a unanimous vote.

Of special importance for this study, Article 201 foresaw the possibility of later introducing other resources to replace the national contributions:

The Commission shall study the conditions under which the financial contributions of the Member States provided for in Article 200 may be replaced by other resources of the Community itself, in particular, by revenue accruing from the common customs tariff when the latter has been definitely introduced.

For this purpose, the Commission shall submit proposals to the Council.

The Council, acting by means of a unanimous vote and after consulting the Assembly on such proposals, may lay down the provisions whose adoption it shall recommend to the Member States in accordance with their respective constitutional rules.

So, unanimity was required to introduce other sources, but no IGC was necessary.

The Council was to establish the annual budget by a qualified majority vote (QMV) and then transmit it to the Assembly, which could propose amendments (Article 203). If no amendments were proposed, the budget was adopted. If amendments were proposed, the Council had to discuss these with the Commission, but the final adoption of the budget belonged to the Council by a QMV. The Commission would implement the budget (Article 205). The accounts would be audited by “a committee of control composed of auditors of indisputable independence” (Article 206).

The Idea of “Own Resources”

The idea of alternative revenue sources suggested in Article 201 of the Treaty of Rome became an important ingredient in the politics of the Communities during the 1960s.

When the Common Agricultural Policy (CAP) was established in the early 1960s, a temporary agreement was reached on January 14, 1962 on the financing of the CAP. It is referred to as Regulation 25.1 It was to expire on June 30, 1965, and it stipulated that agricultural levies imposed on agricultural products entering the EC market later would be used to finance the CAP (Coombes, 1972, p. 23; Knudsen, 2012, p. 109, Rittberger, 2005, p. 116).

Several proposals from the Commission and resolutions adopted by the Assembly followed which linked “own resources” with the empowerment of the Parliamentary Assembly (Rittberger, 2005, pp. 120–123). These proposals established what has become known as the “logical link,” the idea that own resources, which would limit the influence of national parliaments, should lead to increased powers of the European Parliament.

The EEC Commission put forward a proposal on March 31, 1965, prior to the expiry of the temporary agreement on financing the CAP on June 30, 1965, which included a proposal for own resources as well as a strengthening of the powers of the European Parliament, which was to be elected directly by universal suffrage in the Member States (Strasser, 1992, p. 26). The Treaty of Rome had foreseen the possibility of direct elections instead of appointment of “delegates” by national parliaments to the Assembly. The Assembly was to draw up proposals; the Council would decide by a unanimous vote (Article 138[3]). No treaty change was needed to introduce the direct elections, which was decided in 1976, and took place for the first time in 1979.

The Commission’s proposal of March 31, 1965 was especially opposed by France. Commission President Walter Hallstein presented the proposal first to the Assembly instead of the Council, which upset some Member States, especially France. The proposal had three parts, own resources based on agricultural levies and a part of customs duties, and increased powers to the Assembly and the Commission. This was all too much supranationalism for French President General de Gaulle. On June 30, French Foreign Minister Maurice Couve de Murville, who was president of the Council for the first 6 months of 1965, concluded that no agreement was possible. The so-called empty chair crisis followed, where General De Gaulle instructed his ministers not to take part in Council meetings. Eventually, by the so-called Luxembourg Compromise in January 1966, the 6 Member States agreed to resume work, but France insisted that a unanimous vote was necessary if “very important interests” of one of the Member States were at stake (Bitsch, 1996, pp. 161–164). The solution to the own resources problem had to wait until after General de Gaulle stepped down as French president in the summer of 1969. The summit meeting in The Hague in December 1969 confirmed that France’s new president, Georges Pompidou, was more willing to move forward on financial and monetary issues as well as enlargement and political cooperation.

The Decision to Replace Financial Contributions by Own Resources, April 21, 1970

Since the Treaty of Rome had already foreseen the possible introduction of own resources, based on a proposal from the Commission and a unanimous vote in the Council, this step could be taken as soon as there was unanimity in the Council, which was the case when President Georges Pompidou took over in France. So, on April 21, 1970, the Council was finally able to adopt a decision to this effect.2

In this decision, three own resources were introduced:

From January 1, 1971:

  1. 1. (a) Agricultural levies (levied on third countries’ agricultural products entering the EC market);

  2. 2. (b) Customs duties (common customs tariff duties paid on other products entering the Common Market); and

  3. 3. To make sure there would be sufficient revenue, the decision also introduced a third resource, up to 1% of the value-added tax (VAT) collected in the Member States.3

From January 1, 1975, the budget of the Communities should be financed entirely from own resources. The customs duties were to be transferred from the Member States gradually, starting with 50% in 1971 and reaching 100% from January 1, 1975. To the extent financial contributions would be necessary during the transition period to 1975, the decision included a scale: Germany and France 32.9, Italy 20.2, Netherlands 7.3, Belgium 6.8, and Luxembourg 0.2%.

The Treaty of Luxembourg Amending Certain Budgetary Provisions, April 22, 1970

Institutional reforms, however, required a treaty amendment based on provisions in the three treaties (Article 236 in the EEC case). The initiative belonged to the Member States. They could submit proposals to the Commission. If the Commission, in an opinion, favored the calling of a “conference of representatives of the Governments of the Member States,” the president of the Council, after consulting the Assembly, shall call such Intergovernmental Conference (IGC), which shall determine “in common agreement” which amendment shall be made. In other words, the Member States were the “masters of the treaty.”4 A new treaty required unanimity, and it had to be confirmed by an IGC, not just the Council.

The day following the decision to introduce own resources, an IDC met to formally to adopt the new treaty, which had been negotiated in parallel with the decision.5

The treaty amended the three existing treaties. Article 5 included a new Article 203a for the EEC treaty. It outlined the future budgetary procedure:

  1. 1. The Commission prepares a preliminary draft budget, which is placed before the Council no later than 1 September.

  2. 2. The Council consults the Commission, and acting by a qualified majority, establishes the draft budget, which is forwarded to the Assembly no later than 5 October.

  3. 3. The Assembly shall have the right to propose to the Council modifications to the draft budget.

  4. 4. If the Assembly proposes modifications, the draft budget together with the proposed modifications shall be forwarded to the Council.

  5. 5. “The Council shall, after discussing the draft budget with the Commission . . . adopt the budget, within 30 days of the draft budget being placed before it, under the following conditions.”

“Where a modification proposed by the Assembly does not have the effect of increasing the total amount of the expenditure of an institution, owing in particular to the fact that the increase in expenditure which it would involve would be expressly compensated by one or more proposed modifications correspondingly reducing expenditure, the Council may, acting by a qualified majority, reject the proposed modification. In the absence of a decision to reject it, the proposed modification shall stand accepted.”

“Where a modification proposed by the Assembly has the effect of increasing the total amount of the expenditure of an institution, the Council must act by a qualified majority in accepting the proposed modifications.”

What we see here is a distinction between necessary expenditures—which especially included expenditures to the Common Agricultural Policy (CAP)—and what is here called the administrative budget, considered more open to adjustments. For the necessary expenditures the Assembly could propose “modifications,” but the Council stayed in charge. For the non-necessary expenditures, the Assembly was given some influence by being able to propose “amendments.” The provisions introduced what has become known as “the reversed majority.” It became more difficult for the Council to exercise its supremacy. It now needed a QMV to decide against a modification proposed by the Assembly not involving an increase in the total expenditure (Strasser, 1992, p. 29).

Negotiating the 1970 Budgetary Treaty

The first budgetary treaty, the Treaty of Luxembourg, was negotiated during late 1969 and early 1970. During this period, a historically important summit meeting in The Hague took place where the new French president, Georges Pompidou, met the other heads of state or government. This meeting was where it was decided to open negotiations with the applicant countries, the United Kingdom, Ireland, Denmark, and Norway. Three points were on the reform agenda: completion, deepening, and enlargement. The main point under completion was the financing of the Community, including own resources and powers of the Assembly. Arguably, the main issues had already been framed by the time of the final negotiations by several proposals and resolutions from the two supranational institutions, the Commission and the Parliament.

There were also various Commission proposals in 1969, which included the system of own resources as a definitive funding for the CAP. This was linked with a strengthening of the budgetary powers of the Parliamentary Assembly. The Assembly would be empowered, the Commission proposed in December 1969, to amend the draft budget by a simple majority and increase the total size of the budget if such a proposal was supported by the Commission. Council amendments could be rejected by an absolute majority, including two thirds of the votes cast, in the Assembly (Pollack, 2003, pp. 201–216). This obviously would have strengthened both the Commission and the Parliament.

Budgetary Treaties and European Union PoliticsClick to view larger

Figure 1. Excepts from The Hague Summit, December 1–2, 1969.

Adapted from Final Communiqué of the Hague Summit (1969).

Between The Hague summit and the Council decision on April 21 and signature of the new treaty on April 22, apart from the question of budgetary powers of the EP, there were issues about the common markets for wine and tobacco that had to be solved (Rittberger, 2005, p. 119).

On the main issues, the Member States were divided between France on one side and the five other Member States on the other side. The French were eager to get the definitive financing of the CAP but did not want to see an increase in the powers of the European Parliament. The five other Member States supported an increase in the budgetary powers of the Assembly, without going as far as proposed by the Commission or called for by the Parliament.

As pointed out by Lindner and Rittberger (2003), there were two competing normative claims in the negotiations: Europe as a federation-to-be (the Five) and Europe des états (France). The Dutch especially supported the view that the introduction of own resources, which would remove national parliamentary control, would require introduction of democratic control at the EC level by giving the Assembly budgetary powers. The French were especially opposed to the idea that the Assembly could increase the overall size of the budget without an agreement by the Council, nor did Germany, the largest net contributor to the budget, support the idea that the Assembly should be able to increase the size of the budget. France and Germany therefore proposed introducing a distinction between modifications that the Assembly could introduce without increasing the size of the budget and modifications that would increase the total expenditures.

Table 2. Preferences and Bargaining in 1969–1970

European Parliament proposals

Commission proposals

Member State preferences in the end game

Compromise proposal from the Belgian presidency

Outcome

(prior to 1970)

(April 22, 1970)

(prior to 1970)

The European Parliament started early to use the idea of “own resources” to strengthen its own powers, developing the “logical link” idea

The Commission started early proposing “own resources.”

France: In favor of own resources to establish definitive funding of the CAP;

Introduction of the distinction between compulsory and noncompulsory expenditures, and a maximum rate of increase of the latter.

Parliament could only give opinions on compulsory expenditures, but could propose amendments to noncompulsory expenditures that could in turn be rejected by the Council by a QMV

It wanted to protect or strengthen its own prerogatives.

against extensive budgetary power to the Parliament,

The Five supported own resources and increased budgetary powers of the Parliament, but Germany did not support giving the Parliament powers to increase the budget

It eventually accepted the strengthening of the European Parliament in the budgetary process

Note. Information compiled by the author.

The Commission and the Belgian presidency then prepared a compromise proposal that introduced a distinction between expenditures flowing directly from legislation, which could only be amended with agreement of the Council, and other expenditures, which could be amended by the Assembly. In this way the distinction between compulsory and noncompulsory expenditures was introduced. Second, the notion of a maximum rate of increase of noncompulsory expenditures was introduced. Compared with the original proposal from the Commission, this was a rather large circumscription of the Assembly’s powers, putting the Council back in the driver’s seat.

The treaty was then signed on April 22, 1970, where ministers of foreign affairs met in a formal Conférence des représentants des gouvernements des États membres, an IGC. The foreign ministers in question were Pierre Harmel (Belgium. which held the rotating presidency), Walter Schell (Germany), Maurice Schumann (France), Aldo Moro (Italy), and Gaston Thorn (Luxembourg). The Netherlands was represented by State Secretary H. J. de Koster. Interestingly, all Member States except the Netherlands also sent ministers of agriculture.6

The Treaty of Brussels Amending Certain Financial Provisions, July 22, 1975

The 1975 Budgetary Treaty took a further step in empowering the Assembly:

“Within 15 days of the draft budget being placed before it, the Assembly, which shall have been notified of the action taken on its [previously] proposed modifications, may, acting by a majority of its members and three-fifths of the votes cast, amend or reject the modifications to its amendments made by the Council and shall adopt the budget accordingly. If within this period the Assembly has not acted, the budget shall be deemed to be finally adopted” (Article 12[6]).

Further, once the procedure was completed, “the President of the Assembly shall declare that the budget has been finally adopted” (Article 12[7]).

“However, the Assembly, acting by a majority of its members and two-thirds of the votes cast, may if there are important reasons reject the draft budget and ask for a new draft to be submitted to it” (Article 12[8] amending Article 203 of the EEC Treaty).

So, the Assembly now got the power to reject.

The other major change brought by the 1975 Budgetary Treaty was the creation of the Court of Auditors. Article 15 of the Treaty replaced article 206 in the EEC Treaty:

  1. 1. “A Court of Auditors is hereby established.

  2. 2. The Court of Auditors shall consist of nine members.

  3. 3. The members of the Court of Auditors shall be chosen from among persons who belong or have belonged in their respective countries to external audit bodies or who are especially qualified for this office. Their independence must be beyond doubt.

  4. 4. The members of the Court of Auditors shall be appointed for a term of six years by the Council, acting unanimously after consulting the Assembly.

. . .

The members of the Court of Auditors shall be eligible for reappointment.

They shall elect the President of the Court of Auditors from among their numbers for a term of three years. The President may be re-elected.

  1. 5. The members of the Court of Auditors shall, in the general interest of the Community, be completely independent in the performance of their duties.”

The members cannot take instructions from any government and they may not engage in other occupation during their term of office.

The 1975 Treaty also amended the power to give discharge by a new Article 206b:

“The Assembly, acting on a recommendation from the Council which shall act by a qualified majority, shall give a discharge to the Commission in respect of the implementation of the budget. To this end, the Council and the Assembly in turn shall examine the accounts and the financial statement referred to in Article 205 [annual financial statement from the Commission] and the annual report by the Court of Auditors together with the replies of the institutions under audit to the observations of the Court of Auditors.”

In connection with the 1975 Treaty, the institutions also concluded an agreement about conciliation as part of the budgetary procedure.

So, all in all, the Assembly was given a more prominent role and the Court of Auditors was created by the 1975 Budgetary Treaty.

Negotiating the 1975 Budgetary Treaty

Of the sources that can be used to trace the negotiations of the 1970 Treaty, only two also looked at the negotiation of the 1975 Treaty, with less detail (Knudsen, 2012) or more detail (De Feo, 2015).7

An important difference between 1970 and 1975 was the first enlargement in 1973 in which the United Kingdom, Denmark, and Ireland joined. These new Member States were pressing for getting the Community’s expenditures under control, and they wanted more openness and accountability.

Agenda Setting, 1973

When the first budgetary treaty was signed on April 22, 1970, the Commission announced its intention to submit new proposals on strengthening the budgetary powers of the European Parliament and by Declaration No. 4 annexed to the treaty, the Council undertook to examine these proposals.8

Prior to enlargement from January 1973, a summit meeting was held in Paris (October 19–21 1972) where the heads of state or government of the original six Member States and three new Member States mentioned among other things the importance of strengthening the powers of control of the European Parliament in the final communiqué. Direct election of the Parliament was now on the agenda, but before that could happen, there was a need to strengthen the institutions to increase efficiency.

Budgetary Treaties and European Union PoliticsClick to view larger

Figure 2. Excerpts from Paris Communiqué, October 1972.

Adapted from Paris Summit Conclusions (1972).

The Commission put forward proposals on May 30, 1973 (COM 73/999) and June 8, 1973 (COM 73/1000) (Knudsen, 2012, p. 119; De Feo, 2015, pp. 62–63). The former dealt with institutional relations, with a focus on the powers of control of the Parliament, but limited the discussion to improvements that did not require treaty change. The latter included a draft proposal for the new treaty, which became the basis for the treaty finally adopted in 1975, as amended during the negotiations.9

In the June 8, 1973 document, the Commission started by saying that 1975 would be “the first year of the real budget of the Communities.” The Commission had concluded that if the powers and responsibilities of the Communities were “to be extended, the Parliament must be given progressively wider legislative powers. This development will be marked by important amendments to the Treaties.” Change would take place by stages. One such stage related to the “budgetary powers of the Parliament.”

This communication (COM 73/1000) had proposals concerning control of the budget and own resources. The main proposal concerning control was the establishment of the Court of Auditors to replace the existing Audit Board. The Commission also noticed with satisfaction that the Parliament had established an Accounts Committee. Finally, the Commission suggested that the power to give discharge, which at the time was shared by the Council and Assembly, should from 1975 be vested in the European Parliament alone, but on a recommendation from the Council.

Concerning own resources, the proposal from the Commission was to introduce “a true Community procedure allowing the creation of further own resources.” The Council would decide by a unanimous vote and the Parliament by “a particularly large majority.”

In a letter to COREPER dated September 13, 1973, the German delegation stated a wish to go further in strengthening the European Parliament: “Proposals in this field will of necessity remain unsatisfactory as long as the European Parliament has not been granted the right to participate effectively in the legislative process.” It therefore suggested that “the entry into force of the Council’s legal transactions based on Article 235 of the EEC Treaty be subjected to the Parliament’s consent (it being only consulted up to date).”

The Parliament had rejected the proposal from the Commission immediately in July 1973. It adopted a more detailed report on October 5. According to the Parliament, the Commission focused too much on audit and control and too little on increased powers to the European Parliament. The October 1973 report included the following points (as summarized in De Feo, 2015, pp. 64–65):

  1. 1. Creation of new resources: The Parliament saw itself as the institution that should be empowered to adopt own resources, subject to unanimous agreement in Council and allowing time for governments to consult their national parliaments.

  2. 2. Approval of expenditure: as in all democracies, the European Parliament should approve expenditure. In the event of non-agreement between the Council and the Parliament, a coordination committee should be set up, to consist of representatives of the Parliament and the Council on an equal basis and with the aim of seeking “acceptable solutions.” The conclusions of this committee would be submitted to the two arms of the budgetary authority, which would be empowered to adopt them by qualified majority. In case of non-agreement, the Parliament’s decisions could only be modified by the Council acting unanimously.

  3. 3. Adoption of the annual budget: the Parliament requested the abolition of the artificial distinction between compulsory and non-compulsory expenditure, but endorsed the Commission’s proposals to classify all newly created budget line as non-compulsory expenditure. The Parliament also insisted on the formalisation of its power to reject the budget.

The Commission revised its proposal considering the European Parliament’s requests.10 It also included a “Draft Joint Declaration of the European Parliament, the Council and the Commission on the setting up of a conciliation procedure.11

Budgetary Treaties and European Union PoliticsClick to view larger

Figure 3. Excerpts from the Final Communiqué, Copenhagen Summit, December 14–15, 1973.

Adapted from Final Communiqué of the Copenhagen Summit (1973).

At a meeting of the Council on October 15, 1973, Commissioner Claude Cheysson explained the views of the Commission to the ministers representing the Member States. At the end of the meeting, the Council instructed the COREPER to examine the proposals.12 On November 15, the COREPER in turn asked the General Secretariat of the Council to draw up a document showing the differences between the current texts, the Commission proposal, and the opinion of the European Parliament.13 It clearly emerged that there were still several issues to sort out. A number of COREPER meetings during the remaining part of 1973 mostly served to clarify the Commission proposal.14

Slow Progress, 1974

During 1974, the proposed second budgetary treaty was regularly on the agenda of the Council and COREPER. Reading minutes from the meetings makes it clear that the Member States did not have clear preferences at the outset on the many technical issues. Much time was spent in COREPER meetings with the permanent representatives questioning the Commission, trying to understand what was proposed.

A note from the Council, dated February 1, 1974, summed up the main issues at the time as well as Member State positions on some of the questions. On the conciliation procedure, seven delegates supported the idea, Germany and Denmark had reservations, and France was opposed. On the budgetary procedure, there was a certain degree of agreement, but many reservations and disagreements on detailed provisions (see Table 3).

Table 3. Positions of Member States on Budgetary Procedure, February 1, 1974

Issue

Agreement

Reservation

Disagreement

Majority by which the Council must decide on modifications proposed by the European Parliament, which would not have the effect of increasing the total amount of expenditure of an institution

All delegations recorded their agreement to the Commission proposal. In this case, “the Council may, acting by a qualified majority, reject the proposed modification. In the absence of a decision to reject it, the proposed modification shall stand as accepted”

Majority by which the Council must decide on modifications proposed by the Parliament which would have the effect of increasing the total amount of expenditure of an institution

Germany, Italy, Luxembourg, and the Netherlands recorded their agreement to the Commission proposal that such proposed modifications should be deemed to have been adopted unless the Council rejected them by a simple majority

Denmark, France, Ireland, and the United Kingdom could not record their agreement (Belgium could not take a decision at the time)

Rejection of the budget in its entirety

Belgium, Germany, Italy, Luxembourg, the Netherlands, and the United Kingdom recorded their agreement with the Commission proposal that at the end of the budgetary procedure, the European Parliament, acting by a majority of its members and two-thirds of the votes cast, can be able to reject the draft budget and ask for a new draft to be submitted to it

(Ireland could not give a decision at the time)

Denmark and France could not accept the proposal

Discharge

Eight delegations recorded their agreement to the Commission proposal that the Parliament alone, acting upon a recommendation from the Council, should give a discharge to the Commission

Germany could not record its agreement to this proposal

Adoption of Financial Regulations

Denmark, Germany, Ireland, and the United Kingdom recorded their agreement to the Commission proposal that the Council adopt financial regulations with the assent of the European Parliament

The Netherlands suggested a different procedure;

France and Italy could not record their agreement

Luxembourg and Belgium expressed reluctance

Note. Information compiled by the author based on Council Document R/270 (ASS 152) of February 1, 1974.

During the remaining part of 1974, the inter-institutional and inter-state negotiations continued. The Council secretariat got involved in drafting texts.15 A compromise proposal from the German presidency was discussed at a meeting of the Council on March 4, 1974.16 The issue was sent back to COREPER after the meeting.

During the second part of 1974, a debate took place between the Council and the Assembly.

The president of the European Parliament, Cornelis Berkhouwer, sent a letter to the Council presidency on July 1, 1974. In it he listed the following positive results at that moment:

  • Official formal recognition of Parliament’s right to reject the entire draft budget;

  • The provision that the Council must act by a qualified majority to reject any proposals of the Parliament which did not have the effect of increasing the expenditure of an institution;

  • The sole right of the Assembly to give a discharge to the Commission in respect of the budget;

  • The creation of a Court of Auditors;

  • Acceptance of the principle of consultation between the Council and the Parliament on measures with financial implications.17

But there were also some demands from the Parliament which had not been accepted, among other things, turning the consultation procedure into something like a co-decision, abolition of the distinction between obligatory and non-obligatory expenditure, the right of Parliament to fix the VAT rate, and the right of Parliament to create new own resources after receiving unanimous assent of the Council.

This was obviously a battle for power between the two institutions. While the Member States tended to put emphasis on control, the Parliament used the legitimacy argument (see Figure 4).

Budgetary Treaties and European Union PoliticsClick to view larger

Figure 4. Excerpt from letter from the president of the European Parliament to the Council presidency, July 1, 1974.

Adapted from Council doc. R/1767/74 (ASS 810), July 3, 1974.

Exchange of letters and meetings followed. In a letter from Cornelis Berkhower, president of the European Parliament, to Jean Sauvagnargues, president of the Council, the former stated that the Parliament delegation had noted “with regret the largely negative character of the Council’s position, which endorses none of the main proposals put forward by Parliament.”18

In the following period, COREPER held several meetings discussing the requests from the European Parliament. Several Member States were prepared to meet some of the requests from the Parliament, but other Member States felt that they could not review the proposed compromise, “except perhaps to make some improvements to it.” COREPER sent some of the issues back to the Council, including the question of the Parliament’s rejection of the budget in its entirety and aspects of the conciliation procedure.19

The fact that it took a long time before the 1975 treaty was actually signed was mostly due to domestic politics in the United Kingdom, it has been argued. The Labour Party won the parliamentary election in February 1974, partly because of criticisms of the membership deal the Conservative Party had negotiated under Edward Heath prior to membership in 1973. The new government under Harold Wilson started a renegotiation with the European Community and held a referendum in June 1975, where 67.2% voted in favor of continued membership (the turnout was 64.5%). Prior to the referendum, the U.K. government had secured the first “correction mechanism,” which allowed the United Kingdom to get some refunds from the Community on certain conditions (Knudsen, 2012, pp. 119–120). An analysis published at the time called this so-called Dublin Amendment “a diplomatically contrived package with a number of complex restrictions which made it at first sight difficult to evaluate” (Dodsworth, 1975, p. 129).

It was after the June 1975 referendum in the United Kingdom that the second budgetary treaty could finally be signed in July of that year.

Reaching Agreement, 1975

The Council had finally reached an agreement on a draft treaty text on February 11–12, 1975. It had two essential elements, namely (1) a revision of the budgetary procedure, and (2) creation of a court of auditors. Concerning the budgetary procedure, it strengthened the European Parliament in two ways. It stipulated that a proposal from the Parliament to modify a draft budget that did not have the effect of increasing the total amount of an institution’s expenses is accepted, except if it is rejected by the Council by a qualified majority. Further, the Council recognized the right of the Parliament to reject, for important and motivated reasons, the total budget and ask for a new proposal. Also new was the discharge provision, authorizing the Council to give discharge to the Commission on a recommendation from the Council.20

Budgetary Treaties and European Union PoliticsClick to view larger

Figure 5. Council statement, July 22, 1975.

Adapted from Council doc. R/2019/75 (ASS 502), July 14, 1975.

Budgetary Treaties and European Union PoliticsClick to view larger

Figure 6. Budgetary procedure, 1975 budgetary treaty.

Adapted by the author, based on article 12 of Treaty amending Certain Financial Provisions (July 22, 1975), new article 203 of the EEC Treaty. See also De Feo (2015, p. 67).

The issue of a conciliation procedure was settled through a joint declaration by the European Parliament, the Council, and the Commission on March 4, 1975. It was signed by C. Berkhower for the European Parliament, G. Firzgerald for the Council, and François-Xavier Ortoli for the Commission. The procedure may be followed for “Community acts of general application which have appreciable financial implications.” It was established that “The conciliation shall take place in a ‘Conciliation Committee’ consisting of the Council and representatives of the European Parliament. The Commission shall participate in the work of the Conciliation Committee.” The aim was to “seek an agreement between the European Parliament and the Council.” “The procedure should normally take place during a period not exceeding there months.” “When the positions of the two institutions are sufficiently close, the European Parliament may give a new Opinion, after which the Council shall take definitive action.”21

So, the conciliation procedure was settled through an inter-institutional agreement, not a treaty.

Before the Council could call an IGC, it requested an opinion from the Parliament, as required by Articles 236 EEC and 204 ECSC.

The Parliament finally gave its opinion in two resolutions adopted on July 11, 1975.22 It remained critical of the Council draft until the last moment. The Council was said to lack the political resolve “to ensure the democratic development on the Community.” The draft should be seen as “no more than a relative and provisional increase in the Parliament’s budgetary powers.” The Parliament should be given full budgetary powers by the end of 1976, it was argued.

The Council decided on July 16, 1975 to convene an IGC on July 22, 1975 after receiving the required opinion from the Parliament. It welcomed the new treaty in a declaration in which it said that it represented a new step forward in the continued and evolving process foreseen by the Paris summit in December 1974 (see Figure 5).23

The European Parliament did not get everything it wanted in 1975, but a new step was taken in the Parliament’s ascendency toward co-decision.

At the formal IGC on July 22, 1975, the treaty was signed by the following representatives of the Member States: Renaat van Elslande, Minister of Foreign Affairs (Belgium); Niels Ersbøll, Permanent Representative (Denmark); Hans-Dietrich Genscher, Foreign Minister (Germany); Jean-Marie Soutou, Permanent Representative (France); Garret Firzgerald, Foreign Affairs Minister (Ireland); Mariano Rumor, Foreign Affairs Minister (Italy); Jean Dondelinger, Permanent Representative (Luxembourg); M. L. J. Brinkhorst, State Secretary (The Netherlands); and Michael Palliser, Permanent Representative (United Kingdom).24 It is noticeable that several Member States were not represented by their foreign ministers, possibly explainable by the timing during typical vacation time in some Member States.

Figure 6 summarizes the budgetary procedure adopted in the 1975 Budgetary Treaty.

Explaining the Two Budgetary Treaties

Some scholars writing about the budgetary treaties have been critical of the liberal intergovernmental approach to studying treaty reforms. That approach focuses on the role of the Member States, their preferences, power in interstate bargaining, and the ensuing institutional choices (Moravcsik, 1998).

Berthold Rittberger (2005) has advanced a sociological-institutional approach, focusing on issues of legitimacy. While a rational model can explain France’s interest in securing a credible commitment to finance the CAP, it is more difficult to explain the other five member states’ support for the empowering of the European Parliament in the process. This is where the logical link comes into play. Agreeing on own resources for the EC’s budget revenue took away the control national parliaments had while the budget was based on national contributions. The argument then followed that it was necessary to transfer that control to the EC level. Own sources created a legitimacy or democratic deficit that could be dealt with at the EC level by giving the European Parliament budgetary powers.

Rittberger looked at the legitimating beliefs of the political parties. In France, the Gaullist commitment to an intergovernmental Europe remained important, but “The pursuit of commercial interests in conjunction with the CAP was considered to justify the partial delegation of sovereignty” (Rittberger, 2005, p. 126). In Germany, the main parties worked for the creation of a federal Europe. The Bundestag called for more “parliamentary democracy” at the European level. Also, in the Netherlands, the main parties were outspoken in favor of “democratization” of European governance (Rittberger, 2005, pp. 127–131). The federalist ideas also had some influence in Belgium, Luxembourg, and Italy at the time.

To explain the 1970 decisions, Rittberger introduces the concepts of communicative action (truth-seeking discourse on what is appropriate) and rhetorical action (strategic use of arguments to justify and realize own preferences). Proponents of the federal state legitimating belief could, through “appealing to community values—exercise social pressure of recalcitrant states with the aim of shaming them into acquiescing to the EP’s empowerment” (Rittberger, 2005, p. 132). Proponents of the federal state legitimating belief won a partial victory when France accepted the logical link. The other side of the coin, however, was that “even though the French government was rhetorically entrapped, it was now in a position to expose potential weaknesses and inconsistencies in the arguments advanced by the proponents of the federal state legitimating belief” (Rittberger, 2005, p. 133). This was what France did, especially telling the Dutch that they were in fact supporting more budgetary power for the European Parliament than their national parliament had on the national budget.

Why did the Dutch give in? Here, in the end, Rittberger does introduce the concept of a threat, which many scholars associate with liberal inter-governmentalism, where threats of veto and threats of exclusion are important ingredients of interstate bargaining:

. . .in order to push the outcome further towards its most preferred position, the Dutch government did not have a credible threat at hand—the French government was very confident that the Dutch government did not wish to delay accession negotiations with the UK which would only commence once the financial settlement was agreed and the CAP ‘locked-in’.

(Rittberger, 2005, p. 136)

This, of course, refers to the 1970 treaty only. Enlargement had taken place at the time of the 1975 treaty, potentially removing that linkage possibility for France.

Ann-Christina Knudsen, however, criticizes the focus on Member States by liberal inter-governmentalists and by Rittberger. She advocates a historical institutionalist approach, with greater emphasis on the roles of the Commission, the European Parliament, and national parliaments, and based on a longer time perspective. Although the normative delegation approach has an important point, “it is still formalistic in its approach to how European politics operate and replicates an intergovernmental view of European integration politics that is not shared in the emerging historical literature that demonstrate how informal and transnational political processes can influence policy outcomes decisively” (Knudsen, 2012, p. 107).25 She suggests that the short-term inter-governmentalist approaches leave unexplained “how the ‘logical link’ between own resources and parliamentary legitimacy for the EP was ever made.” To find the emergence of the link, it is necessary to study the numerous resolutions of the European Parliament already made in the early 1960s, and responses by the Commission and some Member States to these (Knudsen, 2012, pp. 111–117). In conclusion, Knudsen said about her own approach: “ . . . it has shown that the shape of treaties was moulded decisively in inter-institutional debates. Particularly the EP’s own role in the political process has not previously been identified. By consistently advancing arguments for the logical link and the legitimacy deficit, it persuaded the Council and Commission to respond. This was not only about discursive and normative agenda-setting, but about members of the European Parliament’s (MEPs)’ ability to use their multiple political positions” (Knudsen, 2012, p. 121).

On the latter point, since the members of the European Parliament (MEPs) were also members of national parliaments, they could threaten to work for non-ratification by national parliaments of the decision to establish own resources and the new treaty. Both needed to be ratified by the national parliaments. So not only governments, but also members of the European Parliament (MEPs) and members of national parliaments could use threats in the deliberations and negotiations.26

Conclusions

The budgetary procedure that followed from the two budgetary treaties in 1970 and 1975 largely survived until the Lisbon Treaty in 2009, which abolished the distinction between the compulsory and noncompulsory expenditures and put the Council and European Parliament on par in the budgetary process.

The main significance of the treaties was that they started the process of empowerment of the European Parliament, to be continued later in the legislative area by the cooperation procedure introduced in certain policy areas by the Single European Act (SEA) in 1987 and the co-decision procedure introduced in some policy areas by the Maastricht Treaty in 1993, later to be extended to most policy areas and called the Ordinary Legislative Procedure (OLP) in the Lisbon Treaty in 2009.

Post-1975, the European Parliament kept trying to increase its budgetary powers. There were several battles between the Council and the European Parliament during the following years. There were also battles between the Member States, especially about the U.K. contribution, leading to the United Kingdom getting a rebate in 1984 at the meeting of the European Council in 1984 in Fontainebleau, France. The annual budget battles were somewhat reduced with the introduction of multi-annual financial frameworks from the Delors Plan I in 1988.

The most important point to make here is that the budgetary treaties started the process of empowerment of the European Parliament, first in the budgetary area. Just for that reason, they deserve to be studied. They started a process that expected to make the European Union more democratic.

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Notes:

(1.) Regulation No. 25/62/EEC, Official Journal, No 30, April 20, 1962.

(2.) Council Decision 70/243 ECSC, EEC, EURATOM.

(3.) For text, see, for instance, Coombes (1972, pp. 91–96).

(4.) The 1970 treaty was adopted in the then four official languages: French, German, Italian, and Dutch. The English language version on the CVCE website has translated Assemblée as European Parliament, a change in name that only happened formally in the Single European Act (SEA) in 1987. In this article, Assembly and Parliament are used interchangeably.

(5.) Neither Knudsen (2012) nor Rittberger (2005) mention the IGC. Arguably it was a formality, with the same foreign ministers that had negotiated in the Council meeting briefly to sign the draft treaty.

(6.) Communication à la presse, 800/70 (AG 126), Luxembourg )le 22 avril 1970). Available through CASE (Central Archives Engine), CM2, File no. 118.

(7.) The tracing of the 1973–1975 negotiations has been facilitated by archival sources generously provided by the Council’s archives in Brussels, Belgium. They are references as Council docs in the following.

(8.) Council doc R/74/74 (ASS 33), dated January 10, 1974.

(9.) Published as Bulletin of the European Communities, Supplement 9/73.

(10.) COM (73)/1000-E final, dated October 10, 1973.

(11.) Text in Council doc R/2504/73 (ASS 1149), dated October 17, 1973.

(12.) Council doc 2204/73 (PV/CONS 28) Extr. 1, dated November 30, 1973.

(13.) Council doc R/2559/73 (ASS 1184) (JUR 122), dated October 25, 1973.

(14.) Council doc T/619/73 (ASS), dated November 26, 1973.

(15.) Council doc T/50/74 (ASS) dated February 8, 1974.

(16.) Council doc R/583/74 (ASS 295) dated March 1, 1974.

(17.) Council doc. R/1767/74 (Ass 810, dated July 3, 1974.

(18.) Council doc. R/2381/74 (ASS 1053), dated October 1, 1974.

(19.) Council doc. R/3274/74 (ASS 1327), dated November 29, 1974.

(20.) Communication à la presse 173/75 (presse 19), 329ème session du Conseil, 10 et 11 février 1975.

(23.) The Paris Summit, December 9–10, 1974 did not mention budgetary powers explicitly but said that “election of the European Assembly by universal suffrage, one of the objectives laid down in the Treaty, should be achieved as soon as possible.” In that connection, “The competence of the European Assembly will be extended, in particular by granting it certain powers in the Communities legislative process.”

(24.) Council doc. 922–975 (Presse 83), dated July 22, 1975.

(25.) The references are to Kaiser, Leucht, and Rasmussen (2009) and Ludlow (2006).

(26.) This point is made very explicitly in De Feo (2015, p. 44). In a resolution adopted in February 1970, the European Parliament issued a threat to the Council: “Affirme solennellement qu’il ne pourrait recommander aux Parlements nationaux de ratifier les propositions qui leur seront soumises par le Conseil, si celles-ci allaient contre les exigences fondamentales du Parlement européen telles qu’elles résultent de sa résolution du 10 décembre 1969.”