The EU budget funds what would not be funded or what would be more expensive to fund from national budgets. Having one EU budget to deal with common challenges is cheaper and more effective than tackling them with 28 separate ones.
Some 94 % of the EU budget is spent on projects in EU Member States and beyond.
Given the wide range of responsibilities, the EU budget is relatively small. It currently represents about 1 % of the EU’s gross national income (GNI), while EU Member State national budgets constitute around 44 %.
EU budget and national budgets
The EU budget is mostly an investment budget. The EU budget pools the resources of Member States.
It finances actions that Member States can fund more effectively by working together (in the fields of energy, transport, information and communication technologies, climate change and research).
The EU budget also funds investment projects that otherwise would not be realized. In some countries, it is practically the only source of investments in infrastructure.
The EU budget can also be used to guarantee loans to Member States facing economic difficulties.
Unlike national budgets, the EU budget does not fund defense expenditure or social protection. It does not pay for the running of schools or the work of the police as
national budgets do.
EU budget management
The budget always needs to be in balance. Thus the EU budget never runs a deficit, never builds up debt and only spends what it receives. The annual budget must also comply with a long-term budgetary plan, the multiannual financial framework (MFF).
The multiannual financial framework
The main political, therefore budgetary, priorities of the EU budget are planned over at least 5 years (usually seven).
The MFF:
• sets maximum annual limits of EU expenditure (known as ceilings);
• in several policy areas (called headings).
Within each area of the budget (heading), funding is mainly provided through programmes (such as the education programme, Erasmus+, or the environment
programme, LIFE) or funds (such as the Cohesion Fund, a fund for poorer regions and Member States of the EU).
The MFF translates the political priorities set by the EU and its Member States into financial and legal terms.
The MFF is not the budget of the EU.
It is a planning tool and an assurance that EU spending is predictable.
Each annual budget is adopted within the limits of this framework and usually remains below the MFF expenditure ceilings in order to retain some margin
to cope with unforeseen needs. MFF ceilings can be compared to credit card limits for the period of 1 year.
Source: The European Union explained: Budget, European Commission, Directorate-General for Communication Publications, Brussels, 2014