The Commission, Parliament and Council of Ministers have different roles and powers with respect to determining the budget. The three institutions conclude a binding agreement to ensure budgetary discipline, long-term planning and to enhance co-operation in connection with annual budgets. This ‘interinstitutional agreement' includes the multi-annual financial framework, which establishes annual upper limits (known as ‘ceilings') per heading. Annual budgets must respect these ceilings.

The most recent financial frameworks cover the seven-year periods 2000-2006 and 2007-2013. The budgetary procedure as established in the EU treaties runs from 1 September to 31 December. In practice however it begins much earlier: for instance, the preparations for the 2007 budget began before the end of 2005.

There are two types of budget expenditure: compulsory and non-compulsory expenditure. Compulsory expenditure covers all expenditure resulting from international agreements and the EU treaties. All other expenditure is classified as non-compulsory.

The Council of Ministers has the final word on compulsory expenditure and the European Parliament on non-compulsory expenditure. The importance of this distinction has declined with successive interinstitutional agreements, as they collaborate closely at all stages.

Determination Process:

Preliminary draft budget

All EU institutions and bodies draw up their estimates for the preliminary draft budget according to their internal procedures. The Commission consolidates these estimates and establishes the 'preliminary draft budget', which takes into account the guidelines or priorities for the coming budget year. The Commission submits the preliminary draft budget to the Council of the Union in April or early May before the budget Council meets in July. The Council of Ministers and the Parliament must work on the basis of this proposal from the Commission.

Council's first reading of the budget

After a conciliation meeting with the Parliament, the Council of Ministers adopts the draft budget with amendments, if any, which is forwarded to the Parliament in September.

Parliament's first reading

At its first reading in October, the Parliament may decide to amend the Council's draft. It will discuss controversial matters in 'trialogue' meetings with the Council Presidency and the Commission beforehand. Parliament's first reading, along with its suggestions, is then referred back to the Council.

Council's second reading

Before its second reading in November, the Council has a further conciliation meeting with the Parliament and tries to reach an agreement on the whole of the budget. It then adopts its second reading.

Parliament adopts or rejects the budget (second reading)

The Parliament may modify the Council's latest text before it votes on the final budget in December. If approved, the President of the Parliament signs the budget into law. The Parliament may also reject the budget.

Similar procedures apply to the adoption of letters of amendment to the preliminary draft budget (presented when new information comes to light before the adoption of the budget) and of amending budgets (in the case of inevitable, exceptional or unforeseen circumstances occurring after the budget has been adopted).

For more information see Briefing Paper by Simon Stocker on the budget review: