Throughout its history the budget of the EU has been guided by certain basic principles:
Unity, all expenditure is brought together in a single budget document.
Annuality, which means that the budget is only for the one year, so expenditure has to be made in that year. This prevents the long-term commitment; however, it has caused some problems because much EU expenditure is now on multi-annual programmes.
Equilibrium, which means that revenues must cover expenditure, and deficit financing is not possible. If expenditure is going exceed revenue, additional resources need to be raised by supplementary or amending budgets in the current year. Surpluses at the end of the year are carried over to the next year as revenue. The EU is not allowed to borrow to finance its own expenditure but can use its triple a credit rating to borrow for loans.
Universality, which means all EU revenue and expenditure, is to be included in the budget, and they can not be cancelled by themselves.
Specification, which means expenditure is allocated to particular objectives to ensure that it is used for the purposes the budgetary authority intended.
The Treaty of Rome predicted a transition period until 1970 during which financing of community was to include effectively of contributions from the member states. The basic contributions of the three large members are France, Germany and Italy, while Luxembourg was small contributor. However, the basic financing rule was adjusted according to the importance of the policy in question for each member state. During the transitional period the system of financing was further complex by the existence of separate institutions for the three Communities up until 1967. According to the Treaty of Rome, a system of own resources for the Community was to be introduced at the end of the transition period. Own resources consist of revenue allocated automatically to the Community without any need for further decisions by the...