Since the 1960s, European Union member countries have pooled resources together to finance projects that make a difference to the lives of European citizens. Today, this includes creating growth and jobs, environmental protection, reducing economic gaps between EU regions and combatting terrorism and organised crime.
The EU budget also permits a significant level of investment in research and innovation so that Europe can compete with other global players; more so than if each member country went it alone.
For Cyprus, the EU budget – especially through the Cohesion Funds, has been instrumental in infrastructure development, modernisation of the public sector, and development of research and innovation framework.
How the EU budget works in Cyprus
The EU budget is complementary to Cyprus’ national budget and comes into play when it is more effective to spend money at the EU level than at the local, regional or national level. In 2020, Cyprus contributed €245 million of the total EU revenue of about €160 billion, or about 1.2 % of the Cyprus economy.
In the same year, EU investment back into Cyprus included:
- €130 million on smart and inclusive growth
- €59 million on cohesion (economic, social and territorial),
- €76 million on sustainable growth (national resources), and
- €22 million on security and citizenship
In addition to the investment in Cyprus, the EU budget provides support in other areas, including:
- Economic development of less wealthy EU countries
- Assistance in situations of natural disasters
- Development aid and assistance to EU neighbours and third countries
What are the main EU investment areas for Cyprus?
The EU budget provides financial support to students, scientists, farmers, NGOs, SMEs, towns, regions and many other beneficiaries in Cyprus.
Most of the EU funding is for regional policy. For example, in 2018, EU funding has enabled a major urban regeneration project in Limassol. This has improved the quality of life in the city and made the historic centre, the seafront and other areas more attractive.
The second largest share of EU funding is for agriculture. For instance, in 2018, the EU-funded ORGANIKO project has helped develop a national plan for mitigating climate change in the country’s agricultural sector.
Growth and jobs, including research, is the third largest category of EU spending in Cyprus.
Factsheet: the EU budget in Cyprus (based on 2019 data)
EU funding and programme stories
EU budget 2021-2027
Due to the COVID-19 pandemic, the European Union has strengthened its current long-term 2021-2027 budget. Together with a temporary NextGenerationEU recovery instrument, €1.8 trillion was made available to mitigate the damage caused by the pandemic and help Europe emerge from the crisis stronger and more resilient.
- Cyprus is set to receive an estimated €1 billion in Recovery and Resilience Facility grants, and the availability of an estimated €1.5 additional Recovery and Resilience Facility loans.
- Cyprus will receive also €112 million available in 2021 under REACT-EU and €92 million from the Just Transition Fund.
- Cyprus will also receive €959 million in Cohesion Policy allocations from the latest long-term EU budget, as well as just over €366 million in direct payments from the European Agricultural Guarantee Fund (EAGF). There will also be €172 million available through the European Agricultural Fund for Rural Development.
- The European Commission has also disbursed €603 million in financial support to Cyprus under the Support to mitigate Unemployment Risks in an Emergency (SURE instrument). The support was provided in the form of loans granted on favourable terms and will assist Cyprus in covering the costs related to its Temporary COVID-19 Wage Subsidy Scheme.
How does the EU-wide budget work?
- The EU budget is mainly dedicated to investment, so a long-term spending plan, known as the Multiannual Financial Framework (MFF) is adopted for a period of five to seven years. The MFF sets the maximum annual amounts (ceilings) that the EU will spend on each different category (headings).
- Everybody benefits from the EU budget: from the added value of being part of the single market, and also addressing challenges together, such as fighting climate change, strengthening digital sovereignty and responding to the COVID-19 crisis.
- The annual EU budget is decided democratically, with the participation of the European Commission, the EU countries (represented in the Council) and the European Parliament:
- The European Commission proposes a draft annual budget
- National governments (Council of the EU) and the European Parliament (representing EU citizens) can amend it
- National governments (Council of the EU) and the European Parliament (representing EU citizens) must approve it.
Where does the money come from?
The EU budget is financed from the following sources:
- A proportion of each country’s gross national income (GNI) in line with how wealthy they are
- Customs duties on imports from outside the EU
- An amount based on the value added tax collected by each EU country
- From 2021, a contribution based on the amount of non-recycled plastic packaging waste in each country
- Other revenue, including contributions from non-EU countries to certain programmes, interest on late payments and fines, as well as surplus from the previous year
- To finance NextGenerationEU, the European Commission will raise funds on the capital markets which will be repaid over a long-time horizon until 2058
Who decides how the money is spent?
Over the 2021-2027 period:
- National authorities manage around three quarters of the budget expenditure jointly with the European Commission (shared management)
- The European Commission and its agencies and delegations manage around 18% of the EU budget (direct management)
- Other international organisations, national agencies or third countries manage 8% of the EU budget (indirect management)
- For NextGenerationEU, 90% of the funds will be channelled via the Recovery and Resilience Facility (RRF). The RRF is an instrument to offer grants and loans to support reforms and investments in the EU countries at a total value of €723.8 billion.
The Commission has the ultimate responsibility for the execution of the totality of the budget to ensure that every euro spent is recorded and accounted for.
- The accounts are then audited by the Commission, national governments and other organisations, and actions are taken to address any weaknesses or errors.
- Finally, the European Parliament (in the name of EU citizens) votes to approve (or ‘discharge’) how the Commission has implemented the budget.
How the annual EU budget lifecycle works
The EU also has a number of bodies and tools to transparently communicate, and to detect, investigate and punish improper use of EU funds, corruption, the evasion of related taxes and levees, or serious misconduct within the EU institutions.