With the forecast for expenditure on CAP Direct Payments & Market measures for 2014 higher than the provisional ceiling for 2014 agreed by EU heads of government, the European Commission has tabled a proposal for "Financial Discipline" to ensure that spending remains within budget limits. The concept, established in 2003 but never triggered until now, requires the Commission to make a proposal before the end of March introducing a linear cut in CAP Direct Payments in order to ensure that the ceiling for the CAP's first pillar in the forthcoming year is respected.
The Commission proposal, which includes a threshold to exempt the first €5 000 of farmers' Direct Payments from any reduction, foresees a reduction of just under 5% (4.98%) in all Direct Payments – or an overall reduction of €1 471.4 million. This proposal relates to applications for Direct Payments in 2013, to be submitted by farmers in May 2013, and usually paid out in December 2013 (from the 2014 budget), but will not apply for Bulgaria, Romania and Croatia because the system of CAP Direct Payments is still being phased-in.
This move follows the accord among EU heads of government to set a budget ceiling for 2014 which is roughly €800 million lower than the Commission proposed and to create a new market crisis reserve (worth €424.5 million) from within Heading 2 of the Multiannual Financial Framework (MFF), rather than from a separate reserve created outside the MFF as originally proposed by the Commission, and to finance it through financial discipline. Under the Regulation, the proposal needs to be adopted by the European Parliament and the Council by 30 June 2013. If not, the Commission is empowered to set the adjustment rate. The Commission will update its forecasts for market and direct payment spending for 2014 in the autumn, as usual, and, if necessary, propose an adjustment to the rate of financial discipline, which would then need to be adopted by the Council by December 1.