C-34/86

Federal Republic of Germany, represented by Mr M. Seidel, Ministerialrat at the Federal Ministry for the Economy at Bonn, acting as Agent,

French Republic, represented by Mr G. Guillaume, Director of Legal Affairs at the Ministry of External Relations, acting as Agent, and

United Kingdom of Great Britain and Northern Ireland, represented by its Agent, Mr T. J. G. Pratt, Principal Assistant Treasury Solicitor, assisted by Mr F. Jacobs, Queen's Counsel,

interveners,

v

European Parliament, represented by its jurisconsult, Mr F. Pasetti-Bombardella, acting as Agent, assisted by Mr J. Lever, Queen's Counsel, of London and by Maître Lyon-Caen, Avocat, of Paris, with an address for service in Luxembourg at the General Secretariat of the Parliament, plateau de Kirchberg,

Advocate General: G. F. Mancini Registrar: P. Heim

gives the following

JUDGMENT

Facts

The facts of the case, the course of the the occasion of its second reading of the procedure and the conclusions, submissions draft budget, certain budgetary appropri­ and arguments of the parties may be ations in the absence of a new rate of summarized as follows: increase fixed by agreement between the Council and the Parliament. I — Facts and procedure

1. Legal background to the dispute Article 203 (9) of the EEC Treaty provides, The origin of the present dispute is to be in the case of what is known as traced to the Council's belief that the non-compulsory expenditure, that is to say general budget of the European the total expenditure other than that neces­ Communities for the financial year 1986, as sarily resulting from the Treaty or from acts annexed to the act whereby the President of adopted in accordance therewith, that a the European Parliament declared, on 18 maximum rate of increase in relation to the December 1985, the final adoption of the expenditure of the same type to be incurred budget (Official Journal L 358, p. 1), was during the current year is to be fixed adopted in contravention of the provisions annually. That maximum rate, which results of Articles 78 of the ECSC Treaty, 203 of from three different factors (the trend, in the EEC Treaty and 177 of the EAEC terms of volume, of the gross national Treaty. In the Council's opinion the product within the Community, the average Parliament has in particular gone beyond variation in the budgets of the Member what is allowed by Article 203 (9) of the States, and the trend of the cost of living EEC Treaty, ' inasmuch as it increased on during the preceding financial year), is to be declared by the Commission and 1 — For reasons of simplicity all references to Article 203 (9) of communicated, before 1 May, to all the the EEC Treaty are to be understood as including also institutions of the Community. The latter Article 78 (9) of the ECSC Treaty and Article 177 (9) of the EAEC Treaty. are required to conform to this during the

budgetary procedure (third subparagraph of introduction to its preliminary draft, the Article 203 (9)). Commission also stated that it had set itself, in so far as the Community of Ten was According to the fourth and fifth subpara­ concerned, the following objective: graphs of paragraph (9) of Article 203 non-compulsory expenditure may, in two 'In the field of non-compulsory expenditure cases, exceed that which results from the to contain the present abnormal growth of application of the maximum rate as the budgetary burden of honouring calculated by the Commission: commitments from earlier financial years ("the cost of the past"). (a) If the increase in non-compulsory expenditure resulting from the draft Since 1978, in the case of differentiated budget established by the Council is appropriations, the volume of commitment over half the maximum rate declared by appropriations has grown significantly faster the Commission, the Parliament may, than that of payment appropriations. This exercising its right of amendment, means that since the operations to which further increase the total amount of that they relate are spread over a period of time expenditure to a limit not exceeding half the payment requirements to honour these the maximum rate (fourth subparagraph commitments are rising ever higher. Since of Article 203 (9)). 1978, some 10 300 million ECU in commitments have accumulated, some 8 200 million ECU of which are for the three (b) If the activities of the Community structural Funds ... require that the maximum rate should be exceeded, another rate may be fixed by agreement between the Council, In 1986 then, around 4 400 million ECU in acting by a qualified majority, and the payment appropriations (of which about Parliament, acting by a majority of its 4 000 million ECU in non-compulsory members and three-fifths of the votes expenditure) is considered necessary to cast (fifth subparagraph of Article 203 honour part of these commitments, (9)). compared with only 3 200 million ECU in 1985. 2. The course of the procedure relating to the 1986 budget In these circumstances, assuming constant own resources, the margin available for financing new Community policies, narrow By a letter dated 23 April 1985, the as it already is, becomes even narrower still. Commission informed the Council that the maximum rate of increase in respect of non-compulsory expenditure relating to the Consequently, in order to restrict this 1986 budget was 7.1% in relation to expen­ increase in the future, the Commission is diture of the same type in the 1985 budget. planning to limit the growth of new By letter dated 31 July 1985, it submitted to commitments, in non-compulsory expen­ the Council the preliminary draft budget for diture, within the maximum rate, i.e. 7.1%.' 1986, indicating that the draft was based on two events the effects of which would begin Basing itself on the non-compulsory expen­ to be felt as from 1 January 1986, namely diture of the same type contained in the the new own resources at the maximum 1985 budget, the Commission went on to VAT call-in rate of 1.4% and the indicate that the application of the .enlargement of the Community to include maximum rate of 7.1% would make it Spain and Portugal. In the general political possible to increase commitment appropri-

At its session held on 14 November 1985, the Parliament expressed its views in a first 10. Deplores the fact that the Council, reading of the draft budget by making a faced with the implementation of its internal series of amendments to it which together rules on budgetary discipline, has submitted provided for an increase in non-compulsory to Parliament nothing more than a expenditure of 1 764 million ECU in respect truncated draft budget; insists that the of commitment appropriations and 1 784 Council has thereby failed to give a million ECU in respect of payment appro­ complete first reading, thus acting in breach priations. On that occasion the Parliament of the provisions of the Treaty with regard adopted a resolution on the draft general to the budgetary procedure; budget which was transmitted on the same day to the Council and which contained inter alia the following paragraphs: 11. Considers it unacceptable that the Council did not enter all expenditure in the budget, contrary to Article 199, and that 'The European Parliament, contrary to the provisions of the Fund

JUDGMENT OF 3. 7. 1986 — CASE 34/86

Regulations neither the expenditure for an namely a supplementary increase in enlarged Community nor appropriations for non-compulsory expenditure of 196 million the contractual obligations for which ECU (17.02%) in respect of commitment payment has fallen due, were fully taken appropriations and 242 million ECU into account; (24.46%) in respect of payment appropri­ ations; that proposal was made subject to acceptance by the Parliament.

At its second reading of the budget on 26 and 27 November 1985, the Council 1. Notes, after considering the Council's decided, for its part, to increase statements and the modifications it made to non-compulsory expenditure by 1 199 Parliament's first reading and having heard million ECU in respect of commitment the opinion of the Commission, that the appropriations and 1 251 million ECU in draft budget does not cover the respect of payment appropriations. On that commitments entered into by the occasion, and in respect of the enlargement, Community; once again amends the draft the Council entered supplementary appro­ budget so as to ensure that the expenditure priations in the draft budget established at relating to enlargement and the "cost of the the first reading, appropriations which past" is taken into account in such a way as amounted to 500 million ECU in respect of to provide all Member States with the commitment appropriations and 321 million minimum necessary for the normal ECU in respect of payment appropriations. operation and development of the structural Following that proposal, which the Council Funds under the rules in force; made unconditionally, it proposed to the Parliament, in a letter dated 29 November 1985, that new maximum rates of increase should be fixed: 14.6% in respect of 2. Notes that the exceptional expenditure commitment appropriations and 20.5% in which the Community will have to meet in respect of payment appropriations over the 1986 to ensure that the commitments 1985 base. entered in previous budgets and those entered into vis-à-vis Spain and Portugal are honoured have no equivalent of the same nature in the 1985 budget; considers Following a final reconciliation meeting therefore that this expenditure is not subject which it held on 11 and 12 December 1985 to the Treaty provisions concerning the with a delegation from the Parliament with determination of the maximum rate of a view to arriving at an agreement, the increase in non-compulsory expenditure in Council authorized its President to submit relation to expenditure of the same nature to the Parliament a compromise proposal, in the 1985 financial year; considers

5. Notes that the appropriations provided for the structural Funds are insufficient to 3. Subsequent events: The interim measures provide a real increase for the existing 10 in Case 23/86 R Member States and to make an effective contribution to resolving the structural problems in Spain and Portugal; points out that the failure to increase the structural Following the act of the President of the Funds in real terms (for the 10 Member European Parliament of 18 December 1985, States) infringes the requirements of Article a series of actions for annulment were 11 (1) of the regulation on the integrated brought against the general budget for 1986 Mediterranean programmes which foresees and/or against the declaration of the final "increases in real terms accruing to the adoption of that budget. Those actions were Funds" (from 1986 to 1992) that "shall help brought, in chronological order, by to finance the IMPs, but without adversely Luxembourg (15/86), the Netherlands affecting transfers from the Funds to other (17/86), France (18/86), the Federal less prosperous and priority regions"; notes Republic of Germany (19/86), the United that, once again, Parliament has been forced Kingdom (23/86) and the Council (34/86). to attempt, through its budgetary powers, to make the Council fulfil obligations that the Council itself created when it adopted legis­ lation.' By an application lodged at the Court Registry on 13 February 1986 the United Kingdom requested the Court, pursuant to Articles 185 and 186 of the Treaty, to grant The outcome of the Parliament's deliber­ an interim order, pending final judgment in ations of 12 December 1985 was an the main action, that the Member States additional increase in non-compulsory should make payments in respect of VAT expenditure of 402 million ECU (19.5%) in own resources for the 1986 budget limited respect of commitment appropriations and to such amounts as resulted from the 563 million ECU (29.7%) in respect of Council's second reading of the budget on payment appropriations. Following the votes 26 and 27 November 1985. The United of the Parliament, the President of the Kingdom took the view that the increase in Council made it known, in an oral inter­ non-compulsory expenditure, as it resulted vention at the full session of the Council, from the second reading of the draft budget that the Council's compromise proposal was by the Parliament, might lead the accordingly withdrawn. Commission, as the institution responsbile

The written procedure followed the normal '(1) The Commission shall implement, until course. The Council, however, waived its 10 July 1986 or until the date on which right to lodge a reply. the Court delivers its judgment in Case 34/86 Council v European Parliament, whichever date shall be the earlier, the As the Council had requested in its appli­ budget for the financial year 1986, as cation that the case should be given priority regards both payment appropriations since it was a matter of urgency that the and commitment appropriations, on the Court should give its decision before the basis of the draft budget established by establishment of the draft budget for the the Council at its second reading on 27 financial year 1987, the President of the November 1985, subject to those Court decided on 12 February 1986 to grant amendments decided by the Parliament that request, pursuant to the second on 12 December 1985 which do not subparagraph of Article 55 (1) of the Rules have the effect of increasing of Procedure. non-compulsory expenditure, ... '. By applications registered at the Court 4. The subject-matter of the present case Registry on 1, 3 and 4 April 1986 respec­ tively, the German, British and French Governments applied to intervene in this The present action for annulment, which case in support of the conclusions of the was brought pursuant to Articles 173 of the Council. By orders of 14 April 1986, the EEC Treaty and 146 of the EAEC Treaty, Court granted, pursuant to Article 91 of the is directed against the general budget for Rules of Procedure, the applications to 1986. The Council's primary application is intervene. for a partial annulment of that budget in so far as, following the deliberations of the The United Kingdom and French Parliament on 12 December 1985, certain Governments lodged within the prescribed budgetary appropriations were increased in period written observations in documents breach of the Treaties. In making that registered at the Court Registry on 3 and 4 proposal, the Council sought to take into April 1986 respectively. By letter of 7 April account the requirements of the efficient 1986 the representative of the German functioning of the Community. For the Government informed the Court that he same reason, it is only in the alternative that would explain his government's position at the Council seeks the annulment of the the hearing. budget as a whole and, as a consequence, the annulment of the act of the President of the Parliament declaring the final adoption On hearing the report of the Judge- of the budget; in the latter case it requests Rapporteur and the views of the Advocate the Court to state which of the effects of General, the Court decided to open the oral

(a) Annul the budget for 1986 to the extent (b) Alternatively, if the Court considers that that, as a result of amendments adopted the application is admissible and well by the Parliament on 12 December 1985 founded, rule that the annulment should at its second reading of the draft relate, on the one hand, to the budget in budget, the appropriations for its entirety and, on the other, to the commitments and the appropriations for whole of the procedure preparatory to payments for non-compulsory expen­ the drawing-up of the budget, owing in diture exceeded by respectively particular to the unlawful conduct of 293 828 185 ECU and 527 383 692 the Council throughout that procedure; ECU, or by such other amounts as may be determined by the Court, the new (c) Order the Council to pay the costs. rates of increase proposed by the Council in its letter addressed for that III — Submissions and arguments of the purpose to the President of the parties Parliament;

budget made by the President of the the amendments to the Treaties which took Parliament pursuant to Article 203 (7) of place in 1970 and 1975 and which were the Treaty cannot be deemed to be an act designed to effect a sharing of the which is open to challenge. This, according budgetary powers between the Parliament to the Parliament, is because what is before and the Council, call for a broader interpre­ its President at that stage of the procedure tation of Article 173 of the EEC Treaty and is not a draft budget but a budget which has Article 146 of the EAEC Treaty, so that already been adopted by the Parliament. judicial review must also cover the legality Furthermore, it is not possible to create a of the general budget of the Community. third arm of the budgetary authority Such review is moreover indispensable since separate from the other two arms. Similarly, a failure to comply with the Community the Parliament maintains that the budget, as provisions on the budgetary procedure calls adopted at the end of the second reading, in question the institutional balance does not constitute an act open to challenge intended by the Treaties. since it is a combined act of two institutions which together form the Community budgetary authority. The Council goes on to contest the argument according to which, in the circumstances of this case, an action for annulment should be brought instead The Parliament adds that the view which it against a measure adopted by the adopts in this respect does not imply that Commission in implementation of the the Court could not exercise any right of budget. In the Council's opinion that judicial review of the Community budget. solution is neither logical nor satisfactory On the other hand, any measure since it would be obliged to await a decision implementing the budget could be contested of the Commission implementing the budget either by means of an action for annulment and to bring before the Court an institution or by a reference for a preliminary ruling which is not directly responsible for the within the meaning of Article 177 of the alleged illegality of the budget. Treaty.

on the second reading, by the Council. the necessity of the Council's agreement as Finally, the Council maintains that subpara regards the fixing of new rates of growth. graphs (5) and (6) of Article 203 were not complied with, inasmuch as the Parliament amended, at its second reading, a certain The Council goes on to contest the number of budgetary lines which, in the Parliament's argument to the effect that the Council's opinion, constitute non- Parliament was under no obligation, during compulsory expenditure. the budgetary procedure for 1986, to act in conformity with the maximum rate mechanism as regards the exceptional expenditure occasioned by the enlargement The Council points out, in regard to its first of the Community and by the 'cost of the submission, that the declaration of the

Furthermore, had From this the Council infers that the the authors of the amending Treaties of President of the Parliament is always under 1970 and 1975 intended that in certain a duty to verify whether in fact all the circumstances new non-compulsory expen conditions laid down by that provision are diture should be exempt from the appli satisfied, and in particular the condition that cation of the maximum rate, they would the budgetary procedure must have been have expressed that intention clearly.

resort. That delimitation is indispensable so involved. long as the balance between expenditure and revenue in the Community budget, which is required by Article 199 of the Treaty, is ensured by means of the calling-in The European Parliament states, by way of a of part of the revenue from VAT (as from 1 general observation, that the budgetary January 1986 1.4%). Accordingly it is the procedure for 1986 must be seen against the Member States which must finance any background of the difficulties encountered increase in Community expenditure. Hence in the course of previous budgetary

procedures, in particular those relating to As regards the Council's contentions on the 1983 and 1984. Among those difficulties substance of the case, the Parliament goes there should be mentioned in particular the on to maintain that the expenditure relating exhaustion of own resources available in the to the commitments entered into vis-à-vis context of the transfer of part of the Spain and Portugal and those relating to the revenue from VAT, the 'British reimbur 'cost of the past', although of the same type sement', the indispensable reinforcement of as the non-compulsory expenditure in the structural Funds (Regional Fund, Social general, had no equivalent in the 1985 Fund, EAGGF Guidance Section), the budget. In that respect the Parliament also unilateral adoption by the Council of a points out that in its preliminary draft 'budgetary discipline' and the problems budget the Parliament had expressly put arising from the systematic under-estimation outside the maximum rate of increase the of appropriations ('under-budgeting'). In expenditure relating to the two above- that respect the Parliament further points mentioned categories.

As regards the financial year 1986 the Council again submitted a manifestly incomplete draft budget, inasmuch as it did not contain appropriations to meet the enlargement of the Community and the absorption of the 'cost of the past'. At its first reading, moreover, the Parliament seriously contemplated accepting the incomplete draft as such, which would have precluded any second reading by the Council. In that case the budget would have been deemed to have been adopted without Should the Court not accept that interpre the necessary appropriations entered in it. tation of Article 203 (9), the Parliament Such a decision would have clearly demon maintains, in the alternative, that the strated the inadequacies of the Council's unlawful conduct of the Council in fact

structural Funds. more complete draft budget only on the

In that exceptional situation and in view of IV — Oral procedure the fact that, for the reasons set out above, the other means of avoiding a conflict with the Council were not appropriate, the final decision taken by the Parliament, namely to The Council of the European Communities, consider the expenditure relating to represented by Mr D. Gordon-Smith and enlargement and the 'cost of the past' as Mr F. van Craeyenest, the government of 'outside the rate', was the only solution the Federal Republic of Germany, repre­ which could ensure compliance both with sented by Mr M. Seidel, the government of the requirement of a complete budget within the French Republic, represented by Mr G. the meaning of Article 199 of the Treaty Guillaume, the United Kingdom, repre­ and with the principle of continuity in the sented by its Agent, Mr T. J. G. Pratt, functioning of the Community. assisted by Mr F. Jacobs, QC, and the European Parliament, represented by its jurisconsult, Mr F. Pasetti-Bombardella, acting as Agent, assisted by Mr J. Lever, QC, and by Maître Lyon-Caen, presented oral argument at the hearing on 30 April In the further alternative, the Parliament 1986. puts forward the consideration that the Community budget is a single act. It is therefore inconceivable that any annulment might apply only to part of the budget, In the course of the hearing the Council thereby allowing another part to remain in explained, with regard to the precise object existence. Furthermore, a partial annulment of its second head of claim, that it was not would allow the draft, as amended by the essential for the Court to rule on the Council at its second reading, to remain and difference of opinion in regard to the classi­ would thus lead to a result contrary to fication of the budgetary lines in question. Article 203 (9) because the new maximum The increase in the amounts entered in rates would have been fixed by the Council these lines, as adopted by the Parliament at unilaterally. For those reasons the its second reading of the draft budget, was

COUNCIL v PARLIAMENT

3 The European Parliament's primary contention is that the application is inad­ missible. In the alternative, it contends that it respected the letter and spirit of Article 203 (9) of the EEC Treaty. It was the Council that disregarded the provisions of the Treaties, in particular those of Article 199 of the EEC Treaty, by submitting to the Parliament a draft budget and, after the Parliament's first reading, a modified draft the adoption of which would have rendered it impossible for the Communities to meet their commitments.

Admissibility

4 The Parliament denies in the first place that the Council may rely on Article 173 of the EEC Treaty for the purposes of seeking the annulment of the budget as an act of the European Parliament. According to that institution, Article 173 does not provide for a review of the legality of the acts of the European Parliament any more, for that matter, than it allows the Assembly to challenge before the Court the legality of the acts of the Council and the Commission of the Communities.

5 However, it must be pointed out that the Court has already held in its judgment of 23 April 1986 (Case 294/83 Parti écologiste 'Les Verts' [1986] ECR 1339) that by virtue of Article 173 of the EEC Treaty an action for annulment may be brought against the acts of the European Parliament which are intended to have legal effects vis-à-vis third parties, provided that the other conditions laid down by that article are satisfied.

6 In this regard, it must be noted that the general budget of the Communities is the instrument which sets out forecasts of, and authorizes in advance, the revenue and expenditure for each year. According to the second paragraph of Article 199 of the EEC Treaty, the revenue and expenditure must be in balance. It is for the Commission to implement the budget, by virtue of Article 205, within the limits of the appropriations allocated, whilst the revenue entered in the budget determines the level of the value-added tax to be transferred by the Member States to the own resources of the Communities. It follows that, once the President of the Parliament has made the declaration referred to in Article 203 (7), the budget ranks among the acts which are capable of producing legal effects vis-à-vis third parties.

10 In developing this argument, the Parliament explains that, in the context of the budgetary procedure, the roles of the Council and the Parliament are complementary and that the joint action of these two institutions leads to the establishment of the budget which constitutes a combined act that has no equi­ valent in any other act of the Community institutions. It is therefore out of the question that the annulment of such an act, should it occur, may concern only the deliberations of one of the two institutions concerned. In that respect the Parliament points out that according to Article 176 of the EEC Treaty '[The] institution whose act has been declared void' is required to take the necessary measures to comply with the judgment of the Court. Since the budget of the Community is the product of two institutions, that provision does not apply to it. It must therefore be concluded that it is not possible to review the budget by means of the action for annulment.

11 In reply to that argument the Council observes that until the financial year 1975 the budget was in any event subject to the review provided for by Article 173 of the EEC Treaty, since the adoption of the budget constituted an act of the Council which produced legal effects. It is inconceivable that the authors of the revisions of the Treaties relating to budgetary matters intended, when enlarging the Parliament's role in that sphere, to remove the budget from the category of

COUNCIL v PARLIAMENT

acts subject to review by the Court. That review is, moreover, the necessary corollary to the institutions' duty to act within the limits of the powers conferred on them.

16 It is clear from the second subparagraph of paragraph (4) and from paragraphs (5) (a) and (6) of Article 203 that the Parliament is entitled to amend the budget as regards non-compulsory expenditure, that the Council may modify each of the amendments so adopted but that the Parliament may, in the course of its second reading of the draft budget as modified by the Council, amend or reject the modi­ fications made by the Council to those amendments. On the other hand, in the case of compulsory expenditure the Parliament is no longer able, at the second

JUDGMENT OF 3. 7. 1986 — CASE 34/86

reading, to call in question the Council's decision on the proposals for modifi­ cation made by the Parliament in the course of the first reading.

17 Article 203 (9) provides, however, for a limit to the increase which may be made in non-compulsory expenditure in relation to the expenditure of the same type appearing in the budget for the previous financial year. That limit is expressed by a 'maximum rate of increase' which the Community institutions are, by virtue of the third subparagraph of paragraph (9), required to respect during the budgetary procedure.

18 According to the second subparagraph of paragraph (9), the maximum rate is to be fixed annually by the Commission on the basis of three objective factors, namely the trend of the gross national product, the average variation in the national budgets and the trend of the cost of living. Where, during the budgetary procedure, the Parliament, the Council or the Commission consider that the acti­ vities of the Communities require that the said rate should be exceeded, another rate may be fixed, pursuant to the fifth subparagraph of paragraph (9), by agreement between the Council and the Parliament.

22 In the comments accompanying its draft budget the Council stated that it was 'prepared to reconsider the appropriations entered against [the] ERDF and the ESF at the second reading of the draft budget and to ensure on that occasion that the amounts necessary to comply with the commitments arising out of the accession negotiations in respect of the two new Member States are made available to the countries concerned'. It also said that it was convinced 'that this is a complex issue needing to be resolved by both parts of the budgetary authority together, and that any solution will perforce be spread over a number of financial years'.

23 The fourth subparagraph of paragraph (9) provides that if the rate of increase in the draft budget established by the Council is over half the maximum rate the Parliament may, exercising its right of amendment, further raise the level of non-compulsory expenditure within the limit of the maximum rate. In the event, the Council calculated this margin for manoeuvre enjoyed by the Parliament at 291.1 million ECU for commitments and 216.65 million ECU for payments.

24 It must be pointed out that the Council's figures are not calculated with reference to those resulting from the 1985 budget as adopted and published but with reference to a corrected base, since the Parliament adopted, at the time of the budgetary procedure which led to the 1985 budget, certain amendments in regard to which the Council had formulated reservations and objections. However, since no action on the subject of the 1985 budget has been brought in due time, the Council may not, in the present proceedings relating to the 1986 budget, introduce a correction of the base for the increase in non-compulsory expenditure by contending that certain amendments adopted during the previous budgetary

26 It is clear from the debates of the Parliament that the increases were in particular intended to contribute towards the absorption of the 'cost of the past', as the Commission had proposed in its preliminary draft budget, and also towards the reinforcement of the three structural Funds in order to enable them to cope with the problems connected with the accession to the Community of Spain and Portugal on 1 January 1986. In its resolution of 14 November 1985 on the draft general budget the Parliament, after recalling the political and legal obligations entered into vis-à-vis the new Member States, declared that it was necessary to reinstate, on the basis of the figures deemed necessary by the Commission, 'the amounts essential to meet enlargement and the greater part of the payments arising out of commitments that have already been voted in previous years', since these two categories of expenditure were inextricably linked.

27 At its second reading of the budget the Council decided to increase non-compulsory expenditure, in relation to the figures adopted in the draft budget, by 1 199 million ECU for commitment appropriations and 1 251 million ECU for payment appropriations. These amounts represented a rate of increase, founded on the corrected 1985 base as calculated by the Council, of 14.63% for commitment appropriations and 20.5% for payment appropriations. By letter of 29 November 1985 addressed to the President of the Parliament, the Council explained the

COUNCIL v PARLIAMENT

manner in which it had decided on the amendments adopted by the Parliament at its first reading and indicated that the Council had 'therefore' agreed to propose to the Assembly that for 1986, in the case of non-compulsory expenditure, new rates should be fixed in respect of commitment appropriations (14.63%) and in respect of payment appropriations (20.5%).

JUDGMENT OF 3. 7. 1986 — CASE 34/86

31 The figures set out above show that the increase in non-compulsory expenditure resulting from the Parliament's second reading of the budget was 18.17% (commitments) and 29.10% (payments) as compared with the 1985 budget as adopted. The figures were 19.53% and 29.73% respectively as compared with the corrected base for 1985 as calculated by the Council.

32 It is possible on the basis of this brief account to make three findings of fact in regard to the application which was made of the provisions on the maximum rate of increase :

(a) The Commission, the Council and the Parliament all concurred in the view that the maximum rate of increase as fixed by the Commission was not adequate to enable the Community to function properly during the financial year 1986;

(b) The Council and the Parliament were unable to agree on a new maximum rate of increase although the positions which those two institutions finally adopted were quite close to each other;

(c) The appropriations adopted by the Parliament at the second reading and ratified by the budget as adopted on 18 December 1985 by the President of the Parliament exceed the maximum rate of increase as fixed by the Commission and the various modified rates which had been proposed by the Council.

36 That argument cannot be accepted. The first subparagraph of paragraph (9) provides that a maximum rate 'in relation to the expenditure of the same type to be incurred during the current year' is to be fixed annually 'for the total expen­ diture other than that necessarily resulting from this Treaty or from acts adopted in accordance therewith'. The expression 'expenditure of the same type' can only refer to the expenditure mentioned later in the sentence, namely non-compulsory expenditure. It follows that the Treaty does not recognize the existence of non-compulsory expenditure whose increase falls outside the scope of the maximum rate of increase.

37 In its defence the Parliament further charges the Council with having acted illegally in submitting an incomplete draft budget, particularly inasmuch as it did not include the appropriations necessary in order to cover the enlargement and the absorption of the 'cost of the past'. The Council thus infringed the general principle of complete and authentic budgetization. The Parliament maintains that this conduct compelled it to complete the budget and thus limited its powers.

38 Whatever may be the impact of that argument on the exceeding of the maximum rate of increase by the amendments adopted by the Parliament, it is sufficient to state on this point that the determination of the exigencies posed, for the budget of the Communities, by special situations such as the accession of new Member States

JUDGMENT OF 3. 7. 1986 — CASE 34/86

or the absorption of the 'cost of the past' is not a matter for the Court but for the Council and the Parliament, acting in concert.

42 It must be observed in the first place that, although it is incumbent on the Court to ensure that the institutions which make up the budgetary authority keep within the

COUNCIL v PARLIAMENT

limits of their powers, it may not intervene in the process of negotiation between the Council and the Parliament which must result, with due regard for those limits, in the establishment of the general budget of the Communities. It is therefore necessary to reject the principal claim of the Council for a partial annulment of the budget, the effect of which would be to bring into force the version of that document resulting from the proposals made by the Council to the Parliament on 29 November 1985.

43 It must next be remarked that the irregularity attaching to the act of the President of the Parliament of 18 December 1985 is to be traced to the fact that he declared, in the language of Article 203 (7), that the budget was 'finally' adopted whereas a final adoption had not yet been achieved, since the two institutions had not yet come to an agreement on the figures concerning a new maximum rate of increase.

44 Looking back on the situation as it presented itself at the time of the second reading of the budget by the Parliament, the Court is left with the impression that the respective positions taken by the two institutions could hardly have constituted a serious obstacle to the possibility of arriving at an agreement. The increases in non-compulsory expenditure established by the Parliament represented rates of increase of 18.17% for commitment appropriations and 29.10% for payment appropriations, whereas the rates resulting from the last proposals made by the Council — the compromise proposals, although later 'withdrawn' — were 17.02% and 24.46% respectively.

48 The declaration that the 1986 budget is illegal comes at a time when a substantial part of the financial year 1986 has already elapsed. In these circumstances, the need to guarantee the continuity of the European public service and also important reasons of legal certainty, which may be compared with those which apply in the case of the annulment of certain regulations, justify the Court in exercising the power expressly conferred on it by the second paragraph of Article 174 of the EEC Treaty in the case of the annulment of a regulation and in stating the effects of the 1986 budget which must be considered as definitive. In the particular circumstances of this case it must be held that the annulment of the act of the President of the Parliament may not call in question the validity of the payments made and the commitments entered into in implementation of the 1986 budget up to the date of delivery of this judgment.

49 The Council has also put forward in these proceedings a request which does not concern the application which has been made of the maximum rate of increase but the raising by the Parliament, at its second reading, of the amounts entered in certain budgetary lines relating to expenditure which, according to the Council, constitutes compulsory expenditure.

50 Following the annulment of the act of the President of the Parliament of 18 December 1985, this request has become redundant. It should also be noted that the problems regarding the delimitation of non-compulsory expenditure in relation to compulsory expenditure are the subject of an interinstitutional conciliation procedure set up by the Joint Declaration of the European Parliament, the Council and the Commission of 30 June 1982 (Official Journal C 194) and that they are capable of being resolved in that context.

52 Under Article 69 (2) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs. However, according to the first subparagraph of paragraph (3) of that article, the Court may, where each party succeeds on some and fails on other heads, order that the parties bear their own costs. Since the original parties have failed in certain of their submissions, they should be ordered to pay their own costs. The interveners must bear their own costs.

On those grounds,

THE COURT

hereby:

(1) Declares void the act of the President of the European Parliament of 18 December 1985 whereby he declared that the budget for 1986 had been finally adopted ('Final adoption of the general budget of the European Communities for the financial year 1986');

(2) Declares that the annulment of the aforesaid act of the President of the European Parliament of 18 December 1985 may not call in question the validity of the payments made and the commitments entered into, in implemen- tation of the budget for 1986 as published in the Official Journal, before the date of delivery of this judgment;

Delivered in open court in Luxembourg on 3 July 1986.

P. Heim A. J. Mackenzie Stuart Registrar President