The financial conditions of the Czech Republic's accession to the EU

The Copenhagen summit in December 2002 completed the accession negotiations between the European Union and the candidate countries and defined the basic financial conditions for the three years following entry into the EU. The payments structure was changed compared to previous proposals. "Entitlements", i.e. the income (primarily compensation) that the Czech Republic will receive without having to fulfil any particular conditions, acquired greater significance, to the detriment of income from EU funds tied, for example, to the submission of particular projects and the securing of a specific form of co-financing.

Income from European Union funds should increase markedly following accession compared to the current situation, where candidates can only draw on preaccession funds (Phare, Ispa and Sapard). The objective of these funds is not only to provide direct assistance to candidate countries, but also to prepare the ground for successful project financing following accession. The drawing on pre-accession aid will peak in 2003 and 2004, as the project financing is usually spread over several years. At the same time, however, funds will start coming in from the structural funds (ERDF, ESF, EAGGF and FIFG) and from the cohesion fund under regimes identical to those in the Member States. These funds are to replace the pre-accession aid. In 2003-2006, around EUR 950 million is expected to be drawn from structural actions and EUR 432 million from the pre-accession aid funds.

Whereas financing from funds is conditional on having a sufficient quantity of projects, agricultural policy (excluding rural development) forms part of the entitlements. Aid for farmers has been spread over ten years, the minimum level having been set at 25% of the average of the European subsidies. The Czech Republic has negotiated itself the option of co-financing by the state, as well as a partial transfer of its funds for rural development, so that the amount of support in the first year of membership will be 55% of the EU average. In total, EUR 975 million will be earmarked for agriculture in the three years following accession. The entitlements also include compensation, which in the form of revenue to the state budget is intended to improve the Czech Republic's budget position vis-a-vis the EU. In addition, during the negotiations a transfer of EUR 100 million from the commitment appropriation to compensation in 2005-2006 (i.e. EUR 50 million per year) was successfully negotiated. A total of EUR 747 million in compensation has therefore been obtained for 2004-2006.

On the other hand, the Czech Republic will be obliged to make payments to the budget according to a key which is the same for all EU members. The contributions will be covered from traditional own sources (customs duties and agricultural fees), from VAT payments and according to gross national product. One special contribution is a payment for the United Kingdom, which constitutes a rebate for its higher payments into the budget at the start of the 1990s. Overall, EUR 2.5 billion will be paid into the EU budget over the first three years following accession. The original Czech request for a reduction in its payments in the first year in order to mitigate the post-accession shock was unsuccessful, but thanks to the budget compensation the Czech Republic's net position will be EUR 778 million, which is substantially more than under the original proposals prior to the Copenhagen summit. However, the increase in the volume of official financial flows from the EU into the Czech Republic will not have significant macroeconomic effects in the first years following accession, since the inflow will remain relatively low. Project implementation, however, will be conditional on the availability of co-financing from the state or public budgets, which will, of course, affect the fiscal stance of the Czech Republic.

The financial flows associated with the Czech Republic's accession to the EU must also include payments associated with membership of international organisations such as the European Investment Bank (EIB). At the Copenhagen summit, the conditions were laid down under which the Czech Republic, following accession, will subscribe to the capital of the EIB in an amount of around EUR 1.2 billion, of which EUR 60.6 million is payable by 2009. Furthermore, the EIB's reserves need to be increased by roughly EUR 158 million by 2009. The Czech Republic must pay a total of EUR 218.6 million (around CZK 6.5 billion).

ESTIMATED NET POSITION OF THE CZECH REPUBLIC (1999 prices; EUR millions)