COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 18.12.1995 
COM(95) 581 final 
COMMUNICATION FROM THE COMMISSION 
THE EUROPEAN UNION'S FINANCIAL CONTRIBUTION TO 
RECONSTRUCTION IN FORMER YUGOSLAVIA 

SUMMARY 
This communication firom the Commission to the Council concerns financial aspects of 
the reconstruction of the former Yugoslavia, excluding humanitarian aid. 
The communication envisages that the Community budget contributes with an 
indicative envelope of ECU one thousand million in aid over the period 1996-99 to 
the reconstruction effort in ex-Yugoslavia 
With the emphasis on operational aspects, the communication envisages the different 
sources of financing that may be deployed over the period 1996-99. 
-PHARE (chapter B7-50, budget nomenclature 1996) could provide ECU 400 million 
for the reconstruction of war-torn territories and ECU 200 million for national reform 
and transition programmes; PHARE could cofinance schemes with the EBRD; 
-An indicative financial envelope of ECU 400 million could be "earmarked" Tor the 
reconstruction effort in ex-Yugoslavia under Chapter B7-54 "Co-operation with the 
republics of the former Yugoslavia" in line with the actions envisaged by Parliament 
in its first reading. A large part of the additional flexibility margin under Heading IV 
of the financial perspectives that was released at the Cannes Summit, compared to the 
proposal of the Commission, would be allocated for this purpose. This amount would 
also allow to respect fully the conclusions of the European Council of Cannes 
concerning the financial envelopes for PHARE, Mediterranean Third Countries, and 
the contribution to the EDF. Moreover, the necessary interest rate subsidies for loans 
and the possible macro-financial grants will be included in the amount of ECU 400 
million. 
-EDB loans and macro-financial assistance could be mobilised after funds are deposited 
in the Guarantee Fund; 
In conclusion, the Commission will take steps to extend PHARE, it will propose a 
legal basis for the appropriate budget headings under chapter B7-54 "Co-operation 
with the former republics of Yugoslavia" and will examine any other measures which 
may be required. 

Introduction 
The Commission communication on reconstruction in former Yugoslavia, presented to the 
Council on 2 October, was followed by a non-paper dealing with the relevant financial 
and coordination aspects and by a wider-ranging working paper covering humanitarian 
aid and future contractual relations. This communication leaves aside humanitarian aid 
and focuses only on financial aspects, with an essentially operational thrust. It is based 
on the above documents. 
Background 
Reconstruction in the broadest sense of the term must cover a range of activities, 
including: 
emergency rehabilitation of basic services (water, gas, electricity and transport), 
the repair of war damage, 
aid for political and economic reform (democratization, elections, macroeconomic 
and financial adjustment, the market economy and privatization, etc.). " 
This will require far more money than any single donor can put up. It must aiso go hand 
in hand withinacroeconornic assistance programmes, which means a solution has to be 
found to the problem of the arrears these countries are now in with international financial 
institutions. In addition, the goals to be achieved are very varied and need their own 
specially tailored instruments. 
Financial sources 
The international community is hoping for a substantial contribution to the reconstruction 
effort firom the EU, which should be willing to do as much as it can provided the 
financial burden is shared equally among all donors. In giving any such contribution, 
however, the following factors will have to be borne in mind: 
as regards the effective use of funds, certain resources have already been 
pinpointed, while others would require a Commission initiative and a decision by 
both branches of the budgetary authority; 
the main sources of potential funding for reconstruction in ex-Yugoslavia for the 
period 1996-99 are the Phare programme (Chapter B7-50), totalling ECU 600 
million, and Chapter B7-54 "Cooperation with the Republics formerly part of 
Yugoslavia" totalling ECU 400 million. This ECU 400 million represents a large 
proportion of the additional margin of flexibility (ECU 475 million) made 
availably on the basis of the Commission's proposals, for the entire period 1996-
99 under heading IV of the current Financial Perspectives, following the fixing 
at the Cannes European Council of the total amounts for cooperation with the 
Central and Eastern European countries and the Mediterranean non-member 
countries. In addition, ETB loans and could also be considered; 
forecasts for the commitments and expenditures from the last source show that the 
room for manoeuvre will be greatest towards the end of the period 1996-99; 
The Union therefore, subject to the annual budgetary procedure, proposes a total 
indicative package of ECU 1 billion for these operations for the period 1996-99. 
1. Phare 
Yugoslavia has been eligible for Phare assistance since 7 September 1990 (Council 
Regulation 2698/90). Since fighting broke out, the programme has only become involved 
in certain emergency activities in Slovenia 
Using Phare's usual criteria, the republics of former Yugoslavia could receive 
ECU 150 million a year, or ECU 600 million between 1996 and 1999. The programme's 
multiannual planning allows enough leeway to meet the immediate and longer-term needs 
of the various republics and can be tailored to the absorption capacity of each. 
ECU 400 million of this ECU 600 million could go towards the immediate rebuilding of 
areas destroyed by the war in Bosma-Herzegovina and Croatia, with the other ECU 200 
million being given over to national reform or market economy programmes" in all the 
republics except Slovenia 
(i) Rehabilitation and reconstruction 
In view of the existing budget heading for reconstruction in former Yugoslavia, recent 
Parliament proposals to create new ones and the need in any case to give them a legal 
basis, the Commission will examine whether and how (amounts, timetable, etc.) transfers 
could be made to these headings from the Phare budget. 
The rehabilitation and reconstruction work to be funded from these resources will be 
subject to the specific political conditions set out in the Council conclusions of 30 
October. 
(ii) Support for reforms 
The Commission plans to use the current Phare regulation to finance support for reforms. 
Such assistance will covered by the national programmes agreed on with all the former 
Yugoslav republics eligible for Phare. 
Croatia was included in the list of eligible Phare countries this year, but following the 
military operation in Krajina, the programme was suspended. A Commission proposal to 
include FYROM in the list is already before the Council and should be dealt with as a 
matter of urgency. The inclusion of Bosnia-Herzegovina and Serbia-Montenegro and an 
end to the suspension of the Croatia programme will, following the Council conclusions 
of 30 October, also be made contingent on political conditions, drawn up on a case-by-
case basis in light of any peace agreement. The Commission will then send the Council 
the relevant proposals. It should be remembered that the inclusion of a new country in 
the Phare list requires Parliament's opinion prior to any Council decision. 
The Commission feels that Phare operations should first and foremost go to support the 
peace process and, where possible, the return to normal relations between the countries 
in the region. 
2. Chapter B7-54 'Cooperation with the Republics formerly part of Yugoslavia" 
The Cannes European Council decided to reduce the allocation for Mediterranean 
non-member countries by ECU 475 million for the period 1996-99. The Commission 
proposes to allocate an indicative package of ECU 400 million for that period for 
reconstruction in ex-Yugoslavia to Chapter B7-54 "Cooperation with the Republics 
formerly part of Yugoslavia". A large proportion of this additional margin of flexibility 
under heading IV of the Financial Perspectives, which was made available at Cannes 
could therefore be used for this purpose. This amount would also enable full compliance 
with the conclusions of the Cannes European Council concerning the financial packages 
for Phare, the Mediterranean non-member countries and the contribution to the EDF. In 
addition, the ECU 400 million will cover the necessary financing for interest rebates on 
loans and possible macroeconomic aid. 
After the first reading of the 1996 Budget, Parliament has proposed allocating a total sum 
of ECU 98 million to Chapter B7-54, distributed as follows: 
Heading B7-540: Financial Protocols with the Republics formerly part of 
Yugoslavia: ECU 6 million 
The budgetary contribution to the financing of the Third Financial Protocol for the 
former Yugoslavia, which takes the form of interest rate subsidies for EIB loans, 
was ECU 77 million. Since this Protocol did not enter into force no 
appropriations have been allocated, with the exception of ECU 10.5 million for 
Slovenia in 1995, and ECU 6 million proposed for the Croatia Protocol for 1996. 
If these Protocols are reactivated, they will also be covered by the ECU 400 
million. 
Heading B7-541: measures for reconstruction : ECU 27 million 
Heading B7-542: special aid for refugees: ECU 30 million 
Heading B7-545: Europe for Sarajevo: ECU 35 million 
3. Other budget headings for the former Yugoslavia 
The other budget headings proposed by the Budgetary Authority for former Yugoslavia 
are: 
Heading B7-7001: measures to help democracy (including independent media): 
ECU 5 million 
Heading B8-010: Mostar: ECU 32 million 
Heading B7-7002: application of sanctions: ECU 8.75 million 
All these headings will probably remain available, unless an explicit decision is taken to 
the contrary, even if no peace agreement is concluded. In view of the amounts entered 
under Chapter B7-54 headings, excluding the Financial Protocols, there must be one 
single legal basis defining the objectives and procedures for administering reconstruction 
funds. The Commission will present the appropriate proposals to the Council. 
Political developments may mean that not all the amounts entered under headings B7-010 
and B7-7002 will have to be committed. In that case the balance could be transferred to 
the reconstruction headings and the Commission could propose an appropriate transfer to 
the budgetary authority. 
4. EIB loans and macro-economic assistance 
As far as EIB loans are concerned, it should be noted that the 1991 Yugoslavia Financial 
Protocol included a global amount of ECU 730 million guaranteed by the Budget. Since 
this Protocol did not enter into force, only ECU 150 million has been allocated to 
Slovenia for a five-year period A total of ECU 230 million for a three-year period had 
been considered for Croatia in the negotiations for a trade and cooperation agreement, but 
these negotiations have now been suspended. If these loans are guaranteed by the 
Budget, the Guarantee Fund will have to be topped up and a solution found to the 
problem of the former Yugoslavian Republics' arrears vis-à-vis the EIB. If such a solution 
involved a contribution from the Budget, it should be covered by the ECU 400 million. 
These loans, which will be granted to the countries of the former Yugoslavia in the form 
of a guarantee for EBB loans, must fall within the limits set by the Guarantee Fund 
mechanism on external operations. This also applies to any macro-financial assistance 
provided which will depend largely on the needs identified, in particular by the IMF 
under these countries' macro-economic programmes, and on the contributions provided 
by other donors. 
5. Relations with the EBRD 
PHARE could cofinance economic reconstruction operations with the EBRD, e.g. in the 
field of telecommunications, energy and the development of small businesses. This 
would generate two to three times more funds than could be provided by the EBRD 
alone. For countries of the former Yugoslavia eligible for assistance under Phare the 
Commission could finance projects to prepare EBRD operations under the arrangements 
provided for in the Bangkok agreement. 
6. Central and Eastern Europe involvement 
Central and Eastern European countries have expressed an interest in playing a part in the 
rebuilding of the former Yugoslavia. The European Union cannot, however, provide any 
more funds than those already programmed to finance their own programmes. These 
countries involvement would therefore have to be in the form of triangular operations 
using the PHARE budget. 
Conci usions 
In the light of the political conditions laid down in the conclusions of the General 
Affairs Council of 30 October, the Commission will examine the possibility of 
extending the Phare Programme to all the republics of former Yugoslavia 
At the end of the 1996 budget procedure, the Commission will examine and 
propose an appropriate legal basis for the relevant budget headings of Chapter B7-
54. 
The Commission will examine ways in which additional funds may be transferred 
to the abovementioned budget headings, where appropriate. 
The Commission proposes to allocate for the reconstruction of the former 
Yugoslavia an indicative amount of ECU 400 million to Chapter B7-54 
"Cooperation with the Republics formerly part of Yugoslavia" for the period 
1996-99. Interest rate subsidies on any loans for macro-financial assistance will 
be included in the ECU 400 million. A large proportion of the flexibility margin 
made available at Cannes, on the basis of the Commission's proposals, would be 
used for this purpose. 
The Union, subject to the annual budgetary procedure, proposes for the 
reconstruction of former Yugoslavia a sum of ECU 1 billion for the period 
1996-99: 
ECU 600 million for Phare (1996-99), of which ECU 400 million 
for reconstruction as such and ECU 200 million for economic 
reconstruction; 
an indicative package of ECU 400 million to Chapter B7-54 
"Cooperation with former Yugoslavia" (1996-99), of which ECU 
98 million (according to Parliament's first reading of the 1996 draft 
Budget), distributed as follows: 
ECU 6 million (B7-540 Financial Protocols) 
ECU 27 million (B7-541 Measures for the reconstruction of 
the Republics formerly part of Yugoslavia) 
ECU 30 million (B7-542 Special aid for refugees) 
ECU 35 million (B7-545 Europe for Sarajevo) 
EIB loans to be arranged. 


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