EUROPEAN COMMISSION Brussels, 23.10.2019 COM(2019) 484 final REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on guarantees covered by the general budget









Situation at 31 December 2018 {SWD(2019) 379 final}



Table of Contents 1.Introduction 2.Operations guaranteed by the EU budget and crisis mechanisms of the euro-area not covered by the EU budget 2.1Loans granted by the European Union with macroeconomic objectives 2.2Loans with microeconomic objectives 2.3European Investment Bank ("EIB") financing of operations in non-Member States ("EIB external financing") covered by EU guarantees (ELM). 2.4European Investment Bank ("EIB") and European Investment Fund ("EIF") financing of operations in Member States covered by EU guarantees - The European Fund for Strategic Investments (EFSI) 2.5Crisis management mechanisms which are not covered by the EU budget 3.Evolutions of guaranteed operations 3.1Operations managed directly by the Commission 3.1.1European Financial Stabilisation Mechanism (EFSM) 3.1.2Balance of Payments facility (BOP) 3.1.3Macro-Financial Assistance loans (MFA) 3.1.4Euratom loans 3.2Evolution of the EIB external financing operations 4.Risks covered by the EU budget 4.1Definition of risk 4.2Total risk composition

4.3Annual risk covered by the EU budget 4.3.1Member State exposure 4.3.2Third country exposure 5.Activation and payment of guarantees 5.1Debt service not covered by the Guarantee Fund for External Action (Euratom loans to Member States, EFSM and BoP) 5.1.1Payments from cash resources 5.1.2Payments from the EU budget 5.2Calls on the Guarantee Fund for External Actions and recoveries (ELM, MFA and Euratom loans to Third countries) 5.3Evolution of the Fund 6.The European Fund for Strategic Investments (EFSI) 7.European Fund for Sustainable Development (EFSD) 7.1About the EFSD Guarantee 7.2The EFSD Guarantee Fund 1.Introduction The objective of this report is to monitor the credit risks borne by the EU budget resulting from the guarantees given for lending operations implemented directly by the European Union or indirectly through the guarantee granted for EIB financing projects outside the Union. This report is submitted pursuant to Article 149 of the previous Financial Regulation which was still applicable for part of 2018. Hence, this report on EU budget guarantees and the corresponding risks for the year 2018 is submitted for the last time and will be replaced by the future reporting scheme foreseen in the new Financial Regulation. The report is structured as follows: Section 2 recalls the key features of the operations guaranteed by the EU budget; several other additional crisis management mechanisms, which do not imply any risk for the EU budget, are also presented. Section 3 lays out the evolution of the guaranteed operations. Section 4 highlights the main risks covered by the EU budget. Section 5 outlines the activation of the guarantees and the evolution of the Guarantee Fund for external actions ("the Fund") while section 6 outlines the evolution of the European Fund for Strategic Investments (EFSI). A Commission Staff Working Document (SWD) complements this report with a set of detailed tables and explanatory notes. It also provides a macroeconomic analysis of the countries benefitting from EU loans and/or guarantees, representing the bulk of the exposure of the Fund.

2.Operations guaranteed by the EU budget and crisis mechanisms of the euro-area not covered by the EU budget The risks covered by the EU budget derive from a variety of lending and guarantee operations which can be divided into four categories: 2.1Loans granted by the European Union with macroeconomic objectives Such loans comprise (1) Macro-Financial Assistance ("MFA") loans to third countries, (2) Balance-of-Payments ("BOP") loans granting support to non-euro Member States experiencing balance-of-payments difficulties and (3) loans under the European Financial Stabilisation Mechanism ("EFSM") granting support to all Member States experiencing or seriously threatened with a severe economic financial disturbance caused by exceptional occurrences beyond their control. They are activated in conjunction with financial support by the International Monetary Fund (IMF). 2.2Loans with microeconomic objectives This heading refers to Euratom loans . The Euratom loan facility may be used: • [in Member States]: investments in nuclear power stations and in industrial installations in the nuclear fuel cycle and • [in certain non-member countries]: investments to improve the safety and efficiency of nuclear power stations that exist or are under construction, as well as decommissioning projects . 2.3European Investment Bank ("EIB") financing of operations in non-Member States ("EIB external financing") covered by EU guarantees (ELM). Under the External Lending Mandate (ELM), the EU provides a guarantee from the EU budget to enable the EIB to increase its lending outside the EU in support of EU policies. The ELM supports EIB activity in the pre-accession countries, the Eastern and Southern Neighbourhood, Asia, Latin America and South Africa. Under the current ELM period (2014-2020), the EU budget guarantees up to EUR 32.3 billion of EIB operations. On 14 March 2018, the European Parliament and the Council adopted the Decision (EU) 2018/412 amending Decision No 466/2014/EU in the context of the mid-term review of the ELM notably increasing the maximum ceiling for the current ELM from EUR 27 billion to EUR 32.3 billion. This review adds a new objective of the long-term economic resilience of refugees, migrants, host and transit communities, and communities of origin as a strategic response to addressing root causes of migration. The EU guarantee to the EIB covers risks of a sovereign and political nature in connection with its financing operations carried out outside the Union in support of the Union's external policy objectives. In addition, the EIB finances investment operations outside the Union at its own risk, as well as activities under specific mandates such as in ACP countries. With a view to supporting Union external action, and in order to enable the EIB to finance investments outside the Union without affecting the credit standing of the EIB, the majority of its operations outside the Union benefit from an EU budgetary guarantee. Guarantee Fund for External Actions The guaranteed EIB external financing, MFA and Euratom loans to third countries have since 1994 been covered by the Guarantee Fund for External Actions ("the Fund"), while BOP, EFSM and Euratom loans to Member States are directly covered by the EU budget. The Fund covers defaults on loans and loan guarantees granted to non-Member States or for projects in non-Member States. It was established: · to provide a 'liquidity cushion' in order to avoid calling on the EU budget every time a default or late payment on a guaranteed loan arises; and · to create an instrument of budgetary discipline by laying down a financial framework for the development of the EU policy on guarantees for EU and EIB loans to third countries . If third countries become Member States, loans relating to such countries are no longer covered by the Fund and the risk has to be directly borne by the EU budget. The Fund is provisioned from the EU budget and has to be maintained at a certain percentage of the outstanding amount of the loans and loan guarantees covered by the Fund. This percentage, known as the target rate, is currently 9%. If resources of the Fund are not sufficient, the EU budget will provide the necessary funds. The assets of the Fund are managed by the EIB. 2.4European Investment Bank ("EIB") and European Investment Fund ("EIF") financing of operations in Member States covered by EU guarantees - The European Fund for Strategic Investments (EFSI) The European Fund for Strategic Investments (EFSI) is the core of the investment plan for Europe, aimed at boosting long-term economic growth and competitiveness in the European Union.

The EU Guaranteecovers financing and investment operations signed by the EIB under the main part of the Infrastructure and Innovation Window ("IIW"), and by the EIF under the SME Window ("SMEW") and the SME / MidCap fund investment sub-window of IIW. Part of the overall EFSI operations is covered by the EU Guarantee while a part is carried out at the own risk of the EIB Group. The EIB and the EIF are responsible for assessing and monitoring the risk of the individual operations and report back to the Commission and the European Court of Auditors. Guarantee Fund of the European Fund for Strategic Investments (EFSI GF) According to Article 12 of the EFSI Regulation, the EFSI GF shall constitute a liquidity cushion from which the EIB shall be paid in the event of a call on the EU Guarantee. In accordance with the EFSI Agreement between the EU and the EIB, calls are paid by the EFSI GF if their amount is in excess of the funds at the disposal of the EIB on the EFSI Account. The EFSI Account, managed by the EIB, has been established for the purposes of collecting the EU revenues and recovered amounts resulting from EFSI operations under the EU Guarantee and, to the extent of the available balance, for the payment of calls under the EU Guarantee. The Guarantee Fund has to be maintained at a certain percentage (the Target Amount) of the total amount of the obligations under the EU Guarantee, currently 35%. Thus, the liquidity cushion is intended to provide an appropriate safety margin avoiding exposing the Union budget to sudden guarantee calls, which could entail spending cuts or budget amendments. Therefore, it contributes to the predictability of the budgetary framework. The EFSI GF is provisioned progressively taking into account the increase in exposure borne by the EU Guarantee. According to Article 12(4) of the EFSI Regulation, the resources of the EFSI GF are directly managed by the Commission and invested in accordance with the principle of sound financial management following appropriate prudential rules. The EIB and the EIF are responsible for assessing and monitoring the risk of the individual operations backed by the EU Guarantee. On the basis of this reporting and of coherent and prudent assumptions on future activity, the Commission ensures the adequacy of the target amount and the level of the EFSI GF under review. In line with Article 16(3) of the EFSI Regulation, the EIB and the EIF reported back to the Commission and the European Court of Auditors in March 2019. Pursuant to Article 16(2) of the EFSI Regulation, the annual report of the EIB to the European Parliament and Council shall contain specific information on the aggregate risk associated with the financing and investment operations carried out under the EFSI as well as on the guarantee calls. 2.5Crisis management mechanisms which are not covered by the EU budget As part of the response to the crisis, several other mechanisms have been established which, however, do not imply any risk to the EU budget and they are only mentioned below for the sake of completeness: - the Greek Loan Facility (GLF) which is financed via bilateral loans from other euro area Member States to Greece, centrally administered by the Commission. - European Financial Stability Facility (EFSF): The EFSF was created by the euro area Member States as a temporary rescue mechanism in June 2010 to provide financial assistance to euro area Member States within the framework of a macroeconomic adjustment programme. The Treaty establishing a permanent rescue mechanism, the European Stability Mechanism (ESM), entered into force on 27 September 2012. Since 1 July 2013, the EFSF continues with its ongoing programmes to Greece (together with the IMF and some Member States) as well as to Ireland and Portugal (together with the IMF, some Member States and EU/EFSM) but is no longer engaged in new financing programmes or loan facility agreements. - European Stability Mechanism (ESM): The ESM is an important component of the comprehensive EU strategy designed to safeguard financial stability within the euro area by providing financial assistance to euro area Member States experiencing or threatened by financing difficulties. It is an intergovernmental organization under public international law, based in Luxembourg, with an effective lending capacity of EUR 500 billion. 3.Evolutions of guaranteed operations This section sets out the evolution of the guaranteed operations; firstly of those managed directly by the Commission and secondly those managed by the EIB.





Table 1: Total outstanding amounts covered by the EU budget at 31 December 2018 (in EUR million) Outstanding Capital Accrued Interest Total % Member States* Euratom 152.9 0.5 153.4 0.2% BOP 1,700.0 33.9 1,733.9 2.1% EIB 1,141.0 9.0 1,150.0 1.4% EFSM 46,800.0 600.0 47,400.0 57.5% Sub-total Member States** 49,793.9 643.3 50,437.2 61.2% Third Countries*** MFA 4,360.7 26.8 4,387.6 5.3% Euratom 100.0 0.5 100.5 0.1% EIB**** 27,395.2 147.6 27,542.8 33.4% Sub-total third countries 31,855.9 174.9 32,030.9 38.8% Total 81,649.9 818.2 82,468.1 100% * This risk is directly covered by the EU budget. This also includes Euratom and EIB loans granted to

Member State countries prior to their accession to the EU. ** This figures does not include EFSI operations, where EUR 15.8 billion have been disbursed at the reporting date. *** The risk covered by the Fund is limited to EUR 18 billion due to the limitations of the guarantees given to the EIB under each one of the external lending mandates (ELM) (see section 2.1.3 - Guarantees given to the EIB of the associated Staff Working Document). **** Loans subrogated to the EU following Syria and Enfidha (Tunisia) defaults on EIB loans are included

(amount: EUR 502.02 million including outstanding capital, accrued interest and penalties). These loans have been fully impaired in the EU Financial Statements of 2015, 2016, 2017 and 2018. Tables A1, A2a, A2b and A3 of the SWD provide more detailed information on these outstanding amounts, in particular in terms of ceiling, disbursed amounts or guarantee rates. 3.1Operations managed directly by the Commission Financial support for third countries and Member States in the form of bilateral loans financed from the capital markets with the guarantee of the EU budget is provided by the Commission under various legal acts of the Council or of the Council and the European Parliament, depending on the objectives pursued. The consistency of financial support to third countries with the overall objectives of the EU external action policy is ensured by the Commission and the High Representative of the Union for Foreign Affairs and Security Policy, assisted by the European External Action Service (EEAS). Therefore, in order to finance the lending activities decided by the Council, the Commission is empowered to borrow funds on the capital markets on behalf of both the European Union and Euratom. Borrowing and lending is conducted as back to back operations, which ensures that the EU budget does not take any interest rate or foreign exchange risk. Outstanding borrowings are matched by outstanding loans.

Table 1b Operations of the EU in 2018 (in EUR million) Table 2: New Borrowing-and-lending operations (guaranteed by the Union budget) planned for 2019 and 2020 (in EUR million) 3.1.1European Financial Stabilisation Mechanism (EFSM) In its conclusions of 9/10 May 2010, the ECOFIN Council foresaw a volume of the mechanism of EUR 60 billion . In addition, euro-area Member States stood ready to complement such resources if necessary. Article 2(2) of Council Regulation No 407/2010 limits the outstanding amount of loans or credit lines to be granted to Member States to the margin available under the own resources ceiling for payment appropriations. Following the Council decisions to grant Union financial assistance to Ireland (up to EUR 22.5 billion) and Portugal (up to EUR 26 billion), disbursements reached EUR 22.5 billion to Ireland and EUR 24.3 billion to Portugal (the remaining EUR 1.7 billion were not requested by the Portuguese government). Accordingly, the EFSM has a remaining capacity of EUR 13.2 billion to provide further assistance, if required. In April 2013 the Eurogroup/ECOFIN decided to increase the maximum weighted average maturity of EFSM loans from 12.5 to 19.5 years, thus offering an option to the beneficiary countries to request a lengthening of loan maturities up to 2026 (tranche by tranche). Developments during 2018 Ireland A request to lengthen the EFSM loan of EUR 3.4 billion - disbursed to Ireland in March 2011 and due on 4 April 2018 - was received from Ireland on 27 November 2017. The loan was refinanced during the first quarter of 2018 in two transactions with maturities in April 2025 (EUR 2.4 billion) and April 2033 (EUR 1 billion). Furthermore, an additional request to lengthen the EFSM loan of EUR 500 million disbursed to Ireland in October 2011 and due on 4 October 2018 was received from Ireland in the second quarter of 2018. The loan was refinanced in June 2018 by increasing the existing bond with maturity April 2033 (EUR 500 million). Following the maturity extensions by 7 years (EUR 2.4 billion) and by 15 years (EUR 1.5 billion) in Q1/2018 and Q2/2018, the weighted average maturity of the EFSM loans to Ireland is now 17.1 years. Portugal A request to lengthen the EFSM loan of EUR 600 million disbursed to Portugal in October 2011 and due on 4 October 2018 was received from Portugal in the second quarter of 2018. The loan was refinanced in June 2018 by increasing the existing bond with maturity April 2033 (EUR 600 million). Following the maturity extension by 15 years (EUR 600 million) in Q2/2018, the weighted average maturity of the EFSM loans to Portugal is now 15.3 years. 3.1.2Balance of Payments facility (BOP) The EU medium-term financial assistance under the BOP facility was re-activated at the end of 2008 to support Hungary and subsequently Latvia and Romania to restore market confidence for a total commitment of EUR 14.6 billion, of which EUR 13.4 billion were disbursed. Developments during 2018 Romania repaid two loan tranches of EUR 1.2 billion in April 2018 and EUR 150 million in October 2018. The outstanding amount of BOP loans has thus decreased from EUR 3.05 billion to EUR 1.7 billion in 2018. At 31 December 2018, the BOP facility had a remaining capacity of EUR 48.3 billion out of an overall ceiling of EUR 50 billion to provide further assistance if required.

3.1.3Macro-Financial Assistance loans (MFA) As a general rule, MFA decisions are taken by the European Parliament and the Council (Article 212 of the TFEU). However, the Council may adopt the decision on a proposal from the Commission when the situation in a third country requires urgent financial assistance (Article 213 of the TFEU). That procedure was used in the second MFA package for Ukraine in 2014. Developments during 2018 Georgia On 18 April 2018 the European Parliament and Council decided to provide further MFA of up to EUR 45 million to Georgia (MFA II), consisting of a EUR 10 million grant element and a loan of EUR 35 million. The first loan tranche of EUR 15 million (out of the EUR 35 million decision) of Georgia’s second programme (MFA II) was disbursed i n December 2018. Ukraine On 4 July 2018 the European Parliament and Council decided to provide further MFA of up to EUR 1 billion to Ukraine (MFA IV), consisting of two tranches of EUR 500 million each with a view to supporting Ukraine's economic stabilisation and substantive reform agenda. The first tranche of EUR 500 million of Ukraine’s fourth programme (MFA IV) was disbursed in December 2018. Republic of Moldova On 13 September 2017, the European Parliament and the Council decided to provide further macro-financial assistance to the Republic of Moldova of EUR 100 million (up to EUR 60 million provided in the form of loans and up to EUR 40 million in the form of grants). This operation is currently suspended due to non-compliance with political pre-conditions. Additional information Regarding repayments, EUR 55.73 million were repaid by the beneficiary countries: Albania (EUR 1.8 million), Bosnia and Herzegovina (EUR 4 million), North Macedonia (EUR 5.6 million), Montenegro (EUR 1.10 million) and Serbia (EUR 43.23 million). The outstanding amount of MFA loans has increased from EUR 3.9 billion to EUR 4.4 billion between 31 December 2017 and 31 December 2018. Loans to Ukraine represent 76% of the total MFA exposure. 3.1.4Euratom loans The Euratom lending to Member States or in certain eligible non-member countries (currently Russian Federation, Armenia, Ukraine) has a ceiling of EUR 4 billion of which around 92% has already been disbursed. EUR 326 million remain under the EUR 4 billion Decision. Ukraine A loan of EUR 300 million to Ukraine dedicated to the safety upgrade of existing nuclear facilities was granted by COM Decision of 24/06/2013. The loan is provided in close cooperation with the EBRD, which provides another EUR 300 million loan in parallel.

These loans benefit from State guarantees which cover 100% of the amounts outstanding at year end. The first Euratom tranche of EUR 50 million was disbursed in May 2017 and the second Euratom tranche of EUR 50 million was disbursed in June 2018. Bulgaria and Romania A loan of EUR 212.5 million was granted to Bulgaria in the form of a multicurrency facility for the modernization of the nuclear power plant of Kozloduy (Units 5 and 6). The loan agreement signed between the European Atomic Energy Community and AEZ “Kozloduy” EAD was signed on 29 May 2000. At 31 December 2018, the outstanding amount was EUR 33.8 million. A loan of EUR 223.5 million was granted to Romania in the form of a multicurrency facility for the completion of Unit 2 of the nuclear power plant Cernavoda. The loan agreement signed between the European Atomic Energy Community and Societatea Nationala Nuclearelectrica S.A. was signed on 11 June 2004. At 31 December 2018, the outstanding amount was EUR 119.1 million. Since 1 January 2007, when Bulgaria and Romania became Member States , the outstanding risk of these operations have been directly covered by the EU Budget and no longer by the Guarantee Fund for External Actions. 3.2Evolution of the EIB external financing operations Developments during 2018 Under the EIB ELM mandate covering the period 2014-2020, a total amount of EUR 17.64 billion had been signed at 31 December 2018, of which only EUR 5.77 billion was disbursed at that date, leaving the outstanding capital at EUR 5.41 billion (see Table A3 of the SWD). For more information on the countries covered by the EIB mandates, see Tables A1, A3 and A4 of the SWD. For previous EIB external lending mandates, see Table A3 of the SWD. Defaults on interests payments and loan repayments from the Syrian Government continued in 2018. The EIB has called on the Guarantee Fund to cover those defaults (see paragraph 5.2 below). Outstanding amounts at 31 December 2018 for the various facilities referred to in this section are presented in Table 1. 4.Risks covered by the EU budget 4.1Definition of risk The risk borne by the EU budget derives from the outstanding amount of capital and interest in respect of guaranteed operations. For the purpose of this report, two methods are used for evaluating the risks borne by the EU budget (either directly or indirectly via the Fund): –"The total risk covered" is based on the sum of the total amount of capital outstanding for the operations concerned on a given date including accrued interest. –The budgetary approach defined as "the annual risk borne by the EU budget" is based on the calculation of the maximum amount of annual payments due which the EU would have to pay out in a financial year assuming that all payments of the guaranteed loans are in default . 4.2Total risk composition Until 2010 the maximum risk in terms of total outstanding amounts covered was mainly linked to loans granted to third countries. Since 2011, the financial crisis has heavily affected the public finances of the Member States leading to an increase in the lending activity of the EU to support sovereign financing needs in Member States. As a consequence the composition of risk has changed. At 31 December 2018, 61.2% of the total outstanding amount concerns borrowing operations linked to loans to Member States which are directly covered by the EU budget (compared to 45% at 31.12.2010).

4.3Annual risk covered by the EU budget With reference to outstanding loans at 31 December 2018 (see Table 1 above) the maximum amount which the EU would have to pay out during the year 2019 (directly and via the Fund) - assuming that all guaranteed loans would be in default - is EUR 6 337 million. That amount represents the capital and interest payments from guaranteed loans falling due during 2019, assuming that defaulting loans are not accelerated (for details see Table A4 in SWD). 4.3.1Member State exposure In 2019, the EU will bear a maximum annual risk related to operations with Member States (MS) of EUR 2 953.1 million (46.6% of the total annual risk). That risk concerns: (a) EIB lending and/or Euratom loans granted before Member States' accession to the EU; (b) the loans granted under the BOP facility, and (c) the loans granted under the EFSM scheme.



Table 2: Ranking of the Member States according to the annual risk borne by the EU budget in 2019 (EUR million) Ranking Country Loans Max annual risk Weight of the country vis-à-vis annual risk of MS Weight of the country vis-à-vis total annual risk 2019 (MS and non-MS) 1 Romania a+b) 1,188.58 40.2% 18.8% 2 Portugal c) 584.84 19.8% 9.2% 3 Latvia a+b) 524.04 17.7% 8.3% 4 Ireland c) 518.98 17.6% 8.2% 5 Bulgaria a) 54.85 1.9% 0.9% 6 Croatia a) 34.11 1.2% 0.5% 7 Poland a) 18.90 0.6% 0.3% 8 Slovakia a) 13.40 0.5% 0.2% 9 Czech Republic a) 12.62 0.4% 0.2% 10 Lithuania a) 2.74 0.1% 0.0% Total 2,953.1 100.0% 46.6% 4.3.2Third country exposure In 2019, the Fund will bear a maximum annual risk related to the exposure to third countries of EUR 3 383.8 million (53.4% of the total annual risk). The risk linked to third countries concerns EIB lending, MFA and Euratom loans (details are included in Table A2b of the SWD). The Fund covers guaranteed loans to third countries with maturities extending up to 2042. The top ten countries (out of 46 non-MS) are ranked below according to the repayments due in 2019. They account for EUR 2 864.50 million or 84.7% of the annual risk related to third countries borne by the Fund for 2019. The economic situation of those countries is analysed and commented in point 3 of the SWD. Creditworthiness, as assessed by the rating agencies, is also indicated in each country table. Table 3: Ranking of the 10 third countries with the highest exposure according to the annual risk borne by the EU budget in 2019 (EUR million) Ranking Country Max annual risk Weight of the country vis-à-vis annual risk of third countries Weight of the country vis-à-vis total annual risk 2019 (MS and non-MS) 1 Turkey 977.50 28.9% 15.4% 2 Egypt 739.28 21.8% 11.7% 3 Tunisia 279.98 8.3% 4.4% 4 Morocco 260.06 7.7% 4.1% 5 Serbia 187.00 5.5% 3.0% 6 Ukraine 161.05 4.8% 2.5% 7 Bosnia and Herzegovina 73.41 2.2% 1.2% 8 Lebanon 64.53 1.9% 1.0% 9 South Africa 62.76 1.9% 1.0% 10 Panama 58.94 1.7% 0.9% Total (top 10) 2,864.50 84.7% 45.2% 5.Activation and payment of guarantees 5.1Debt service not covered by the Guarantee Fund for External Action (Euratom loans to Member States, EFSM and BoP) Article 323 TFEU states that “the financial means are made available to allow the Union to fulfil its legal obligations in respect of third parties”. Accordingly, the EU legislative framework and the procedures in place ensure that Member States make mandatorily available to the EU budget the financial means necessary for the Union to always fulfil its legal obligations. Thus the EU has in place multiple layers of very robust safety mechanisms to ensure that it will always reimburse its own lenders timely and in full. Each one of the main safety mechanism would per se be enough to ensure reimbursements are made. 5.1.1Payments from cash resources The EU budget provisionally covers the debt service at due dates in case a debtor fails to repay its loan to the EU on time. The Commission draws on its cash resources in order to avoid delays and any resulting costs in servicing its borrowing operations .

Being mindful of most expenditures taking place during the first quarter of each year, debt redemption is structured for the months thereafter as well as for the beginning of each month when cash balances are highest. 5.1.2Payments from the EU budget In the event of default by a Member States and if the EU’s own resources are insufficient, the Commission can use available EU budget resources and prioritise debt repayment over other non-obligatory expenditures. According to Article 14(4) of Council Regulation No 609/2014, if this proves to be insufficient, EU legislation obliges Member States to provide additional contributions necessary to repay the debt and to balance the budget, up to a ceiling of 1.20% of EU GNI. If needed, EU legislation allows Member States to contribute independently of their share to the EU budget. As no default from Member States occurred during the year 2018, no appropriation was requested. 5.2Calls on the Guarantee Fund for External Actions and recoveries (ELM, MFA and Euratom loans to Third countries) In the event of late payment by the beneficiary of a loan to third countries granted or guaranteed by the EU, the Guarantee Fund is called on to cover the default within three months of the request. For ELM loans, the amounts called by the EIB are withdrawn from the Guarantee Fund account after authorization by the Commission services. When the EU makes a payment under the EU Guarantee, it is subrogated into the rights and remedies of the EIB . For Euratom and MFA loans, if the payment delay reaches three months after the due date, the Commission draws on the Fund to cover the default and to replenish its treasury. In the context of the ELM, recovery proceedings are undertaken by the EIB on behalf of the EU in respect of the subrogated sums . EIB loans to projects in Syria Starting from December 2011, the EIB has experienced defaults on certain interest payments and loan repayments from the Syrian Government. Since official payment requests have remained unsuccessful, the EIB started to call on the Guarantee Fund in May 2012. The evolution of the calls corresponding to defaulting loans in Syria is presented in Table 4a. Table 4a: Calls on the Guarantee Fund due to defaulting loans in Syria (in EUR million) Year (Withdrawal from GF account on) Number of calls paid Amount of due instalments Penalties and accrued interests Amount recovered Total 2012 2 24.0 0.0 2.1 21.8 2013 8 59.3 1.4 0.0 60.7 2014 8 58.7 1.5 0.0 60.2 2015 8 58.7 1.5 0.0 60.2 2016 12 103.8 2.4 0.0 106.2 2017 13 56.1 0.2 0.0 56.3 2018 12 55.7 0.1 0.0 55.7 Total 63 416.17 7.03 2.1 421.1 At 31 December 2018, the total capital outstanding of guaranteed loans related to Syria amounted to EUR 555 million of principal, with the final loan maturity in 2030. TAV Tunisie S.A. (Enfidha airport) In 2016 the EIB called the EU guarantee under the external lending mandate in relation to a loan to TAV Tunisie S.A. (Enfidha airport). On 15 January 2018, EUR 0.14 million recovered from Enfidha Airport were credited to the Guarantee Fund for External Actions. This amount had already been recognised as an asset (receivable) in the balance sheet of 31 December 2017. The calls on the Fund corresponding to the defaulting loan to TAV Tunisie S.A. (Enfidha airport) are presented in Table 4b. Table 4b: Call on the Guarantee Fund relating to TAV Tunisie S.A. (Enfidha airport) (in EUR million) Year of withdrawal Number of calls paid Amount of due instalments Penalties and accrued interest32 Amount recovered Total 2016 1 4.63 0.03 0.00 4.65 2017 3 30.16 0.01 0.00 30.17 2018 0 0.0 0.0 0.14 -0.14 Total 4 34.78 0.04 0.14 34.68

Developments subsequent to 31 December 2018 (until 30 June 2019) In February and March 2019, EUR 10.6 million in total were paid in two calls for defaulted payments of Syria (EUR 3.2 million and EUR 7.4 million including penalties applied by EIB). 5.3Evolution of the Fund In accordance with the Regulation establishing the Guarantee Fund for External Actions ("the Guarantee Fund Regulation") , the appropriate level (target amount) is set at 9% of the total outstanding capital liabilities arising from each operation, plus accrued interest. A provisioning mechanism is in place to ensure the target amount is met. On the basis of the provisioning mechanism, the EU budget paid EUR 137.8 million to the Fund in February 2018, while in February 2019 the respective payment amounted to EUR 103.2 million. At 31 December 2018, the net assets of the Fund amounted to EUR 2 608.84 million. Therefore, as the net assets of the Fund were lower than the target amount (EUR 2,848.99 million), the Guarantee Fund will be provisioned by EUR 240.15 million in 2020. A review to assess the main parameters of the Fund, in particular the target amount, should be undertaken at the time of the mid-term review of the EIB external lending mandate. Therefore, an evaluation of the Guarantee Fund was carried out by an external contractor taking into account the risk profile of the Fund and its effectiveness in the light of the evolution of the external financing covered by the Fund and the related risks. The report was delivered in August 2016 and the main conclusion was that a 9% Target Amount was still deemed optimal for the current risk level of the loan portfolio, even under a scenario of further rating downgrades of the main obligors. Therefore, the 9% Target Amount was kept unchanged. 6.The European Fund for Strategic Investments (EFSI) The EFSI Guarantee Fund is provisioned progressively taking into account the increase in exposure borne by the EU Guarantee. According to Article 12(4) of the EFSI Regulation, the resources of the EFSI GF are directly managed by the Commission and invested in accordance with the principle of sound financial management following appropriate prudential rules. The EIB and the EIF are responsible for assessing and monitoring the risk of the individual operations backed by the EU Guarantee. On the basis of this reporting and of coherent and prudent assumptions on future activity, the Commission ensures the adequacy of the target amount and the level of the EFSI GF under review. In line with Article 16(3) of the EFSI Regulation, the EIB and the EIF reported back to the Commission and the European Court of Auditors in March 2019. Pursuant to Article 16(2) of the EFSI Regulation, the annual report of the EIB to the European Parliament and Council shall contain specific information on the aggregate risk associated with the financing and investment operations carried out under the EFSI as well as on guarantee calls. Developments during 2018 As of 31 December 2018, total cumulated signatures under EFSI amounted to EUR 53.6 billion covering 28 Member States, of which EUR 39.1 billion were signed under the Innovation Window (IIW) (407 operations) and EUR 14.5 billion were signed under the SME window (SMEW) (470 operations). Overall, this represents a significant increase compared to 2017, at the end of which total signatures amounted to EUR 37.4 billion. As of 31 December 2018, the overall outstanding disbursed exposure covered by the EU Guarantee amounted to nearly EUR 15.8 billion, up from EUR 10.1 billion in 2017. The exposure of the EU budget to possible future payments under the EU Guarantee in terms of signed operations (disbursed and undisbursed) amounted to EUR 19.8 billion. The guarantee exposure of the EU in relation to disbursed outstanding EFSI operations by the EIB Group amounted to EUR 15.8 billion, as at 31 December 2018, out of the net available legal commitment of EUR 25.9 billion guaranteed by the EU. The amount of EUR 15.8 billion is recorded as a contingent liability in the notes to the 2018 financial statements of the EU. Under the Infrastructure and Innovation Window (IIW), the outstanding disbursed exposure covered by the EU Guarantee was EUR 14.8 billion, of which EUR 14.2 billion for debt operations and EUR 600 million for equity-type operations. In 2018, EFSI operations managed by the EIB under the Infrastructure and Innovation Window (IIW) generated a net revenue of EUR 112.7 million for the EU. Of this amount, a net receivable of the Commission from the EIB as at 31 December 2018 of EUR 38.9 million was recorded in the 2018 EU financial statements.

As of 31 December 2018, under SME window (SMEW), the total outstanding exposure covered by the EU Guarantee was EUR 995 million, of which EUR 880 million for guarantee operations and EUR 115 million for equity operations. For the EFSI operations under the SME Window (SMEW), the EU incurred costs of EUR 30.3 million in 2018. Out of this, EIF administrative fees of EUR 21.9 million recorded in the 2018 EU financial statements are payable to the EIF on or after 30 June 2019. The total assets of the EFSI GF stood at EUR 5 452 million as at 31 December 2018. The assets comprised the investment securities portfolio, classified as available-for-sale (EUR 5 000 million), an FX forward sale of USD with positive net present value, classified as financial assets at fair value through surplus and deficit (EUR 2 million), and cash and cash equivalents (EUR 450 million). Provisioning of the EFSI Guarantee Fund A total budgetary appropriation of EUR 2 069 million was committed in 2018 relating to the provisioning of the EFSI GF. Of this amount, a budgetary appropriation of EUR 1 905 million was committed in compliance with Commission Decision C(2018)307. Additional commitment appropriations for an amount of EUR 105 million were made available from the budget line "Reserves for Financial Interventions". Finally, an amount of EUR 59 million was committed as assigned revenue. A total amount of EUR 2 014 million was effectively paid into the EFSI GF during the year. Of this, the bulk came from payment appropriations of the general budget of the EU, while an amount of EUR 59 million was recovered as assigned revenue (EUR 53.4 million from EFSI revenues and EUR 5.6 million from Marguerite Fund revenues) and an amount of EUR 154.9 million was transferred as additional payment appropriations at the end of the budgetary year. Calls and use of the EU guarantee In accordance with Article 8.1(a) of the EFSI Agreement, the EU Guarantee was called for an amount of EUR 97.1 million related to a defaulted operation under the Infrastructure and Innovation Window. In accordance with the Article 11 of the EFSI Agreement, the EIB recovered initially the amount of EUR 18.6 million, reducing the amount to be paid to EUR 78.5 million. The call was paid from the EFSI Account (EUR 17.7 million) and from the EFSI GF (EUR 60.8 million). Subsequently, the amount of EUR 1.6 million was recovered. In relation to this defaulted operation, an amount of EUR 1.0 million for recovery costs and EUR 0.6 million for recoverable administrative costs were called by the EIB. In 2018, an amount of EUR 0.6 million was paid to the EIB for funding costs and EUR 10.7 million for value adjustments . For more information on the management of the EFSI Guarantee Fund, see the last version of the report from the Commission to the European Parliament, the Council and the Court of Auditors on the management of the Guarantee Fund of the European fund for strategic investments and the associated Staff Working Document (SWD). 7.European Fund for Sustainable Development (EFSD) The European Commission proposed on 14 September 2016 an External Investment Plan (EIP) to encourage investment in the EU’s partner countries in Africa and the EU Neighbourhood region, to strengthen partnerships and contribute to achieving Sustainable Development Goals, helping to address some root causes of migration. Part of the External Investment Plan (EIP) is the new European Fund for Sustainable Development (EFSD) as an integrated financing mechanism to support investments by public financial institutions and the private sector. By being open to a range of implementing partners, the EFSD is able to leverage much more public and private investment in target countries than would otherwise be possible. It comprises: -a budgetary guarantee and -blending instruments. The EFSD Legislation entered into force on 26 September 2017. 7.1About the EFSD Guarantee The EFSD Guarantee will be used to reduce the risks for investment in sustainable development in partner countries, thus helping mobilise investment, especially from private sources. The guarantee is designed to mobilise private investment worth EUR 1.54 billion. This amount has been allocated to 28 proposed investment programmes, expected to leverage up to EUR 17.5 billion of sustainable investment in partner countries (much of it from private sources). The guarantee can: