EUROPEAN COMMISSION Brussels, 23.11.2017 COM(2017) 682 final REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON BORROWING AND LENDING ACTIVITIES OF THE EUROPEAN UNION IN 2016



Table of Contents 1.Introduction 2.Lending activities of the European Union 2.1.Balance-of-Payments facility 2.2.European Financial Stabilisation Mechanism 2.3.Macro-Financial Assistance 2.4.Euratom facility 3.Borrowing activities of the European Union 3.1.Balance-of-Payments facility 3.2.European Financial Stabilisation Mechanism 3.3.Macro-Financial Assistance 3.4.Euratom facility 4.European Investment Bank 4.1.EIB lending activities 4.2.EIB borrowing activities 5.Ensuring financial stability in the euro-area 5.1.Greek Loan Facility 5.2.European Financial Stability Facility 5.3.European Stabilitity Mechanism

1.Introduction This report is submitted pursuant to Article 149 of the Financial Regulation which requires the Commission to report annually to the European Parliament and to the Council on EU budget guarantees and the corresponding risks. Therefore, the Commission informs every year the European Parliament and the Council on the use of the various lending instruments of the European Union (EU). This report describes the lending operations for each instrument as well as the respective borrowing activities. In view of the foreseen changes to the Financial Regulation, information on borrowing and lending activities will in future be integrated into the financial reporting package provided for by the revised Financial Regulation. To avoid duplication, this separate report on borrowing and lending will then be discontinued. 2.Lending activities of the European Union 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 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). Table 1: Evolution of operations of the EU (outstanding amounts of capital in EUR million) 2.1.Balance-of-Payments facility Balance-of-payments (BOP) assistance under Article 143 of the Treaty on the Functioning of the European Union (TFEU) and Council Regulation (EC) No 332/2002 of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States' balances of payments (BOP Regulation) takes the form of medium-term loans provided by the Union. It is generally granted in conjunction with financing by the International Monetary Fund (IMF) and other multilateral lenders, such as the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) or the World Bank. BOP assistance is granted on a case-by-case basis by the Council acting by qualified majority. Potential beneficiaries are Member States outside the euro-area being faced with serious balance-of-payments difficulties. It aims at easing the recipient Member States’ external financing constraints and at restoring the viability of a country's balance-of-payments. It is released subject to the fulfilment of economic policy conditions decided by the Council – after consultation with the Economic and Financial Committee (EFC) on a draft adjustment programme – and whose details are agreed by the Commission and the beneficiary Member State in a Memorandum of Understanding (MoU) prior to the conclusion of a loan agreement. The continued compliance with measures in the adjustment programme is reviewed regularly and is a condition for the disbursements of further instalments. The required funds are raised on the capital markets by the Commission on behalf of the European Union. The Commission reports regularly to the EFC and to the Council on the implementation of the BOP Regulation. In April 2016, Hungary repaid its final loan tranche of EUR 1.5 billion. At 31 December 2016, the total outstanding amount under the BOP program was EUR 4.2 billion. Table 2: BoP assistance up to 31.12.2016 (amounts of capital in EUR billion)

2.2.European Financial Stabilisation Mechanism Council Regulation (EU) No 407/2010 of 11 May 2010 set up the European Financial Stabilisation Mechanism (EFSM) based on Article 122(2) of the TFEU. The EFSM is fully backed by the EU budget and has a total lending capacity of up to EUR 60 billion. The EFSM facility was activated in 2011 for Ireland and Portugal, committing loans amount of up to EUR 22.5 billion and EUR 26 billion, respectively. In 2013, an extension of the maximum average maturity of the disbursed loans from 12.5 years to 19.5 years was decided for both Member States. EFSM beneficiaries can request a lengthening and refinancing of all EFSM loans as long as the average maturity of disbursed loans (calculated from initial disbursement) does not exceed 19.5 years. In this context, a request to lengthen the EFSM loan of EUR 4.75 billion disbursed to Portugal in 2011 - which was due on 3 June 2016 - was received. The loan was refinanced in three transactions with maturities in 2023 (EUR 1.5 billion), 2031 (EUR 2.25 billion) and 2036 (EUR 1 billion). Following this maturity extension, the weighted average maturity of the EFSM loans to Portugal is now 14.9 years. The total outstanding amount of the EFSM facility is EUR 46.8 billion at the end of 2016 (Ireland: EUR 22.5 billion, Portugal: EUR 24.3 billion). 2.3.Macro-Financial Assistance Macro-Financial Assistance (MFA) is designed to address exceptional external financing needs of countries that are geographically, economically and politically close to the EU. Its objective is to restore macroeconomic and financial stability in EU candidate, potential candidate and neighbourhood countries (and, in exceptional circumstances, other third countries), while encouraging the implementation of macroeconomic adjustment and structural reforms. MFA is provided on an exceptional and temporary basis and is released in tranches based on strict economic policy conditionality. MFA complements and is conditional on the existence of IMF adjustment programmes. MFA can be provided in the form of loans and/or, under certain circumstances, non-reimbursable grants. Should a beneficiary country fail to honour its repayment obligations, the Commission may have recourse to the Guarantee Fund for External Actions so that the repayment of the corresponding borrowing by the Commission is done from its funds. The second and final tranche of EUR 10 million of the EUR 15 million loan granted to the Kyrgyz Republic was disbursed in April 2016. On 6 July 2016, the European Parliament and the Council decided to provide further macro-financial assistance to Tunisia of a maximum amount of EUR 500 milion in the form of loans (three loan instalments of EUR 200, 150 and 150 million). On 14 December 2016, the European Parliament and the Council decided to provide further macro-financial assistance to the Hashemite Kingdom of Jordan of a maximum amount of EUR 200 milion in the form of loans (two loan instalments of EUR 100 million). Loan repayments totalling EUR 70 million were received as due from the beneficiary countries (Bosnia and Herzegovina EUR 4 million, former Yugolav Republic of Macedonia EUR 10 million, Montenegro EUR 1.34 million and Serbia EUR 54.66 million). The outstanding amount of MFA loans has decreased from EUR 3,006.6 million to EUR 2,946.6 million between 31 December 2015 and 31 December 2016. Loans to Ukraine represent 75% of the total MFA exposure. 2.4.Euratom facility The Euratom loan facility may be used to finance projects within Member States (Council Decision 77/270/Euratom) or in certain third countries (Council Decision 94/179/Euratom). In 1990, the Council fixed a borrowing limit of EUR 4 billion, of which EUR 3.7 billion have been decided and EUR 3.4 billion already disbursed. According to the Council decision on the lending ceiling (77/271/Euratom, as amended), the Commission shall inform the Council once the signed amount reaches EUR 3.8 billion and, if appropriate, propose a new lending ceiling. In 2013, the Commission adopted Decision C(2013) 3496 on granting an up to EUR 300 million Euratom loan in support of the Ukraine safety upgrade program of nuclear power units. The Loan Agreement was signed on 7 August 2013. In parallel, a EUR 300 million loan agreement was signed in March 2013 by the EBRD. While a borrowing decision for a first tranche up to EUR 100 million was adopted on 27 May 2015, due to delays in the implementation process no disbursements have taken place until the end of 2016. The first loan tranche of EUR 50 million has been disbursed in May 2017. Repaid amounts consisted of EUR 22.62 million from Bulgaria, EUR 19 million from Romania and EUR equivalent of 7.1 million from Ukraine.

3.Borrowing activities of the European Union 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. 3.1.Balance-of-Payments facility In 2016, under the BOP facility, no borrowings were raised in the market. The total outstanding amount raised for BOP is EUR 4.2 billion at the end of 2016. 3.2.European Financial Stabilisation Mechanism Following the request of Portugal to extend the maturity of its EFSM loan due on 3 June 2016, in March and April 2016 the EU issued three bonds with maturities in 2023 (EUR 1.5 billion), 2031 (EUR 2.25 billion) and 2036 (EUR 1 billion) to refinance the expiring bond.

Table 4: EU EFSM borrowing operations during 2016 (in EUR million) Country Issue date Maturity Date Size Portugal – 1st Tranche 15/03/2016 04/04/2036 1 000 Portugal – 2nd Tranche* 13/04/2016 04/04/2031 2 250 Portugal – 3rd Tranche 19/04/2016 04/11/2023 1 500 Total 4 750 *Together with EUR 10 million for MFA Kyrgyz Republic; (see 3.3 below) 3.3.Macro-Financial Assistance The second tranche (EUR 10 million out of the EUR 15 million decision) of the loan granted to the Kyrgyz Republic was disbursed in April 2016. Table 5: EU MFA borrowing operations during 2016 (in EUR million) Country Issue date Maturity Date Size Kyrgyz Republic 13/04/2016 04/04/2031 10 Total 10 3.4.Euratom facility In 2016, there was no borrowing operation under Euratom. 4.European Investment Bank 4.1.EIB lending activities The EIB provides financing either directly to individual investment projects or through financial intermediaries to smaller-scale projects undertaken by SMEs or by local authorities and municipalities. The EIB also provides loan guarantees, technical assistance and venture capital.

In 2016, the EIB signed a total financing volume of EUR 74.6 billion (compared to EUR 77.5 billion in 2015); Financing of the EIB Group (including the EIF activity) amounted to EUR 83.8 billion, catalysing almost EUR 280 billion of investment. In addition, by the end of 2016, the EIB Group approved 422 Investment Plan loans and guarantees that were backed by the EU guarantee under EFSI. Resources committed totalled EUR 30.2 billion approved under EFSI. The value of the projects and the investment mobilised in total adds up to EUR 163.9 billion. This is 52% of the overall objective of EUR 315 billion over three years. EIB financing activities have an impact on the EU budget when they are accompanied by EU guarantees or other EU budget funds. In addition to operations approved under EFSI his is the case for: -EIB financing operations carried out under the external lending mandate (covering Pre-Accession countries, Neighbourhood and Partnership countries, Asia and Latin America, South Africa). Such financing benefits from an EU budget guarantee covering risks of sovereign or political nature. A separate report on the 2016 EIB external lending activity will be issued by the Commission during the second semester 2017. -risk sharing financing facilities involving the use of the EU budget to support EU policies (e.g. Risk Sharing Finance Facility for research and development projects and the Project Bond Initiative). In 2016, EIB's lending operations outside the EU totalled EUR 7.9 billion, of which EUR 6.8 billion in the regions covered by the External Lending Mandate (ELM). Approximately EUR 5.9 bn, or 74% of total financing outside EU, was carried out in the Pre-Accession and in the Neighbourhood regions. The rest (26%) was signed in Asia, Central Asia and Latin America. Of the total EUR 6.8 billion signed by the EIB during 2016 in the regions covered by the ELM, almost EUR 4 billion (58%) was covered by the EU guarantee. The Decision granting an EU guarantee for EIB operations outside the EU was adopted on 16 April 2014 by the European Parliament and the Council. The size of the overall mandate amounts to EUR 27 billion plus an additional optional amount of EUR 3 billion. The activation in whole or in part of the optional amount shall be decided by the European Parliament and the Council in accordance with the ordinary legislative procedure and based on the results of a mid-term review of the External Lending Mandate. European Commission proposed an amendment to the External lending mandate in September 2016, proposing to raise the ceiling to EUR 32.3 billion, which is currently under discussion by the legislators. 4.2.EIB borrowing activities The EIB has a resilient funding strategy, raising long-term funds via bond issuance in international capital markets to support its lending operations. With the objectives of attaining sufficient volumes and in maturities needed for asset and liability management, as well as optimising the funding cost on a sustainable basis, the EIB’s funding strategy combines the issuance of large and liquid bonds in core currencies with targeted and tailor-made issuance across a number of other currencies. In 2016, EIB borrowing activityamounted to EUR 66.4 billion with an average maturity of 7.1 years. 5.Ensuring financial stability in the euro-area In response to the global economic and financial crisis, the euro-area Member States have decided on measures to preserve financial stability in the euro-area and Europe at large. These measures are outlined below and are not guaranteed by the EU budget. 5.1.Greek Loan Facility Following the unanimous agreement of the euro-area Finance Ministers on 2 May 2010 to support Greece, a three-year joint programme with the IMF involving a financial package of up to EUR 110 billion to help Greece was set up, accompanied by strong policy conditionality negotiated with the Greek authorities by the Commission and the IMF, in liaison with the ECB. The loans disbursed by the euro-area Member States under the Greek Loan Facility (GLF) amount to EUR 52.9 billion which were disbursed between May 2010 and December 2011. 5.2.European Financial Stability Facility The European Financial Stability Facility (EFSF) was created by the euro-area Member States as a Luxembourg-registered company owned by them and designed as a temporary rescue mechanism for on-lending to euro-area Member States in difficulty by issuing bonds guaranteed by euro-area Member States. In October 2010, it was decided to create a permanent rescue mechanism, the European Stability Mechanism (ESM) which started its operations on 8 October 2012. On 14 March 2012, a Second Economic Adjustment Programme for Greece was approved by the euro-area finance ministers and the IMF, adding EUR 130 billion to the undisbursed amounts of the first programme. This second programme foresees therefore a total financial assistance of EUR 164.5 billion, the IMF contribution amounting to EUR 19.8 billion. While the first programme (GLF) was set up as an Inter-creditor Agreement of pooled bilateral loans from the supporting euro-area Member States, with the Commission providing coordination and management, the second one was financed via the EFSF. As of 1 July 2013, the EFSF is no longer engaged in the financing of new financing programmes or new loan facility agreements. However, it remains active in the ongoing programmes for Greece, Portugal and Ireland where it is a lender (together with the IMF and some Member States).