Special Report No 6/2000 concerning the granting by the Community of interest subsidies on loans by the European Investment Bank to small and medium-sized enterprises, through its temporary lending facility, together with the Commission's replies
Date: 2000-02-24
Institutions: European Court of Auditors
Subjects: European Investment Bank, aid to undertakings, competitiveness, interest rate subsidy, job creation, small and medium-sized enterprises

31.5.2000

EN

Official Journal of the European Communities

C 152/1

I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 6/2000

concerning the granting by the Community of interest subsidies on loans by the European
Investment Bank to small and medium-sized enterprises, through its temporary lending facility,
together with the Commission(cid:146)s replies

(pursuant to Article 248(4), second subparagraph, EC)

(2000/C 152/01)

CONTENTS

Paragraph

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Context and objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 to 7

1 to 2

3

The Court(cid:146)s audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 to 7

SUMMARY OF THE MAIN OBSERVATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8 to 16

IMPLEMENTATION OF THE MEASURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17 to 23

Main characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17 to 19

Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20 to 23

MANAGEMENT OF BUDGET APPROPRIATIONS AND PRESENTATION OF THE ACCOUNTS

24 to 27

Changes in the appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24 to 25

Management of budget appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Presentation of the accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26

27

AUDIT OF REGULARITY AND LEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28 to 48

Results of the on-the-spot checks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28 to 37

Overall findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28

Number of eligible jobs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29 to 30

Combination with other aid from Community sources prohibited . . . . . . . . . . . . . . . . .

31 to 34

Ineligibility of the recipient or the loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35

Non-compliance with the eligibility period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

36 to 37

The system(cid:146)s weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38 to 43

Individual aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

44 to 48

Order of dealing with applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Equality of access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

44

45

Implementation deadline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

46 to 48

3

3

3

3

4

4

4

6

7

7

8

8

11

11

11

11

12

12

12

13

13

13

13

14

C 152/2

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31.5.2000

Paragraph

Page

EVALUATION OF EFFECTIVENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

49 to 69

Impact on investment and job creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

49 to 57

Size of the recipients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58 to 59

Geographical breakdown of the subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60 to 63

Competition aspects within the banking market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

64 to 69

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

70 to 75

The Commission(cid:146)s replies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

14

16

16

17

17

19

31.5.2000

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Official Journal of the European Communities

C 152/3

INTRODUCTION

Context and objectives

1. At its meeting in Copenhagen in June 1993, the European
Council asked the EIB, in conjunction with the Commission, to
add ECU 3 000 million to the temporary lending facility of ECU
5 000 million which had been adopted in Edinburgh in December
1992 (1). Of this additional amount, ECU 1 000 million was to be
devoted to strengthening the competitiveness of small and
medium-sized European enterprises (SMEs) by providing interest
subsidies of up to a maximum of 3 % per year for five years, the
granting of which would be linked to job creation. This measure
is known as the temporary facility for SMEs, but is also referred
to as the Copenhagen facility. It was created by a Council deci-
sion, adopted in April 1994 (2) on the basis of Article 235 of the
EC Treaty. In the recitals of the Decision, the Council recalled the
urgent nature of the Edinburgh facility and stressed that this new
facility should be introduced as quickly as possible.

2. The Economic and Social Committee issued a favourable
opinion on the proposal for the measure, and considered, in par-
ticular, that it was (cid:145)essential that the Commission and the EIB pro-
vide the Member States and the SME umbrella organisations in
the Community with a detailed briefing, in good time, on the
implementation of the facility and also formally involve the finan-
cial institutions and their umbrella groups in this briefing(cid:146) (3).

Legal framework

3. The Council(cid:146)s Decision of April 1994 lays down a regulatory
framework with the following main elements:

(a) the management of the measure by the EIB on behalf of the
Community in accordance with a cooperation agreement (4)
between the Commission and the EIB;

(b) the granting of the loans by the EIB on the basis of its usual

methods;

(c) a total ceiling on subsidised loans of ECU 1 000 million;

(1)

In the conclusions reached at its meeting on 11 and 12 December
1992 in Edinburgh, the European Council requested the Council and
the EIB to consider, together with the Commission, establishing a new
temporary lending facility of ECU 5 000 million, which would be
designed to accelerate the financing of infrastructure projects, espe-
cially in connection with the trans-European networks.

(2) Council Decision 94/217/EC of 19 April 1994 (OJ L 107, 28.4.1994,

p. 57).

(3) Opinion of the Economic and Social Committee, 20 October 1993

(OJ C 352, 30.12.1993, paragraph 3.3).

(4) The cooperation agreement was signed on 14 June 1994.

(d) that decisions to extend subsidised loans were to be taken by
the EIB within 12 months of the date of entry into force of the
Council Decision, namely before 28 April 1995;

(e)

interest subsidies of 2 % per year for a period of five years;

(f)

investment projects were to involve job creation;

(g) the drafting of an annual evaluation report by the Commis-
sion, giving details of the overall utilisation rate of the loans
and their impact on job creation and interest rates (5).

The Court(cid:146)s audit

4. Following the Court(cid:146)s report concerning the financial year
1995, in its resolution of April 1997 giving discharge to the Com-
mission in respect of the implementation of the general budget
for the financial year 1995 (6) the European Parliament asked the
Court of Auditors and the Commission to issue opinions at the
earliest opportunity (cid:145)on the management and effectiveness of the
Copenhagen facility, with particular reference to the functioning
of the job creation criteria applied to interest rate subsidies(cid:146).

5. The European Parliament(cid:146)s interest in this measure had been
prompted by the Court of Auditors(cid:146) observations on the legality,
regularity and effectiveness of ECSC conversion loans (7). In fact,
these loans are similar in many ways to the loans granted under
the SME measure, especially as regards the clause linking the
interest subsidy to job creation.

6. The audit(cid:146)s aims were, on the one hand, to check that the
applicable regulations had been observed and, on the other hand,
to evaluate the measure(cid:146)s effectiveness in meeting its specific
objectives, which were to promote investment in the SMEs and to
create new jobs.

7. All the Member States of the Union were visited in order to
examine the implementation arrangements and the impact of the
measure in the national context. Audit missions were carried out
on the premises of 114 recipients and their financial intermediar-
ies in six Member States.

(5) Four reports were submitted between October 1994 and December

1997.

(6) European Parliament Decision of 10 April 1997 (OJ L 162, 19.6.1997,

paragraph 57).

(7) Annual Report of the Court of Auditors concerning the ECSC (for the
financial year 1995) (OJ C 377, 13.12.1996, paragraphs 2.14 to 2.20).

C 152/4

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Official Journal of the European Communities

31.5.2000

SUMMARY OF THE MAIN OBSERVATIONS

13. The Court noted cases where, at the time of the application,
the investment was already at an advanced stage of completion
and the subsidised loan had actually replaced an existing financial
arrangement (paragraph 53).

8. Transfers made by the Commission to the EIB were treated as
payments on account, and thus were recorded as final expendi-
ture in the Commission(cid:146)s budgetary accounts. In reality, these
sums were only paid over to the agents for distribution to the
recipients after a long interval, with the result that at the end of
1994, 1995 and 1996, the real cumulative utilisation rate of the
available budgetary funds amounted to 0 %, 11 % and 52 % respec-
tively, whereas the budgetary accounts for these financial years
showed utilisation rates of 100 % (paragraph 26).

14. The undertakings which benefited from this measure were
certainly creating jobs, but it is impossible to establish whether it
was these subsidies which enabled the creation of the jobs in
question. Moreover, the arrangements for implementing the mea-
sure do not include the information necessary to establish which
jobs would not have been created without the subsidised loan
(paragraph 57).

9. The balance of the account held by the EIB on behalf of the
Community does not appear on the Community(cid:146)s balance sheet.
The interest revenue credited to this account, totalling ECU 9,6
million, was not established as revenue over the whole period
from 1994 to 1998 when it was generated, until it was transferred
to the Commission in September 1998. There is a general prob-
lem here concerning the rules governing the recording in the
accounts of this type of payment on account and the auditing of
it (paragraph 27).

15. Coordination with the other aid on offer at regional, national
or even Community level was not taken into sufficient consider-
ation (paragraphs 62 and 63).

16. The banks which distributed the subsidies often integrated
them so well into the financial packages they offered their cus-
tomers that the origin of the subsidy disappeared from sight
(paragraph 69).

10. The Court(cid:146)s examination of the measure(cid:146)s management and
control system allowed some of the system(cid:146)s inherent weaknesses
to be identified: the payment of aid on submission of a declara-
tion by interested parties; entrusting the management to banks;
criteria that were inadequately presented and explained; a lack of
real penalties for making a false declaration; a lack of checks on
recipients. The Court carried out audits on the premises of a
selection of 114 undertakings. Such a selection cannot be used for
a mere mathematical extrapolation. However, these audits revealed
numerous errors which confirm the reality of the weaknesses
(paragraphs 28 to 43).

11. The arrangements put in place restricted equality of access
for all potential recipients in certain areas, despite the provisions
of the Council Decision and the cooperation agreement (para-
graph 45).

12. Contrary to the provisions of Article 4 of the cooperation
agreement prohibiting the combination of an SME subsidised loan
with other loans subsidised by the EIB under other agreements, a
derogation was agreed between the EIB and the Commission in
the case of ERDF aid which also takes the form of interest subsi-
dies on the same EIB loans. Since this derogation was not agreed
at the same hierarchical level as the cooperation agreement and
was not incorporated into the contracts with the intermediaries,
it has no legal value. The amounts paid in combination with other
aids must therefore be considered to be in breach of the regula-
tions. Furthermore, this exception does not seem to have been
applied in all the countries (paragraphs 31 and 32).

IMPLEMENTATION OF THE MEASURE

Main characteristics

17. Detailed procedures for implementing the measure were set
out in a cooperation agreement signed by the Commission and
the EIB on 14 June 1994, and also in the addendum to this agree-
ment, which was signed on 26 and 27 July 1995. Table 1 sets out
the main data on implementation. The total amount available for
the loans, ECU 1 000 million, was divided among the Member
States primarily on the basis of their populations, their gross
national products and their unemployment rates. The sum of ECU
923,2 million was actually granted, resulting in the payment of
ECU 92,3 million in interest subsidies (1). There were 4 336 suc-
cessful loan applications (2), and 53 788 jobs were declared as sat-
isfying the job creation criteria (3). At the time this report was
drafted, 32 subsidy payments, representing a total of ECU 578 600,
had been cancelled or reduced.

(1) The subsidies paid amount to 10 % of the loans granted (see para-

graph 19).

(2) Since a given undertaking could make more than one application, the
precise number of recipients is not known, but in any case it is lower
than 4 336. The same applies to the number of jobs created, as where
one recipient made several applications, the same number was given
each time in the application.

(3) Sum of the figures appearing in the recipients(cid:146) declarations. Source:

EIB.

.

.

3
1
5
2
0
0
0

Member States

Available subsidised
loans (1)

Available
loans (1) (2)

Subsidies paid

Utilisation rate
(%)

Number of requests

Average subsidy per
request

Number of jobs
declared

Subsidies repaid (3)

(ECU 1 000)

Number of requests
concerned (3)

Table 1

Implementation of the measure, by Member State

Belgium
Denmark
Germany
Greece
Spain
France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom

(a)

33 210
13 026
253 900
17 015
131 272
139 117
7 699
144 400
1 140
28 550
9 500
4 514
7 800
10 457
198 400

(b)

3 321
1 303
25 390
1 702
13 127
13 912
770
14 440
114
2 855
950
451
780
1 046
19 840

Total

1 000 000

100 000

(1) After redistributions.
(2) 10 % of the amount of available subsidised loans.
(3) Situation as at 31.3.1999.
Source: European Investment Bank.

(c)

2 189
1 237
20 445
1 430
12 536
13 860
384
14 440
114
2 855
950
322
684
1 036
19 840

92 321

(d)

66
95
81
84
95
100
50
100
100
100
100
71
88
99
100

92

(e)

100
36
886
10
1 005
976
9
335
3
75
21
4
24
40
812

4 336

(f)

21,89
34,35
23,08
142,99
12,47
14,20
42,71
43,10
38,00
38,07
45,24
80,45
28,51
25,89
24,43

21,29

(g)

1 520
978
8 222
605
6 070
9 053
184
7 844
55
1 373
480
273
445
702
15 985

53 788

(h)

15,2
0,0
0,0
0,0
291,8
63,2
0,0
208,4
0,0
0,0
0,0
0,0
0,0
0,0
0,0

578,6

(i)

1
0
0
0
21
4
0
6
0
0
0
0
0
0
0

32

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a
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a
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C
1
5
2
/
5

C 152/6

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Official Journal of the European Communities

31.5.2000

18. The loans were granted according to the EIB(cid:146)s global lending
mechanism (1). This consists in opening lines of credit in favour
of financial intermediaries which then use them in order to finance
individual loans made by them to their customers. The interme-
diaries manage the loans and take on the associated risk. For
operations of this kind, the EIB has laid down conditions, of which
the main ones are as follows: the customer must be an SME, its
sector of activity must be included in a list of eligible sectors and
the loan must be to finance an investment project. According to
the EIB(cid:146)s criteria, an SME is defined as an undertaking with net
fixed assets not exceeding ECU 75 million, fewer than 500 employ-
ees and with not more than one third of its equity owned by a
company which is not an SME (in other words, not satisfying
these criteria). Of these, the EIB favours SMEs with a staff of fewer
than 50.

19. The subsidy, which is paid in a single instalment, is equiva-
lent to 10 % of the ecu value of the loan, with a ceiling of ECU
3 000 per job created. For this reason, the amount of the loan
may not exceed 75 % of the investment, so that the subsidy may
not exceed 7,5 % of the investment (2). It should be emphasised
that the amount of the subsidy bears no relation to either the
nominal loan interest rate or the loan repayment schedule.

Procedure

20. The payment of interest subsidies was carried out by national
agents acting under a mandate from the EIB (3). The Community
paid them a percentage calculated on the basis of the subsidies
paid to the recipients (4). Some agents also acted as financial inter-
mediaries and extended subsidised loans directly.

21. The undertakings involved sent the national agent, via the
financial intermediary, one or more applications with details of
the loan and investment amounts and the number of jobs they
planned to create. Applications had to reach the national agent no
later than 31 July 1995, although for certain countries the dead-

(1) There is a description of the EIB(cid:146)s global loans in (cid:145)EIB INFORMATION(cid:146)

No 86, November 1995 (pp. 7 and 8).

(2) The Commission decided to apply the same 7,5 % ceiling to State
investment aid for SMEs outside the assisted regions; Commission
Communication on the Community guidelines on aid to SMEs
(OJ C 213, 19.8.1992, paragraph 4.1).
In Ireland, the EIB itself paid the subsidies.
In Greece, the Ministry of Finance disbursed the subsidies and declined
payment.

(3)
(4)

line was postponed to 15 December 1995 (see paragraph 47).
Applications were added in order of receipt to a list held by the
agent, and this list determined priority in the granting of subsidies
on a first come, first served basis, as provided in Article 13 of the
abovementioned cooperation agreement.

22. Subsequently, between 1 August 1995 and 30 June 1997, the
applicant undertakings sent the national agent sworn statements
giving:

(a) staff numbers on 28 April 1994 (publication date of the Deci-

sion establishing the measure);

(b) staff numbers on the date of the statement;

(c) a declaration to the effect that there had been an actual and
uninterrupted increase in the number of jobs between these
two dates during the six months preceding the date of the
statement.

On the basis of this document, each agent calculated the subsidy
amount and paid it from the funds placed at its disposal by the
EIB until these were exhausted.

23. The measure was primarily publicised by the financial inter-
mediaries, in the context of their normal marketing activities. In
addition, they distributed a brochure issued by the EIB and aimed
at businesses. Table 2 gives a summary of the implementation
timetable.

Summary of the timetable for implementing the measure

Table 2

(a) 28 April 1994: publication in the Official Journal of the Council

Decision introducing the measure.

(b) 14 June 1994: conclusion of the cooperation agreement between the

Commission and the EIB.

(c) 1 July 1994 to 30 November 1994: conclusion of the contracts with

the national agents.

(d) 31 July 1995: deadline initially foreseen for introducing requests for

subsidies.

(e) 15 December 1995: deadline only for Member States which had not
used up, as at 31 July 1995, all the funds made available to them.

(f) 1 August 1995 to 30 June 1997: presentation of sworn declarations
affirming, amongst other things, the fulfilment of the conditions
linked to the creation of the jobs.

(g) 1 July 1997 to 30 September 1997: drawing-up of the final list of

recipients.

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C 152/7

MANAGEMENT OF BUDGET APPROPRIATIONS AND
PRESENTATION OF THE ACCOUNTS

budget heading B5-3 2 3 for the pilot project (cid:145)Growth and envi-
ronment(cid:146) managed by the European Investment Fund (EIF). Finally,
ECU 25 million was cancelled in respect of the 1996 financial
year (Table 3).

Changes in the appropriations

24. The appropriations to finance the measure were entered in
the 1994 to 1996 budgets, under budget heading B5-3 2 2,
(cid:145)Employment and growth for Europe(cid:146). The initial total of the
appropriations, spread over three financial years, was ECU 106
million. This figure was increased in 1994 by a transfer of ECU 17
million and reduced in 1996 by a transfer of ECU 7,5 million to

25. As a result, the final amount of appropriations used was
ECU 93,5 million. The funds were first transferred to an account
held by the EIB on behalf of the Community. From this account
the EIB paid the interest subsidies claimed by the national agents
for recipient undertakings which had fulfilled the conditions.
Table 4 shows a summary of the movements on the account.

Implementation of appropriations entered under budget heading B5-3 2 2, (cid:145)Growth for Europe(cid:146)

Table 3

Year

1994
1995
1996

Initial budget

45,50
2,75
57,75

SAB

3,00

Total

106,00

3,00

Transfers of
appropriations

Final budget after SAB
and transfers

Cancelled appropria-
tions

Implementation

(ECU million)

17,00

(cid:150) 7,50 (1)

9,50

65,50
2,75
50,25

118,50

25,00 (2)

25,00

65,50
2,75
25,25

93,50

(1) Transfer to heading B5-3 2 3, (cid:145)Growth and environment(cid:146).
(2) Appropriations earmarked for financing ELISE. The proposal for a decision on this matter (COM (96) 155 final, 10.4.96) was not adopted by Council.
Source: Revenue and expenditure accounts for 1994 to 1996.

Summary of movements on the account held by the EIB on behalf of the Community

Table 4

Movements

1994

1995

1996

1997

1998

1999 (2)

Total

Balance as at 1 January

0,0

46 596,9

65 606,1

52 369,7

9 396,3

656,5

Entered as credits:

Payments of appropriations (1)
Repayments of cancelled subsidies

45 500,0
0,0

22 750,0
0,0

25 250,0
28,2

0,0
19,5

Interest

1 096,9

4 070,5

2 560,1

1 533,8

Subtotal

46 596,9

26 820,5

27 838,2

1 553,4

0,0
531,6

305,7

837,3

0,0
0,0

6,1

6,1

93 500,0
579,3

9 573,0

103 652,2

Total

46 596,9

73 417,3

93 444,3

53 923,1

10 233,6

662,5

(ECU 1 000)

Entered as debits:

Recovery of appropriations in the general bud-
get

Amounts paid to agents

(cid:151) of which their commissions were

Subtotal

0,0

0,0

0,0

0,0

0,0

0,0

0,0

9 495,3

7 811,2

41 074,7

44 526,7

76,5

405,3

425,1

81,8

0,8

7 811,2

41 074,7

44 526,7

9 577,1

Balance as at 31 December

46 596,9

65 606,1

52 369,7

9 396,3

656,5

Total

46 596,9

73 417,3

93 444,3

53 923,1

10 233,6

(1) ECU 65,5 million of appropriations were implemented in the 1994 budget, of which ECU 20 million were paid on 6.1.1995.
(2) Situation as at 31.3.1999.
Source: European Investment Bank.

9 495,3

93 494,4

907,7

102 989,7

0,0

0,0

0,0

0,0

662,5

662,5

C 152/8

EN

Official Journal of the European Communities

31.5.2000

Management of budget appropriations

26.
Initially, the sums paid over by the Commission to the EIB
were kept in an account yielding interest at a rate set out in the
cooperation agreement (1). These payments were treated as pay-
ments on account, and as such were recorded as final expenditure
in the Commission(cid:146)s budget accounts. In actual fact, these sums

were only paid over to the agents for distribution to the recipients
after a considerable interval. For example, whereas 73 % of the
total amount of the subsidies was transferred to the EIB in 1994
and 1995, 92 % of the payments from these funds were made in
1996 and 1997. Thus, at the end of 1994, 1995 and 1996, the
actual cumulative utilisation rates for the available budgetary
funds were 0 %, 11 % and 52 % respectively, while the budget
accounts showed utilisation rates of 100 % for these years (Table 5).

Table 5

Utilisation of available budgetary funds

Implementation of the budget
Available budgetary funds
Yearly payments by the EIB to its agents
Budgetary funds not used
Utilisation rate of available budgetary funds

(ECU 1 000)

1994

1995

1996

1997

1998

65 500
65 500
0
65 500
0 %

2 750
68 250
7 811
60 439
11 %

25 250
93 500
41 075
44 614
52 %

0
93 500
44 527
87
100 %

0
93 500
82
6
100 %

Source: Revenue and expenditure accounts and the European Investment Bank.

Presentation of the accounts

27.
If the funds available in the EIB account are compared with
the payments made (Table 6 and Figure 1), it is clear that there was
a time lag between charging to the budget and making the pay-
ment. The size of this time lag calls into question the presenta-
tion of the transfers as final expenditure, which is in breach of the
principles of annuality and transparency of the budget accounts (2).
In addition, although the balance of the account held by the EIB

on behalf of the Community represents a claim for the Commu-
nity and a liability for the EIB, it does not appear on the Com-
munity(cid:146)s balance sheet. Furthermore, the interest revenue credited
to this account, totalling ECU 9,6 million, was not established as
revenue over the whole period from 1994 to 1998 when it was
generated, until it was transferred to the Commission in Septem-
ber 1998 (3). Since the temporary facility for SMEs is just one of
several similar mechanisms, there is a general problem here con-
cerning the rules governing the recording in the accounts of this
type of payment on account and the auditing of it.

(1)

Interest was credited at the end of the month at a rate equivalent to
the monthly average of the daily interest rates set by the ecu clearing
system.

(2) Opinion No 4/97 on the proposal for a Council Regulation (Euratom,
ECSC, EC) amending the Financial Regulation of 21 December 1977
applicable to the general budget of the European Communities
(OJ C 57, 23.2.1998, paragraphs 3.7 and 3.8).

(3) The Court dealt with the issues of the accounting treatment of
advances and instalments, as well as interest, in its Opinion No 4 of
10 July 1997 on the proposal for a Council Regulation (Euratom,
ECSC, EC) amending the Financial Regulation of 21 December 1977
applicable to the general budget of the European Communities.

.

.

3
1
5
2
0
0
0

Comparison between the amounts paid to agents and the budgetary appropriations available on the account held by the EIB on behalf of the Community

1994

1995

1996

1997

1998

(ECU 1 000)

Table 6

Quarter

3rd

4th

1st

2nd

3rd

4th

1st

2nd

3rd

4th

1st

2nd

3rd

4th

1st

2nd

3rd

4th

Amounts paid to agents (subsidies and
commissions)

0

0

0

0

0

7 811

6 904

9 472

7 737 16 962

4 272 10 135 12 871 17 248

82

0

0

0

Budgetary appropriations available at the end of the quarter on the account:

1st tranche

45 500 45 500 45 500 45 500 45 500 37 689 30 785 21 313

13 576

0

2nd tranche

3rd tranche

4th tranche

22 750 22 750 22 750 22 750 22 750 22 750 22 750 19 364 15 092

4 957

7 750

7 750

7 750

7 750

7 750

0

0

17 500 17 500 17 500 17 336

Appropriations not used at the end of
the quarter

45 500 45 500 68 250 68 250 68 250 60 439 53 535 51 813 44 076 44 614 40 342 30 207 17 336

Source: Commission and the European Investment Bank.

87

87

6

6

6

6

6

6

6

6

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

C
1
5
2
/
9

Comparison between the amounts credited to the account and their utilisation

Figure 1

(1)
(2)

(million ECU)

120

100

80

60

40

20

0
3rd/94 4th/94 1st/95 2nd/95 3rd/95 4th/95 1st/96 2nd/96 3rd/96 4th/96 1st/97 2nd/97 3rd/97 4th/97 1st/98 2nd/98 3rd/98 4th/98 1st/99

(1) Appropriations in the account at the end of the quarter (in combination)
(2) Payments of subsidies (in combination)

Quarters

C
1
5
2
/
1
0

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n
C
o
m
m
u
n
i
t
i
e
s

.

.

3
1
5
2
0
0
0

31.5.2000

EN

Official Journal of the European Communities

C 152/11

AUDIT OF REGULARITY AND LEGALITY

Results of the on-the-spot checks

Overall findings

28. The Court carried out on-the-spot checks on 144 recipients
in six Member States, namely Germany, the United Kingdom,

Italy, France, Spain and Austria. These recipients represent 123
payment files, as a number of them received several (two, three or
four) of the facility(cid:146)s subsidised loans. During its checks, the Court
found 61 errors in the files of 51 recipients, who had been granted
a total amount of ECU 4,17 million of subsidies. After eliminat-
ing errors counted more than once, the total amount was ECU
1,26 million. The results of the audit findings are summarised in
Table 7.

Summary of errors found during the on-the-spot checks

Table 7

Paragraph of the
report

Type of error

Number of
undertakings
concerned in the
error

Amount of
subsidies received
by the undertak-
ings concerned
(1 000 ECU)

Amount of the
errors
(1 000 ECU)

29, 30

36, 37

18, 35

35

34

(cid:151)

Ineligibility of the jobs subsidised

Ineligible reference period

Ineligible undertaking

Ineligible loan (< 5 ans)

Part of the amount of the ineligible
loan

Ineligible type of expenditure

31, 32

Combination with other subsidies to
EIB loans

Overall error (3)

Total number of undertakings audited

23

7

4

4

11

2

10

51 (3)

114

768

328

219

83

272

63

581 (2)

1 689 (3)

4 167

372

209

219

83

42 (1)

58

581 (2)

1 261 (3)

1 261

(1) In relation to the figures in the text of paragraph 34, one undertaking, in another country, which had underused its loan was added and

some other errors concerning small amounts not relating to VAT were excluded.

(2) Of which ECU 98 000 was also tainted by other errors.
(3) The overall error does not correspond to the sum of the amounts of the different types of errors, because the same file may be tainted by

several types of error.

Source: European Court of Auditors.

Number of eligible jobs

recipients where a discrepancy was found. The total number of
discrepancies concerned 124 jobs. This means that ECU 372 000
too much was paid out. Moreover, the figures relating to jobs cre-
ated, whether subsidised or not, as declared by the undertakings,
were discovered to be very unreliable: they were incorrect in 84
of the 114 cases examined.

29. The amount of the subsidies was linked to the number of
jobs created (and maintained for at least six months) by the recipi-
ent undertaking, with a maximum of 27 for second-category
undertakings (see paragraph 58). However, in 23 of the 114 cases
audited, the Court found that the number of jobs that were truly
eligible was lower than the number being subsidised. For all the
recipients audited, the total number of jobs subsidised was 1 389,
representing a sum of ECU 4,17 million. Two hundred and fifty-
six of these posts, equal to a sum of ECU 768 000, were with

30. Of the 124 posts for which, despite their ineligibility, subsi-
dies were paid, 91 had in fact simply not been created and 33
concerned an undertaking in Spain in category two (see para-
graph 58). This means that the ceiling of 27 posts which could be
subsidised was obligatory. However, the subsidised loan was sub-

C 152/12

EN

Official Journal of the European Communities

31.5.2000

divided into four loans which were made by four different inter-
mediary banks. Fewer than 27 posts were declared for each of
these partial loans, so that the question of the category only arose
at the overall level of the 60 jobs declared and subsidised. This
fact was completely overlooked by the national agent and the EIB,
even though two of the intermediaries declared that the undertak-
ing belonged to the first category and the other two intermediar-
ies declared that it belonged to the second.

Combination with other aid from Community sources
prohibited

31. Article 4 of the cooperation agreement stipulated that, for
each recipient, the SME subsidised loan could not be combined
with other subsidised loans granted by the EIB under other agree-
ments, or with ECSC-subsidised loans. Moreover, there was a dec-
laration to this effect in the receipt which the recipient had to sign
on collection of the subsidy. However, in July 1994 the EIB
department managing the facility suggested to the Commission
service responsible that it should not apply this provision to the
combination of SME subsidies with other aid distributed in the
form of interest subsidies as part of an ERDF measure (1). The
Commission service concerned was supposed to have approved
this derogation because they did not actively oppose it.

32.
In fact, the Court(cid:146)s audit work detected numerous cases of
combination with other aid, but only in Spain. This was due to
the fact that intermediaries in other Member States do not seem
to have known of the existence of the derogation. In Spain, of the
11 recipient undertakings audited (which received ECU 653 000),
10 received a combination of SME subsidies (ECU 581 000) and
ERDF aid (ECU 370 000). The latter was also in the form of an
interest subsidy and was based on the same loan from the EIB,
which was thereby subsidised twice. The rule prohibiting the
combination of aid applies a fortiori to subsidies granted on the
same loan, and regardless of which intermediary has granted the
subsidy, provided that it comes from the Community budget.
Therefore, since the combination of aid was prohibited under
Article 4 of the cooperation agreement, and the value dates of the
subsidies granted to the SMEs were later than those of the ERDF
subsidies, the SME subsidies under discussion should be deemed
as not in conformity with the regulations. A derogation agreed at
interdepartmental level has no legal value. Only a document
agreed at the same level as the cooperation agreement could have
constituted a valid exception. Moreover, the contracts concluded
with the agents and financial intermediaries contained the text of
the agreement without amendment in the annex.

33. With regard to combination with ECSC-subsidised loans, the
Court has already pointed out the risk of non-detection in its
Annual Report concerning the ECSC (for the financial year
1996) (2) and the Commission has undertaken to carry out a
check, once the list of recipients of the SME facility has been pub-
lished.

34. VAT paid on the purchase of capital goods does not consti-
tute a cost for undertakings since it is deductible (3). In the United
Kingdom, however, in 10 of the 28 recipients audited, it had been
included in the calculation of the subsidised loan, and thus resulted
in too much subsidy being paid. This is one more example of the
lack of clarity in the presentation and explanation of the rules to
be observed. The total error is about ECU 40 000, out of a total
of ECU 253 000 of subsidies paid to the 10 undertakings con-
cerned and ECU 789 000 for all the undertakings audited in the
United Kingdom. This type of error was not found in other coun-
tries.

Ineligibility of the recipient or the loan

35. Of the 114 undertakings audited, the Court found four which
had received a total of ECU 219 000 of subsidies and which did
not meet the criteria defining an SME selected for this measure or
listing the eligible sectors of activity (see paragraph 18). As for the
loan contracts, it was stipulated that they should be for a period
of at least five years, which corresponds to the period for which
the amount of subsidy is calculated. However, the Court(cid:146)s checks
found three cases of contracts lasting less than five years and one
case of early repayment before five years. The total of improperly
paid subsidies was ECU 83 000.

Non-compliance with the eligibility period

36. The sworn statement concerning the number of jobs created
was supposed to be submitted to the agents before 30 June 1997,
even though at this date there was no guarantee of the availability
of the necessary funds for the payment of each subsidy. During
the following three months, that is, before 30 September 1997,
the agent was supposed to draw up the definitive list of recipients
to be sent to the EIB.

37.
In the United Kingdom, however, declarations made between
these two dates were accepted. In fact, the financial intermediary,
which was also the agent (see paragraph 68), asked some of its
customers (for whom the availability of funds depended on the
withdrawal of recipients with priority in the list) to produce this
document after it had made sure that funds were available, and
thus after 30 June 1997. As a result, the recipients had a longer
period in which to create jobs than in other countries. Of the 28
recipients audited in the United Kingdom, the Court found six
cases where the eligibility period extended beyond 30 June 1997.
These cases concerned a total amount of ECU 149 000 of subsi-
dies paid. A similar case of creating and maintaining jobs outside
the period was found in Spain (ECU 60 000).

(1) Commission Decision of 25 November 1994, C(94) 3044, establish-
ing a global subsidy for Objective 1 regions in Spain in the framework
of the ERDF operations during the 1994 to 1999 period.

(2) OJ C 380, 15.12.1997, paragraphs 2.28 to 2.33.

(3) The VAT paid when purchasing goods is, according to the very prin-
ciples governing this tax, a financial claim which the undertaking has
on the tax authorities and by this token is entered under the assets on
the undertaking(cid:146)s balance sheet.

31.5.2000

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Official Journal of the European Communities

C 152/13

The system(cid:146)s weaknesses

38. The numerous errors detected reflect the inherent weak-
nesses in the management and control system that were identi-
fied by the Court during its analysis of the system. First of all, the
fact that the subsidies were paid on the basis of declarations sub-
mitted by the recipients themselves did not offer an optimum
guarantee of accuracy, given that the only risk in the case of an
incorrect declaration was the repayment of the excess received. In
addition, the lay-out of the declaration form and the instructions
for completing it were not very precise, particularly with regard
to what was meant by maintaining the increase in jobs for a period
of six months prior to the date of the declaration. Most of the
problems of interpretation encountered could certainly have been
avoided with better drafted instructions and a more clearly designed
form. This would have reduced the number of errors detected.

39. Also, the fact that at the operational level the measure was
administered by banks does not in itself provide an adequate
assurance of the regularity of the declarations. In general, the
banks have only very occasionally introduced systematic arrange-
ments for checking the eligibility criteria and in particular the
additional jobs that have actually been created. Finally, no penalty
was envisaged for intermediaries who sent in inaccurate declara-
tions.

43. However, depending on the banks alone to identify and
secure the repayment of subsidies which have become ineligible
after being disbursed does not ensure the separation of duties
which is essential in order for the control to be reliable. The obser-
vance of this rule cannot be adequately ensured without addi-
tional checks at another level, and in fact one case of undeclared
early repayment was found during on-the-spot checks.

Individual aspects

Order of dealing with applications

44. Applications for interest subsidies were supposed to be dealt
with in order of receipt, as shown in the list held by the national
agents. In certain Member States, this order was not observed. In
Belgium, the six financial intermediaries (including the agent)
made an agreement to share the available subsidies between
them (1), a practice which was contrary to the rules and rendered
the chronological order rule inapplicable. In Ireland, too, since the
system was based on quotas, it was impossible to use chronologi-
cal order, and this was also true in countries where the agents
took it upon themselves to choose the recipients (see para-
graph 45(c)). In Finland, the agent did not draw up a chronologi-
cal list; moreover, it accepted oral applications, making any check
on the chronological order impossible.

40. The arrangements did not include adequate compensating
checks, as the EIB only verified the agents(cid:146) procedures and that
they had the documentation required by the facility and checked
the consistency of the documents received from its agents. The
Commission, for its part, did not carry out any regularity checks
at all in connection with this measure.

Equality of access

41. Supplying proof of the creation of jobs is a problem with
which the Court is familiar, as are the Commission departments
which have been applying and checking measures of this type for
many years (for example, the ECSC-subsidised conversion loans).
There are variations from one country to another as to which
documentation (the Court prefers official documents) is subject to
checks by the national tax or social security authorities. Although
the cooperation agreement lays down that (cid:145)the beneficiaries shall
be contractually required to make available the necessary evi-
dence for the verification of the number of jobs created ...(cid:146), the
Commission made no use of its previous experience and the Court
only found a very few cases where an attempt had been made to
carry out checks on this basis prior to the Court(cid:146)s own examina-
tion. In the only case where the national agent had made serious
and systematic checks of the declarations on the basis of official
documents, the reference documents used proved to be unsuit-
able because their figures were too general and the reference
periods too long.

42. The cooperation agreement stipulated that subsidised loans
had to be for a minimum period of five years and that there could
be no early repayment before the end of this period without
incurring the cancellation of the subsidy. On this point, the finan-
cial intermediary was responsible for informing the EIB and, at its
request, obtaining repayment of the subsidy.

45. The Council decision stipulated that the facility should be
available throughout the Community (2) and the cooperation
agreement provided for an (cid:145)adequate promotion of the SME facil-
ity and a wide dissemination of information to SMEs on the avail-
ability of subsidised SME loans(cid:146). However, the arrangements put
in place restricted equality of access for all potential recipients in
certain areas, for the following reasons:

(a) the measure was administered by banks which had global
loan contracts with the EIB, thus excluding banks without
such contracts, and as a result their usual customers (for
example in the Netherlands, where the bank most heavily
involved in the financing of SMEs was excluded for this rea-
son);

(1)

In Belgium, initially, there was only one financial intermediary (also
an agent) able to extend subsidised loans. Subsequently, five other
financial intermediaries, which were, in addition, already customers
of the EIB, became aware of the loss of their customers to the first
intermediary, displayed their dissatisfaction with this situation and
requested from the EIB the opportunity to extend subsidised loans to
their customers too. This right was granted to them several months
after the launch of the measure by the first financial intermediary. In
order to make up for the delay, the five other financial intermediaries
demanded an agreement setting quotas for the subsidies which each
of the six could distribute to its own customers.

(2) Recital 8 of Council Decision 94/217/EC of 19 April 1994 (OJ L 107,

28.4.1994, p. 57).

C 152/14

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Official Journal of the European Communities

31.5.2000

(b) not all the banks which had signed global loan contracts with
the EIB were chosen as intermediaries for the implementation
of this measure, even if they wanted to be (for example, in
France and also, at first, in Belgium);

(c) some agents or intermediaries chose the applicants themselves
rather than publicising the facility widely (for example in Den-
mark, Greece, Ireland, Luxembourg and Austria).

EVALUATION OF EFFECTIVENESS

Impact on investment and job creation

Implementation deadline

46. Article 1 of the Council Decision establishing the measure
required the EIB to take the decisions to make subsidised loans
within 12 months of the date of publication of the Decision, and
therefore before 28 April 1995. In effect, this date was the dead-
line not only for the granting of the loan to the recipient but also
for the receipt by the national agent of the application for an
interest subsidy. This application was in fact the element which
ensured that the underlying loan was a subsidised loan made by
the financial intermediary under the conditions in force. However,
this deadline was not correctly transposed into the cooperation
agreement between the Commission and the EIB, for the follow-
ing two reasons.

47. First, this agreement set 28 April 1995 as the deadline for
global contracts to be concluded with the financial intermediar-
ies and not for the loan contracts to be concluded with the recipi-
ents: these latter could be signed up to 12 months after the sign-
ing of the global
loan contracts, and thus after the date of
28 April 1995 set in the Council Decision. Secondly, the agree-
ment set 31 July and 15 December 1995 as the deadlines for the
receipt of applications for interest subsidies in the Member States,
whether or not they had exhausted the funds allocated as at
31 July 1995; in other words, three and seven and a half months
respectively after the deadline laid down in the Council Decision.

48.
In addition, the speed of implementation of this measure
was mentioned in the recitals of the Council Decision and also in
the Economic and Social Committee(cid:146)s opinion.

49. The measure was designed to encourage and accelerate invest-
ment by the SMEs in job creation by making available a loan
package of ECU 1 000 million exclusively to SMEs, together with
a reduction in financing costs of 2 % per year for five years. The
assistance was thus supposed to be a response to the main con-
cern of many SMEs, particularly at the creation and expansion
stages, namely, in the absence of their own resources or adequate
guarantees, to obtain funds by borrowing while reducing the costs
involved.

50. During its audit, the Court systematically asked the recipi-
ents and the financial intermediaries whether the availability of
the subsidised loan had been a decisive factor in making the
investment and whether it had had any influence on its amount,
nature or timetable. Whilst making the subsidy available led, in
8 % of the cases audited, representing 6 % of the amount of sub-
sidy, undertakings to bring forward their investments, in none of
the cases examined was the availability of the subsidised loan the
decisive factor in deciding to invest.

51. The main reason for this lack of influence on the entrepre-
neurs(cid:146) strategic decisions is the low level of the subsidy. In fact, its
average impact on the cost of the investments financed (exclud-
ing financing charges) is scarcely 2,4 % (Table 8), which is too low
a percentage to be considered a determining factor in deciding on
an investment project. When compared with the level of invest-
ment needed to create a new job, ECU 3 000 is not a sufficient
incentive. To have a real influence on decisions of this kind, the
money should be allocated in a more concentrated and targeted
fashion.

31.5.2000

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Official Journal of the European Communities

C 152/15

Impact of interest subsidies on investments and loans disbursed

Table 8

Investments

Loans paid

Interest subsidies

Amount

Average per
job created

Amount

% of invest-
ment

Average per
job created

Amount

% of loan

% of invest-
ment

Average per
job created

(ECU 1 000)

Member States

Belgium
Denmark
Germany
Greece
Spain
France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom

192 094
33 087
1 037 873
45 738
518 012
335 917
16 901
842 139
9 274
158 205
57 770
10 746
26 641
35 905
467 930

126,38
33,85
126,23
75,60
85,34
37,11
92,11
107,36
168,62
115,23
120,35
39,36
59,87
51,15
29,27

72 159
12 571
222 673
16 170
192 405
171 813
4 127
392 861
2 107
76 435
9 820
6 265
7 072
12 119
258 210

Total

3 788 233

70,43

1 456 806

Source: European Investment Bank.

52. The fact that the banking risk for individual loans is taken
on by the intermediary banks leads them to apply their own cri-
teria for accepting requests for finance. Thus, only projects that
would have been financed anyway were accepted for financing on
the back of subsidised loans. The existence of subsidised loans did
not therefore create any additional financing capacity. During its
visits to the Member States, the Court examined considerable evi-
dence which indicated that the main problem for SMEs in finding
financial backing is the insufficiency of their own funds and the
guarantees they can offer to external lenders. This being so, more
recent initiatives focusing on financing guarantees or consisting
in taking out temporary participations in the capital of small
undertakings at the creation or expansion stages will do more to
encourage the financing of projects which are not attracting back-
ers (1).

53. The use of the (cid:145)first come, first served(cid:146) principle at the
national level meant that the projects which were submitted by
applicants for subsidies and processed by the banks were mainly
at an advanced stage of planning. Because of the risk that other
applicants might obtain the subsidies before them, business own-
ers did not have the time to draw up new projects, but generally
submitted projects where the investment and its financing had
already been decided on and the forecast impact on the number

(1)

In particular the (cid:145)European technology facility (cid:151) start-up facility(cid:146) and
the (cid:145)SME guarantee facility(cid:146) initiatives, which come within the (cid:145)SME
technology facility(cid:146) framework, which was the subject of the conclu-
sions of the Extraordinary Council meeting of November 1997 in
Luxembourg and of the Council decision of 19 May 1998.

38
38
21
35
37
51
24
47
23
48
17
58
27
34
55

38

47,47
12,86
27,08
26,73
31,70
18,98
22,49
50,08
38,30
55,67
20,46
22,95
15,89
17,26
16,15

27,08

2 189
1 237
20 445
1 430
12 536
13 860
384
14 440
114
2 855
950
322
684
1 036
19 840

92 321

3,0
9,8
9,2
8,8
6,5
8,1
9,3
3,7
5,4
3,7
9,7
5,1
9,7
8,5
7,7

6,3

1,1
3,7
2,0
3,1
2,4
4,1
2,3
1,7
1,2
1,8
1,6
3,0
2,6
2,9
4,2

2,4

1,44
1,27
2,49
2,36
2,07
1,53
2,09
1,84
2,07
2,08
1,98
1,18
1,54
1,48
1,24

1,72

of jobs was already known. In fact, the Court noted cases where,
at the time of the application, the investment was already at an
advanced stage of completion and the subsidised loan had actu-
ally replaced an existing financial arrangement.

54. Despite their name, the interest subsidies were not perceived
as such because their payment was not linked to the interest pay-
ments and they were not made at regular intervals. The amount
was received in a one-off transfer unconnected with the loan(cid:146)s
banking operations, following the declaration that the jobs had
been created. Moreover, according to the statements made by
entrepreneurs and bankers, a reduction in financing charges only
seems to be considered as urgent when the interest rate becomes
too high, or at any rate higher than it was during this measure(cid:146)s
period of application.

55. Under the rules laid down for implementing this measure,
undertakings which had applied for and obtained a bank loan in
order to finance an investment and which had recorded an increase
in jobs were eligible for a subsidised loan. There was therefore no
requirement for a causal link between the creation of the jobs and
the investment in question. Sometimes the investment had no
effect on employment or was even made to fund a rationalisation
entailing a reduction in jobs in a specific area, while the undertak-
ing increased the overall number of jobs. The loans served pri-
marily to channel subsidies to expanding undertakings and the
mechanism of decentralised distribution of the subsidies in small
individual amounts by the banking network took precedence over
the aim of stimulating job creation.

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56. The regulations in question did not exclude take-overs, where
the investment consisted in financing the purchase of an existing
undertaking; in this case job creation comes down to maintain-
ing existing jobs. For ECSC-subsidised loans, this type of project
is strictly excluded, even for take-overs of companies in difficulty,
where jobs can be saved that would otherwise possibly be lost.
During its audit of the Copenhagen facility, the Court found
numerous cases where the financed and subsidised investment
consisted in taking over another company along with its staff. On
some occasions, this was a rescue operation which allowed some
of the jobs to be retained; on others, neither the undertaking nor
the continued existence of its jobs were at risk.

59. These two rules were observed, and the percentage of recipi-
ents from the first category was actually considerably in excess of
the 60 % mentioned above (2). In this regard, many intermediary
banks played quite an active role in encouraging potential recipi-
ents from this category, and some of them made more efforts to
find small undertakings. On the other hand, others preferred
larger customers, which also had the effect of reducing the num-
ber of files to be managed. In fact, 81 undertakings were granted
subsidies of over ECU 100 000 even though they belonged to the
first category. Thus, 2 % of the recipients received 14 % of the
total amount of subsidies (ECU 13 million out of ECU 92 million).

57. Although subsidies were indeed given to job-creating under-
takings, it is impossible to prove that the subsidies enabled the
creation of the jobs in question. Moreover, the arrangements for
implementing the measure do not include the information neces-
sary to establish which jobs would not have been created without
the subsidised loan. The figures diclosed by the Commission (1)
are a sum of the increases in staff members declared by the under-
takings between the reference date and the declaration date. They
include all increases, whether or not they were linked to the
investment financed by the subsidised loan. Furthermore, these
data were not checked by either the Commission or the EIB, and
during its on-the-spot checks the Court uncovered many inaccu-
racies in the figures (see paragraph 29).

Size of the recipients

58. The implementation arrangements defined eligible SMEs
according to the definition usually used by the EIB within the con-
text of its own policies for this category of undertaking (see para-
graph 18). Since this definition includes SMEs of quite a consider-
able size (net fixed assets of up to ECU 75 million and up to 499
employees), the arrangements distinguish between two categories
of SME. The first includes undertakings with a turnover of less
than ECU 20 million or total assets of under ECU 10 million and
not more than 250 employees and the second all other SMEs
which meet the EIB(cid:146)s criteria. Then it was stipulated that there
would be a ceiling of ECU 810 000 on loans for the second cat-
egory (and thus a total subsidy ceiling of ECU 81 000) and that at
least 60 % of the recipients had to fall within the first category.

Geographical breakdown of the subsidies

60. The Member States were allocated the sum of ECU 1 000
million in subsidised loans in four stages. First, in 1994, the first
tranche of ECU 650 million was allocated to the then 12 Member
States according to their population (weighted at 50 %) and their
gross national product (20 %) in 1993, together with the average
of their unemployment rates in 1992 and 1993, weighted accord-
ing to the population (30 %). An additional allocation was then
carried out for the three new Member States according to the
same criteria, except that the result of the calculation was halved,
to give ECU 27,8 million. Subsequently, the remaining balance of
ECU 322,2 million was shared out between the 12 original Mem-
ber States on the basis of their rates of utilisation of the first
tranche as at 28 February 1995. Finally, the sums unused as at
15 December 1995 were redistributed to those countries which
had, as at 31 July 1995, a list of applications for a total amount
greater than the available funds.

61. This procedure was designed to make maximum use of the
available budgetary funds, but in practice two aspects were not
entirely satisfactory. On the one hand, the new Member States
were treated differently, in that they received a lower amount in
comparison with the other countries and were not able to take
part in the subsequent redistributions. However, the actual absorp-
tion capacity in these three countries proved to exceed by far the
amounts allotted. On the other hand, the data on which the cal-
culations of the second tranches and the final redistribution were
based did not seem sufficiently reliable. The main reason for this
was that at the time of the redistributions, there was no checking
procedure to eliminate from the lists applications which had
lapsed in the interim.

62. Finally, ECU 92,3 million was paid in interest subsidies. The
utilisation level is shown by country in Table 1. The utilisation rate
in Germany is low in comparison with the initial applications,
including both the main lists and the reserve lists. The main rea-

(1) First, second, third and fourth reports of the Commission relative to
the implementation of the measure, respectively COM(94) 434 final
of 19 October 1994, paragraph 4.3; COM(95) 485 final of 30 Octo-
ber 1995, paragraph 4.1; COM(96) 522 final of 25 October 1996,
paragraph 4.1 and COM(97) 645 final of 2 December 1997, para-
graph 4.1.

(2) Fourth report of the Commission relative to the implementation of
the measure, COM(97) 645 final of 2 December 1997, p. 10, para-
graph 4.3. The Commission mentions the figure of 80 % without giv-
ing its source whereas the data obtained from the EIB give a figure of
over 90 %, although these data contain numerous classification errors.

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son for the underutilisation is early repayment caused by a reduc-
tion in interest rates. Because the minimum period of five years
had not been observed, these early repayments made the loans
ineligible, so that many files were withdrawn before reaching the
declaration stage. The utilisation rates in Belgium, Greece and Fin-
land may be explained by the management methods used by the
national agents. The very low rates in Ireland and Portugal reflect
the availability of other more advantageous support programmes
offered by the national authorities (in Ireland) or the Community
authorities (in Portugal).

63. Coordination with the other aid on offer at the regional,
national or even Community levels was not taken into sufficient
consideration. During its missions in the Member States, the Court
found that sometimes a measure of this type was the only one of
its kind, sometimes there were much more advantageous alterna-
tives (see paragraph 61) and sometimes it was possible to com-
bine it with regional or national aid, which was sometimes of
highly significant proportions (for example in Germany).

Competition aspects within the banking market

64. Under the provisions of Article 267 of the EC Treaty, the EIB
finances investment projects in less-developed regions or where
the means available in the individual Member States are not suf-
ficient. It is therefore called upon to support the Community(cid:146)s
policies while observing the principle of subsidiarity; in other
words, intervening only where the resources of the market or the
Member State are not sufficient.

65. On this basis, in 1968 the EIB established a global loan facil-
ity for SMEs operating in a limited number of productive sectors
and located in the regional development areas. In doing so, while
it avoided taking on any risks connected with the undertakings,
it developed a method of financing investment projects through
a network of existing financial intermediaries.

66. Because of their success, these loans were subsequently
granted to finance the projects of SMEs located throughout the
Community and operating in an increasing number of sectors (for
example, since 1995 the retail trade has been eligible). Thus,
between 1993 and 1997, the EIB signed global loans for SMEs for
a total of ECU 24 362 million, accounting for approximately 25 %
of all its loan activities (1).

67.
In recent years, however, this situation has changed. The
banking market has become so competitive that increasingly
similar terms are on offer, particularly for interest rates. In this
context, the financial intermediary(cid:146)s priority is no longer the
availability of funds, which it can obtain from the market, but a
borrowing cost that will give it better operating margins than the

(1) See the EIB publication (cid:145)40 years of activity(cid:146), p. 10, table headed (cid:145)Loans

signed in the European Union(cid:146).

competition. Including a bonus such as the Copenhagen facility
subsidy in a financial package proposed to a potential customer
constitutes an asset in comparison with the other banks. The
financial intermediaries with exclusive rights to distribute these
subsidies had an advantage over other lenders who were not
included in the network of banking relations with the EIB (see
also paragraph 45(a)).

68.
In addition, the role played by some agents contributed to
creating circumstances under which distortions of competition
between the banks distributing the subsidies could also arise. In
the United Kingdom, although five financial intermediaries were
authorised to distribute the subsidies, 83 % of the available sub-
sidised loans were extended by one intermediary which also acted
as an agent. This does not correspond at all to its actual commer-
cial penetration of this financial market (a market share of approxi-
mately a third). In Belgium, five financial intermediaries experi-
enced losses of customers to one financial intermediary, which
was the only one initially able to extend subsidised loans. In
France, only eight financial intermediaries were authorised to
grant subsidised loans, and they were not among the largest in the
national market. Moreover, some of them only learnt of the mea-
sure indirectly and after a certain delay (see also para-
graph 45(b)).

69. The banks which distributed the subsidies often integrated
them so well into the financial packages they offered their cus-
tomers that the origin of the subsidy disappeared from view. One
bank went so far as to present the facility as (cid:145)Bank X(cid:146)s temporary
facility for SMEs(cid:146). Of those recipients that were aware that the
subsidy came from elsewhere, the majority thought it was an EIB
subsidy. Only in a few exceptional cases did the recipient know
that the subsidy was financed by the Community budget.

CONCLUSION

70.
In practice, the temporary facility for SMEs has consisted
above all in distributing premiums, through the banking network,
to job-creating undertakings which have invested by borrowing
mainly against the background of a stage of development which
was already well advanced. Since it is impossible to show a direct
link between the subsidy in question and the creation of jobs, it is
also impossible to affirm that the facility contributed to these jobs
being created. Since the banks distributing the subsidies took on
the banking risk, they chose projects according to their own cri-
teria and which they would therefore have financed in any case
without the subsidy. The application of the (cid:145)first come, first served(cid:146)
principle led to numerous projects being put forward which were
at an advanced stage of planning and whose effect on employ-
ment was in fact already guaranteed (see paragraphs 49 to 57).

71. The reduction in financing costs was not perceived as much
of an incentive, given the levels of interest rates recorded over
recent years. More recent initiatives offering guarantee facilities or
consisting of taking shares in small undertakings with financing
difficulties at the creation or expansion stages seem to be better
suited to their real needs (see paragraph 54).

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72. The checks carried out by the Court on the premises of 114
undertakings, which cannot be used for a mere mathematical
extrapolation, revealed numerous errors (see Table 7). A number
of the irregularities concern jobs declared to have been created
and maintained for at least six months, when in fact this was not
the case (91 jobs out of 1 389; see paragraphs 28 to 37).

73. The cases where the rules were not observed are in large part
due to the temporary nature of the facility, which is based on a
brief regulation and an ad hoc mechanism, administered by banks
and relying on sworn statements made by the recipients. Neither
the past experience of the Commission departments nor the
Court(cid:146)s previous recommendations (1) were turned to account to
offset the system(cid:146)s deficiencies. In fact, neither the Commission

nor the EIB carried out checks to compensate for these weak-
nesses (see paragraphs 38 to 43).

74. The banks chosen to distribute the subsidies took the oppor-
tunity to keep their customers loyal, or even to attract new clients.
In some cases this created situations which may lead to distor-
tions of competition on the banking market (see paragraphs 67
and 68).

75. The facility was financed by transfers of significant sums
from the Commission to the EIB a long time in advance of the
actual date of use. During the five-year period during which the
funds were in the EIB(cid:146)s cash resources, they were not monitored
within the framework of the Community(cid:146)s accounting system (see
paragraphs 26 and 27).

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 23 and 24 February 2000.

For the Court of Auditors

Jan O. KARLSSON

President

(1) The Court(cid:146)s Annual Report concerning the financial year 1995

(OJ C 340, 12.11.1996, paragraphs 8.16 and 8.17).

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THE COMMISSION(cid:146)S REPLIES

SUMMARY OF THE MAIN OBSERVATIONS

It is true that the way in which the interest subsidies for
8 and 9.
small and medium-sized enterprises were recorded in the budget-
ary accounts gives the impression that the utilisation rate was
100 %, whereas in fact the subsidies were not simultaneously paid
to the final beneficiaries by the EIB. During the time that they
were held by the EIB they should have appeared on the assets side
of the balance sheet as Commission claims.

16. Given the number of financial intermediaries that took part
in the system it is hardly surprising that the Court found a num-
ber of differences in presentation. It is also quite likely that the
origin of the subsidy (cid:145)disappeared from view(cid:146) for perfectly legiti-
mate reasons, given the scale and complexity of the banking sys-
tems involved and the variety of national and regional aid schemes
managed by certain financial intermediaries.

IMPLEMENTATION OF THE MEASURE

10. The system was based on a sworn declaration by the final
beneficiary. The Bank checked that the agents had instituted a
proper system for verifying receipt of these declarations.

Procedure

Article 16 of the cooperation agreement provides for wrongly
paid subsidies to be paid back.

11. The Council provided for the scheme to be implemented via
EIB global loans, a well-known means of Bank funding. To extend
the scheme further would have been unmanageable and economi-
cally unjustified, given the small amounts involved.

12. The scheme could not have reached the Objective 1 regions
without this possibility of combining Community grants.

20. The decision to allow agents to combine this role with that
of financial intermediary was dictated by considerations of effi-
ciency, which was the Bank(cid:146)s paramount concern in the short
start-up stage of the scheme. The operational guidelines drawn up
by the Bank contained specific clauses to this effect. Several agents
did indeed act as financial intermediaries, directly disbursing the
subsidised loans. This was because of their special experience in
managing financial schemes of this type, including other Com-
munity schemes (e.g. ECSC loans).

23.
In conjunction with the Commission, the EIB issued 90 000
multilingual brochures outlining the scheme, which were distrib-
uted to all of the participants. Numerous presentation meetings
were also held in the beneficiary countries to bring together the
Commission, the Bank and organisations representing the target
group.

13.
It is true that at the beginning of the programme some
on-going projects were funded. This was difficult to avoid, given
the urgency with which the scheme had to be set up. However,
the impact has diminished over time.

MANAGEMENT OF BUDGET APPROPRIATIONS AND
PRESENTATION OF THE ACCOUNTS

14. The difficulties of quantifying the employment effects of
interest subsidies at microeconomic level are well known. How-
ever, the scheme did deliver a message of support and encourage-
ment for job creation from the public authorities to the business
leaders at European level. It was one of a number of measures,
and even if it was necessarily limited it did fulfil a positive func-
tion by helping to create an environment conducive to promot-
ing growth and job creation by small businesses, in accordance
with the broad objectives set out in the preamble to the Council
Decision.

Management of budget appropriations

26.
In future the Commission will ensure that sums held by the
EIB pending transfer to the final beneficiaries of the subsidies
appear on the balance sheet.

Presentation of the accounts

15. Given that the scheme had to be applied uniformly through-
out Europe it was quite simply impossible to ensure coordination
with all regional and national aid schemes. The resulting combi-
nation was not contrary to the subsidiarity principle.

27. As regards the management of the Commission(cid:146)s account by
the Bank under the scheme, the Bank and the Commission agreed
in an Exchange of Letters of 6 August 1998 and 7 September

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1998 that amounts above ECU 250 000 would be returned to the
Commission on 31 May and 30 November each year, so that bud-
get funds would not be kept in this account in the post-
disbursement phase. These amounts currently consist of interest
and early repayments.

the present time it would appear that about 25 cases will require
either a visit or audited statements before a final decision can be
taken.

The proposal for recasting the Financial Regulation should include
provisions requiring all public and private financial intermediar-
ies to provide information about the state of the funds they hold
on behalf of the Commission, and the interest paid and bank
charges incurred.

The Commission is in favour of treating such payments as budget-
ary expenditure, regarding them as advances (payments without
transfer of ownership) to ensure greater transparency in budget
implementation.

As regards the issuing of recovery orders for the interest gener-
ated, the Commission shares the Court of Auditors(cid:146) view that
interest should have been established annually as an entitlement.
The proposals for recasting the Financial Regulation should also
contain provisions on this point to tighten up the obligations on
authorising officers.

AUDIT OF REGULARITY AND LEGALITY

Results of on-the-spot checks

Overall findings

Depending on the further information received, joint Commission/
EIB inspections could be arranged.

Ineligibility of the recipient or the loan

35 to 37. As part of its monitoring of other schemes involving
delegation to financial intermediaries the Commission will tighten
checks on eligibility to avoid such cases.

The system(cid:146)s weaknesses

38 to 41. The scheme relied on delegating responsibility to agents
and intermediaries, in the interests of efficiency and in keeping
with the nature of the global loan facility itself. Given the impor-
tance of the group targeted by the scheme, the number and nature
of the beneficiaries (several thousand SMEs) and the average size
of the subsidies (ECU 20 000), it is hard to imagine another sys-
tem that would not have buckled under the weight of the proce-
dure.

It should be noted that the sworn declarations completed by the
recipients and submitted by the financial intermediaries stressed
that recipients laid themselves open to civil and criminal prosecu-
tion if they made false declarations.

28. Cases where aid under the SME scheme is combined with
ERDF aid account for 38 % of the total amount of errors.

The incorrect declarations detected by the Court have been inves-
tigated by the EIB. In cases where there is no legitimate defence
the EIB has initiated the recovery procedure via the financial inter-
mediaries.

Combination with other aid from Community sources
prohibited

31 and 32. The Commission is of the opinion that the scheme
could not have reached the Objective 1 regions without combin-
ing Community subsidies.

33. The Commission and the EIB are carefully monitoring the
question of combination with ECSC loans. The Commission has
carried out checks to identify duplication of funding between this
scheme and the ECSC. These revealed a tiny number of potential
cases of duplication. In all, 317 cases were identified with the same
or similar name and were analysed. 61 of these were considered
potential double financing and are being analysed individually.
Cases are being cleared as further information is received, but at

42 and 43. The banks are required to inform the EIB of any early
repayment of the global loan and to repay the subsidies, in line
with the philosophy of the scheme which relies on delegating
responsibility to the agents and intermediaries. The EIB checks
these repayments against the list of recipients.

Individual aspects

Order of dealing with applications

44. The exceptions to the (cid:145)first come, first served(cid:146) rule were
authorised by the Bank in certain Member States in the light of
circumstances connected with the economic and/or administra-
tive situation.

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Equality of access

financial

45. (a) The Council decision specified that the loans available
under the scheme, worth ECU 1 000 million, had to be
granted in accordance with the EIB(cid:146)s global loan mecha-
nism. Given the urgency with which the scheme had to be
put into effect throughout the Community, the Bank
restricted itself almost exclusively to its existing network
of
intermediaries. These intermediaries are
selected on the basis of operational criteria related par-
ticularly to their financial capacity, their type of activity
and, of course, their willingness to fulfil the conditions
laid down by the Bank regarding project management and
follow-up. One might legitimately expect the Council to
realise that it would have been impossible to meet the
tight deadline had a scheme been adopted whose imple-
mentation extended beyond the network of banks involved
in the EIB(cid:146)s global loans. Moreover, given the limited vol-
ume of the scheme such an attempt would have been
impossible to justify on economic grounds.

(b) Some type of selection of participating banks was inevi-
table, if only to meet the tight deadline imposed by the
Council. Moreover, some banks and financial institutions
with global loan contracts with the EIB simply did not
wish to participate in the system because of the charges
the scheme would inevitably entail.

(c) The small sums available in the countries mentioned more
than justify the lack of wide publicity. Such publicity
would have aroused false expectations and over-burdened
the banks with applications that could not be satisfied. In
the countries in question the banks elicited projects from
their clients which fulfilled the conditions laid down.

In general, the fact that 92 % of the scheme funds were used,
despite a general fall in interest rates which led to a series of
repayments because of failure to comply with the required dura-
tion of the loan, demonstrates the satisfactory level of promotion
and equality of access to the scheme. The size of the reserve list
in certain countries also reflects the genuine equality of access.

Implementation deadline

46 to 48. The (cid:145)decisions to extend loans benefiting from the [...]
subsidy(cid:146), which Article 1 of the Council Decision required the
Bank to take (cid:145)within 12 months of the date of entry into force of
this Decision(cid:146) were the decisions taken by the EIB(cid:146)s Board of
Directors on extending global loans to the financial intermediar-
ies. The text of the Decision did not refer to the allocation of the
global loans. It would have been physically impossible to allocate
all of the funds under the scheme to final beneficiaries within a
period of 12 months. The Commission and the Bank would have

raised this question back in 1994 had they thought there was any
ambiguity on this point, whereas, on the contrary, the EIB com-
plied with the Council(cid:146)s request and set up the scheme with the
financial intermediaries (concluding new contracts and amend-
ing existing ones) within the deadline specified. The disbursement
phase then extended beyond this period, which is perfectly nor-
mal in the context of global loans.

EVALUATION OF EFFECTIVENESS

Impact on investment and job creation

49 to 52. The European Council has taken a political decision to
foster the creation of jobs and has fixed certain parameters within
the framework of its Decision. The Commission and EIB have
respected the Council(cid:146)s decision.

Client creditworthiness and project viability are essential elements
of banking practice. It is only natural that banks should apply
their own objective criteria in order to select the projects they
consider most promising and viable from the list of applicants.
On the other hand, the Commission believes that the fact that a
loan looks sound in terms of the financial criterion of the credit-
worthiness of the firm does not necessarily mean that the project
will receive a loan. Another decisive factor in the Bank(cid:146)s decision
as to whether or not to extend the loan will be the ratio between
the firm(cid:146)s financial obligations and its operational results, i.e. its
ability to honour its commitments. The reduction in company
financial charges thanks to the Community contribution is there-
fore also a factor influencing the extension of loans to the firms
in question.

53.
It is true that at the start of the programme ongoing projects
were funded. However, it is difficult to avoid such a situation in
the start-up phase and the impact has declined over time.

54 to 57. The payment of the interest rate subsidy in a lump sum
has had two advantages:

(cid:151) it is the simplest and cheapest solution from an administra-

tive point of view,

(cid:151) it increases the visibility of the scheme.

In addition, reducing the expenses of the companies concerned
improved the general level of their financial charges, which is an
important factor in the decision to extend a loan. When the
scheme was launched this was a persistent concern of the direc-
tors of small businesses.

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The Commission would not claim that the interest rebate is the
single determining factor in the beneficiaries(cid:146) decision to under-
take job-generating investment projects. Rather, interest subsidies
form part of a package which also includes measures on a local,
regional or national level which together create a favourable con-
text for the achievement of priority Community objectives.

The important thing about the subsidy scheme, and this was
undoubtedly the political intention of its supporters, is that it sent
a Europe-wide message of support and encouragement from the
public authorities to entrepreneurs to promote job creation. It
was one of a number of measures, and even though it had to be
limited in scope it fulfilled a positive function by helping to cre-
ate an environment conducive to promoting growth and job cre-
ation by SMEs, in line with the broad objectives formulated in the
preamble to the Council Decision. The scheme undoubtedly helped
to speed up the implementation of the investment decisions taken
by entrepreneurs.

Competition aspects within the banking market

67. The EIB cooperates with a vast network of banks and finan-
cial institutions in all of the countries in which it operates (over
130 in the EU), in accordance with Article 16 of its Statute. The
Council takes this feature into account when entrusting the Bank
with tasks, including, where necessary, the granting of interest-
rate subsidies inside and outside the European Union. The EIB
selects its financial intermediaries by applying objective criteria of
creditworthiness and quality. It would have been impossible for
an unlimited number of financial intermediaries in Europe to
administer Community interest-rate subsidies for SMEs available
in limited amounts and for a limited period. Moreover, for a num-
ber of reasons, not all of the banks satisfying the EIB(cid:146)s criteria
agree to manage global loans or interest-rate subsidies. Finally,
some form of selection of the participating banks was inevitable,
if only to meet the tight deadline imposed by the Council.

Small businesses try to improve their competitive position by
investing in rationalisation, modernisation and increased capac-
ity. Job creation results from success in the market and the need
to fill new orders, regardless of whether the business is in an
expanding or a declining sector.

68.
It was unlikely that the implementation of the scheme would
reflect the market shares of the participating banks. As in any
scheme of this kind, providing quotas are not applied to the banks
taking part and the principle of (cid:145)first come, first served(cid:146) is adopted,
there will inevitably be differences in the level of commercial
motivation depending on the institution.

At a macroeconomic level, the real rate of interest is known to be
a factor influencing the level of investment.

Size of recipients

The comparatively large share accounted for by one intermediary
in the subsidies granted reflects its traditional importance as an
intermediary for EIB global loans in the United Kingdom. The
scheme was the subject of commercial procedures and was made
available to other banks in the United Kingdom. This particular
intermediary also acted as agent because it combined the experi-
ence (including experience with other Community schemes, like
the ECSC), the human resources and the willingness to take on
the role.

58. The Court(cid:146)s finding confirms the banks(cid:146) commitment to
complying with the rules on allocating subsidies under the scheme
(and even applying more stringent criteria).

CONCLUSION

Geographical breakdown of the subsidies

60 and 61. Provision was made from the start for the accession
of new Member States. The calculation took account of the amount
of time remaining for allocating these sums.

63.
It was impossible to ensure far-reaching coordination with
all of the other aid schemes available at regional, national or even
Community level, because the scheme had to be available through-
out the Community and be applied uniformly in all Member
States. It was inevitably superimposed on all other national and
Community measures (particularly in regions receiving special
aid), and this was not considered to be contrary to the principle
of subsidiarity.

70.
It is a well-known fact that the causal link between interest-
rate subsidies and investment is difficult to prove at microeco-
nomic level. But at macroeconomic level the real rate of interest
is generally recognised as a factor affecting the level of investment.
Moreover, the scheme sent a Europe-wide message of support and
encouragement from the public authorities to entrepreneurs to
promote job creation. It was one of a number of measures, and
even though it had to be limited in scope it fulfilled a positive
function by helping to create an environment conducive to pro-
moting growth and job creation by SMEs, in line with the broad
objectives formulated in the preamble to the Council Decision.

It is true that at the beginning of the programme a number of
ongoing projects received funding. Given the speed with which
the scheme had to be implemented it was difficult to avoid such a

31.5.2000

EN

Official Journal of the European Communities

C 152/23

situation in the start-up phase. However, the impact declined over
time. In addition, the reduction in the financial charges of the
companies concerned favourably influenced the banks(cid:146) decisions
on extending credit in so far as it improved the ratio of compa-
nies(cid:146) financial charges to their operational results. This ratio is an
important factor in the decision to grant a loan.

71. The Commission welcomes the Court(cid:146)s favourable response
to its more recent initiatives.

72. The Commission will carefully investigate the cases referred
to by the Court.

73.
In view of the economic climate at the time, the Council
Decision stressed the need for the scheme to be implemented

rapidly, as a matter of urgency. It would have been impossible to
reconcile developing complex regulations with this need for
urgency.

Given the size of the group targeted by the scheme, the number
and nature of the beneficiaries (several thousand SMEs) and the
average size of the subsidies (ECU 20 000), it is hard to imagine
another system that would not have buckled under the weight of
the procedure.

74. Because the scheme involved limited funds and a limited
time-span it could not have been implemented by an unlimited
number of financial intermediaries in Europe. Some sort of selec-
tion was inevitable. Moreover, some banks were unwilling to
administer global loans and interest rate subsidies.