Proposal for a Council Regulation amending Regulation (EC, Euratom) No 2728/94 establishing a Guarantee Fund for external actions
Date: 2003-10-13
Institutions: European Commission
Subjects: Community loan, accession to the European Union, accounting entry, budgetary reserve (EU), general budget (EU)

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 13.10.2003
COM(2003) 604 final

2003/0233 (CNS)

REPORT FROM THE COMMISSION
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

Comprehensive report on the functioning of the Guarantee fund

Proposal for a

COUNCIL REGULATION

amending Regulation (EC, Euratom) No 2728/94 establishing a Guarantee Fund
for external actions

(presented by the Commission)

REPORT FROM THE COMMISSION
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

Comprehensive report on the functioning of the Guarantee fund

TABLE OF CONTENTS

EXECUTIVE SUMMARY

1.

2.

3.

4.

5.

INTRODUCTION ......................................................................................................5

THE GUARANTEE FUND MACHANISM AND ITS MAIN CHANGES
DURING THE PERIOD 1998-2002..........................................................................6

2.1 The objectives .........................................................................................................6

2.2 Key features ............................................................................................................6

2.2.1 Main characteristics of guarantees given to the EIB ...........................................6

2.2.2 Borrowing/lending operations covered by the Fund............................................7

2.2.3 Provisioning the Guarantee Fund ........................................................................7

DEVELOPMENT AND PERFORMANCE OF THE GUARANTEE
FUND OVER THE PERIOD 1998-2002 ..................................................................9

3.1 Protection given by the Fund against unforeseen demands on budget
appropriations in the event of default ...........................................................................9

3.2 Budgetary discipline .............................................................................................13

IMPACT OF ENLARGMENT ON THE GUARANTEE FUND ........................14

THE PARAMETERS OF THE GUARANTEE FUND ........................................16

5.1 The target amount and the Fund’s capacity for guaranteed lending.....................17

5.2 Terms and conditions of the Community Guarantees to the EIB .........................18

6.

TECHNICAL IMPROVEMENTS..........................................................................19

2

ANNEXES ...............................................................................................................................20

Annex 1: Breakdown of outstanding amounts per country according to risk coverage.
(situation at 31 December 2002).

Annex  2:  Outstanding  amounts  on  EIB  guaranteed  loans  signed  with  amortisations
over the 2003-2006 period.

Annex  3:  The  Guarantee  Fund  over  the  2002-2006  period  based  on  current
parameters.

Annex  4:  Outstanding  amounts  on  EIB  guaranteed  loans  signed  in  favour  of  the  10
new Member States.

Annex  5:  Theoretical  assumptions  based  on  the  current  provisioning  and  guarantee
rates parameters.

Annex  6:  Use  of  the  Reserve  in  the  framework  of  the  2000-2006  Financial
Perspectives.

Annex  7:  Breakdown  of  outstanding  amounts  per  country  (Bulgaria,  Romania  and
Turkey) according to risk coverage (situation at 31 December 2002).

Annex 8: Historical data on differences between EIB forecasts and loans signed.

Annex 9: Financial flows from and to the Guarantee Fund.

3

EXECUTIVE SUMMARY

Regulation N° 1149/1999 dated 25 May 1999 stipulates that a comprehensive  report
on the functioning of the Guarantee Fund (the “Fund”) has to be prepared at the latest
before  31  December  2006  or  at  the  time  of  the  conclusion  of  the  first  accession
agreement with new Member States. The present report accordingly covers the period
1998-2002.

The Fund has continued to fulfil its main objectives during the period 1998-2002 in
providing  a  liquidity  cushion  for  the  Community  budget  against  defaults  on
guaranteed  loans  and  as  a  mechanism  to  fix  a  financial  framework  for  Community
guarantees  covering  Commission  and  EIB  external  lending.  The  volume  of  defaults
has been low.

The  Fund  covers  guaranteed  loans  and  loan  guarantees  to  third  countries.  The
approaching  accession  of  10  countries  to  the  EU  in  2004  will  affect  the  Fund  as
several  of  these  countries  have  benefited  from  EIB  loans  guaranteed  by  the  EU
Budget. Guaranteed loans to these  countries will no longer be  covered by the target
amount  of  the  Fund  as  soon  as  they  join  the  European  Union.  The  guarantees
themselves  will  remain  in  place  but  the  outstanding  risk  will  be  borne  by  the  EU
budget  directly.  The  same  situation  will  arise  in  the  case  of  further  accessions.  The
Commission  is  proposing  an  amendment  to  the  Regulation  to  establish  rules  for
addressing all such situations.

On  the  basis  of  current  forecasts  for  guaranteed  loan  operations  and  the  proposed
revision to the general lending mandate for the EIB set out in the Commission’s mid-
term  review1,  no  immediate  requirement  to  change  the  parameters  of  the  Fund  has
been identified.

technical
The  Commission,  however,  envisages 
improvements to the Fund’s provisioning procedures in order to further facilitate the
functioning  of  the  Fund.  These  improvements  will  not  require  any  change  to  the
Regulation.

introduction  of  some 

the 

1 Mid-term  review  of  EIB  external  lending  Mandate  pursuant  to  Council  Decision  2000/24/EC  of

22 December 1999, as amended.

4

                                                
1.

INTRODUCTION

(EC,  Euratom)  No 2728/94  of  31 October 1994 

(“the
Council  Regulation 
Regulation”)  established  a  Guarantee  Fund  (“the  Fund”)  for  external  actions  so  that
the  Community’s  creditors  could  be  reimbursed  in  the  event  of  any  default  by  the
beneficiaries of loans granted or guaranteed by the Community.

A first review of the functioning of the  Fund took place in 1998 in accordance with
Article 9 of the Regulation that stipulated that “the Commission is to submit, before
31 December 1998, a comprehensive report on the functioning of the Fund”.

Regulation  N°  1149/1999  dated  25 May  19992 modified  Art.9 which  now  stipulates
that another report has to be prepared at the latest before 31 December 2006 and at the
time of the conclusion of the first  accession  agreement  with new Member  States.  In
view  of  the  signing  of  an  accession  agreement  by  10  States  on  16  April  2003  the
present report analyses:

– 

The functioning of the Fund

The Commission presents a brief analysis, in the light of the experience gained over
the  period  1998-2002,  of  the  results  achieved  by  the  Fund  as  compared  with  the
objectives  set.  This  covers  the  description  and  analysis  of  the  key  characteristics  of
the Fund such as liabilities, defaults covered by the Fund, and its financing.

– 

The impact of enlargement

The impact on the Fund of the accession of 10 new Member States on 1 May 2004 is
analysed.  The  report  examines  the  coverage  of  risk  on  the  outstanding  debt
guaranteed  by  the  EC  for  these  countries  and  the  nature  of  the  liabilities  to  be
assumed by the EU budget upon accession. The Commission is presenting separately
a proposal for the amendment of the Regulation establishing the Fund to take account
of this new situation and the impact on the Fund of future accessions.

– 

The assessment of the parameters of the Fund3

This  assessment  is  made  in  the  light  of  the  experience  gained  so  far  with  the
functioning of the Fund and the forecast volume of additional lending to be covered
by EU guarantee up to end-2006.

– 

Technical improvements in the functioning of the Fund

The  report  outlines  technical  changes  envisaged  to  improve  the  functioning  of  the
Fund without modifying any of its parameters.

2 Article  1  §  4.  of  the  regulation  1149/1999:  "The  Commission  shall  submit  to  the  European
Parliament and the Council comprehensive reports on the functioning of the Fund, both at the time
of  the  conclusion  of  the  first  accession  agreement  with  the  applicant  States,  and  before
31 December  2006.  The  Commission  shall,  if  necessary,  submit  to  the  Council  appropriate
proposals for modification of the parameters of the Fund."

3 Regulation N° 1149/1999 Article 1 § 4.

5

                                                
The annexes to this report set out financial data relating to the Fund’s results over the
period 1998-2002 and present  simulations  on  the  development  of  the  Fund  over  the
period 2002-2006.

2.

THE GUARANTEE FUND MECHANISM AND ITS MAIN CHANGES  DURING  THE
PERIOD 1998-2002

2.1

The objectives

Set up at a time when the guarantees on loans granted to non-member countries were
growing rapidly, the Fund and the related Reserve for Guarantees were intended:

–  to  provide  the  Community  with  an  instrument  to  protect  the  Community  budget
against  the  impact  of  Community  guarantees  being  called  in.  One  principal
function  of  the  Fund  is  therefore  to  provide  a  liquidity  cushion  in  order  to  avoid
calling  on  the  Community  budget  every  time  a  default  or  late  payment  on  a
guaranteed loan arises;

–  to  create  an  instrument  of  budgetary  discipline  by  laying  down  a  financial
framework  for  the  development  of  the  Community  policy  on  guarantees  for
Commission and EIB loans to non-member countries.

2.2

Key features

The Guarantee Fund mechanism covers lending in third countries through three very
different  mechanisms:  guarantees  of  European  Investment  Bank  (EIB)  external
lending, Euratom external lending and EU macro-financial assistance (MFA) loans to
third countries.

2.2.1 Main characteristics of guarantees given to the EIB

Loan guarantees are issued with respect to loans granted in third countries by the EIB.
When the recipient of a guaranteed loan fails to make a payment on the due date, the
EIB  asks  the  Community  to  pay  the  amounts  owed  by  the  defaulting  debtor  in
accordance with the respective guarantee contract. The  amounts must  be paid to the
EIB  within  three  months  of  receiving  the  EIB’s  request.  The  EIB  always  seeks  a
second  public  or  private  guarantor  in  addition  to  the  Community  guarantee  and  is
obliged to activate such third party guarantees before a call under the EU guarantee is
paid (for more details on the type of guarantees see point 4. below).

Since  the  entry  into  force  of  the  Regulation,  the  Fund  provides  the  liquidity  for  the
payments to the EIB under defaulted loans.

An  implementation  agreement  was  concluded  between  the  Community  and  the  EIB
on  20  and  22 January  1999  to  determine  payment  and  repayment  procedures  in
connection with Community guarantees to the EIB.

6

2.2.2 Borrowing/lending operations covered by the Fund

In  this  type  of  operation  covered  by  the  Fund,  the  Community  borrows  on  the
financial market and on-lends the proceeds (at the same rate and for the same term) to
non-member countries (macro-financial assistance MFA) or to companies (Euratom).

The  loan  repayments  are  scheduled  to  match  the  repayments  of  the  borrowings  due
from the Community.  If  the  recipient  of the  loan is late  in  making  a  repayment,  the
Commission must draw on its resources to repay the borrowing on the due date. The
funds needed to pay the budget guarantee in the event of late payment by the recipient
of a loan granted by the Community are raised as follows:

a)

b)

c)

the  amount  required  may  be  taken  provisionally  from  cash  resources  in
accordance  with  Article  12  of  Council  Regulation  (EC,  Euratom)
No 1150/2000 of 22 May 2000, implementing Decision 94/728/EC, Euratom,
on  the  system  of  the  Community’s  own  resources.  This  method  is  used  so
that  the  Community  can  immediately  repay  the  borrowing  on  the  date
scheduled even in the event of late payment by the recipient of the loan;

if  the  delay  extends  to  three  months  after  the  due  date,  the  Commission
draws on the Fund to cover the default;

in  the  unlikely  event  that  there  are  insufficient  resources  in  the  Guarantee
Fund, the  Council  Regulation  No 1150/2000  envisages  a  transfer  procedure
to  provide  the  budget  with  the  appropriations  needed  to  cover  the  default.
Under  this  procedure  any  margin  available  in  the  guarantee  reserve  (see
below) would be drawn on first.

2.2.3 Provisioning the Guarantee Fund

The overall annual amount of lending and guaranteeing is constrained by the Reserve
for loans and loan guarantees in third countries (the “Reserve”)  for provisioning  the
Guarantee Fund, although the ceilings for EIB external lending are set by the Council
and  cover  a  number  of  years  without  annual  ceilings.  If,  subsequent  to  the  relevant
Council  Decisions  granting  the  guarantees  to  the  EIB,  the  resources  of  the  Fund
became  inadequate,  it  would  be  a  matter  for  the  budgetary  authority  to  honour  any
EIB  calls  on  the  Community  guarantee.  The  Inter-institutional  Agreement  of
29 October 1993  on  budgetary  discipline  and  improvement  of  the  budgetary
procedure and the Inter-institutional Agreement of 6 May 1999 provided for the entry
of a reserve for loan  guarantees  and  guaranteed loans to non-member countries  as a
provision in the general budget of the European Communities. The annual amount of
the  guarantee  Reserve  is  defined  in  the  Financial  Perspectives  for  2000-2006,
i.e. € 200 million at 1999 prices4.

4 The  conditions  for  the  entry,  use  and  financing  of  the  guarantee  reserve  are  laid  down  in  the

following decisions:
(cid:1)  Council Decision 94/729/EC of 31 October 1994 on budgetary discipline.

(cid:1)  Council  Regulation  (ECSC,  EC,  Euratom)  No 2730/94  of  31  October  1994  amending  the
Financial  Regulation  of  21  December  1977  applicable  to  the  general  budget  of  the  European
Communities.

7

                                                
This Reserve amount and the rules of the Fund limit the lending/guarantee capacity to
about € 3 billion per year (depending on the guarantee rate). In principle, whenever a
new loan or loan guarantee is decided, a certain fraction of the capital amount of that
loan  or  guarantee  has  to  be  provisioned  out  of  the  Reserve.  The  provisioning  rate
together with the amount of the Reserve therefore determines  the  overall  amount  of
possible lending or guaranteeing. If, for example, all loans and  guarantees had to be
fully provisioned and the provisioning rate was 10 per cent, a reserve amount of € 100
would constrain the lending and guarantee capacity to € 1000 per year. In practice the
situation is complicated by the different treatment of loans and guarantees.

The base for the provisioning  differs  according  to  the  guarantee  rate  applicable.  All
Euratom and MFA loans are guaranteed at a rate of 100%, i.e. the provisioning rate is
applied to the total amount of the loan. The loan guarantees granted to the EIB vary,
depending on the loan portfolio concerned. For each loan portfolio, the EIB receives a
guarantee  expressed  as  a  percentage  of  the  total  portfolio.  Within  each  portfolio
individual  EIB  loans  are,  de  facto,  guaranteed  at  100%  until  the  global  ceiling  is
reached5.  In  order  to  determine  the  amount  to  be  provisioned  in  the  Fund,  in  a  first
step,  the  total  loan  amounts  are  multiplied  by  the  respective  guarantee  percentages.
The result of this calculation is then multiplied by the provisioning rate.

Historically  the  amounts  paid  into  the  Fund  were  obtained  by  applying  the  rate  of
provisioning (14%) to the calculation base set out above. Pursuant to Articles 2 and 4
of the Regulation establishing the Fund, the Fund was endowed by payments from the
general budget equivalent to 14% of the capital value of the operations until it reached
the target amount. As this had been reached at 31 December 1997, the Commission,
in  accordance  with  the  Regulation,  submitted  proposals  to  review  the  rate  of
provisioning. These proposals appear in the comprehensive report on the functioning
of  the  Fund  which  the  Commission  drew  up  in  accordance  with  Article 3  of  the
Regulation (COM(1998) 168 final of 18 March 1998). Based on these proposals, the
Regulation  was  amended  by  Council  Regulation  (EC,  Euratom)  No  1149/1999  of
25 May 1999 under  which  the  provisioning  rate  for  the  Fund  and  the  target  amount
was fixed at 9% from 1 January 2000.

The target  amount of the Fund  relates the  outstanding  amount  of  the loans  and  loan
guarantees  covered by the  Fund  to the size of the Fund’s assets. At the  end of  each
year the Fund’s assets are compared with its target amount, obtained by multiplying
the total of guaranteed loans and loan guarantees by the target rate. Excess amounts
are reimbursed to the Community budget 6.

(cid:1)  Council  Decision  94/728/EC  of  31 October 1994  on  the  system  of  the  Communities'  own

resources.

(cid:1)  Council  Regulation  (EC,  Euratom)  No  2728/94  of  31  October  1994  establishing  a  Guarantee
Fund  for  external  actions  modified  by  Council  Regulation  (EC,  Euratom)  No  1149/99  of
25 May 1999.

5 Given  the  particular  risk  involved,  a  100%  guarantee  was  granted  to  the  EIB  in  the  case  of  the
mandate  Baltic  Sea  Russia  Special  Action.  While  older  global  loan  guarantees  for  the  EIB  had
guarantee rates of 75 % and 70 %, under the current 2000-2007 general mandate only 65% of the
EIB lending envelope for third countries is guaranteed by the Community.

6 Should the amount of the Reserve be insufficient, Article 5 of the Regulation N° 2728/1994 will be

applied.

8

                                                                                                                                           
In  practical  terms,  the  provisioning  of  the  Fund  follows  different  rules  according  to
the type of operation covered. In the case of EIB loans, the provisioning of the Fund
currently takes place at the beginning of each year, based on the forecast provided by
the  EIB  of  total  loans  to  be  signed  in  the  respective  year.  These  preliminary  EIB
forecasts  have  regularly  exceeded  the  final  amount  of  loans  signed  in  the
corresponding year. The difference between forecast and realisation is balanced at the
end of each year when the Fund is aligned to its target amount (see paragraph above).

In the case of MFA loans, the provisioning takes place at the moment of the decision
of  the  Council  to  grant  macro-financial  assistance,  i.e.  on  an  individual  basis.  This
procedure is also applied even if the loan is paid out in several tranches over a period
of more than one year. Euratom loans, on the other hand, are under current rules fully
provisioned at the time of the signature of the loans.

3.

3.1

DEVELOPMENT  AND PERFORMANCE  OF  THE  GUARANTEE  FUND  OVER  THE
PERIOD 1998-2002

Protection  given  by  the  Fund  against  unforeseen  demands  on  budget
appropriations in the event of default

Chart 1
Cover of defaults by Fund ressources ( in € mio)

1.280

1.313

1.432

1.774

1.646

862

557

291 301

53

50

15

16

17

10

0

1995

1996

1997

1998

1999

2000

2001

2002

Calls to the Fund

Fund ressources

Since  its  beginning  in  1994,  the  Fund  has  prevented  any  disruption  of  budget
implementation  that  would have occurred  as a  result  of  the  defaults  on  payments  to
the Community. Chart 1 shows how the Fund has succeeded in absorbing the impact
of calls on the guarantee.

Had  it  not  been  for  the  Fund,  the  Community  would  repeatedly  have  had  to  use
budgetary resources to provide the necessary guarantees and this would have required
redeployment of appropriations in the course of budget implementation. Since 1998,
11 calls for a total of € 58,8 million have been handled through the Fund mechanism,
all concerning guarantees issued to the EIB for loans in the former Yugoslavia7. (see
Table 3 below).

7

It should be noted that in December 2002, a call on the Fund was made by the EIB for a guaranteed
loan in Argentina. The connected payment however was made in February 2003.

9

                                                
Table 2 provides details of the financial movements on the Fund.

Table 2             Revenues of the Fund over the period 1994 - 2002  ( in euros  )

Year

1994

1995

1996

1997

1998

1999

2000

2001

2002

Financial interest 
earned  

  transfers from the 
Reserve 

Recovery of 
defaults 

Total

478.331

23.539.828

19.842.550

34.506.566

50.185.883

48.562.535

62.728.174

74.040.184

80.527.994

293.720.000

251.000.000

235.000.000

286.095.000

272.389.000

300.069.000

186.290.500

207.176.000

166.720.000

35.630.569

55.715.204

45.033.282

185.299.547

5.318.632

135

241.220.210

0

294.198.331

310.170.397

310.557.754

365.634.848

507.874.430

353.950.167

249.018.809

522.436.394

247.247.994

Total

394.412.045

2.198.459.500

568.217.579

3.161.089.124

Several  factors  have  contributed  to  the  Fund’s  continued  growth  during  the  period
under review:

– 

Substantial payments from the Reserve: between 1998 and 2002, aggregate
payments  into  the  Fund  from  the  reserve  totalled  € 1.136,4 million,  as
compared with € 5.877 million in new loans guaranteed, with a provisioning
rate of 14% for the 1998-2000 period  and 9% for 2000-2002 (see Table 2).
The  income  generated  by  the  investment  of  Fund  resources  also  made  a
significant contribution to the growth of the Fund. During the exercise 2002,
interest  earned  by  the  Fund  represented  38  %  of  the  Reserve  for  loans  and
loan  guarantees  in  third  countries,  or  47%  of  the  amount  effectively  drawn
from this Reserve in 2002.

10

– 

Defaults covered by the Fund since 1998: as is shown by Table 3 below, the
level  of  disbursements  from  the  Fund  (aggregate  disbursements,  net  of
reimbursements) has since its conception never exceeded 5% of liabilities for
guarantees.  The  highest  percentage  during  the  reporting  period  1998-2002
was  the  result  of  defaults  on  EIB  loans  in  Republics  of  the  former
Yugoslavia.  These  loans  are  amortised  and  arrears  have  been  repaid  to  the
Fund respectively in 2000 and essentially in 2001.

Table 3                 Calls on the Fund and defaults as a Percentage of loan liabilities ( in euros )

Year

Loan Liabilities (1)

Calls on the Fund  (2)

Calls on the Fund in 
% (2/1)

Recovery of defaults 

Type of loans under 
default

1994

1995

1996

1997

1998

1999

2000

2001

2002

Total

– 

– 

5.962.000.000

6.312.000.000

6.523.000.000

8.879.000.000

9.481.000.000

11.830.000.000

13.621.000.000

15.391.000.000

15.358.000.000

0

303.072.580

52.540.497

54.290.854

15.407.950

16.247.804

16.852.308

10.004.248

0

468.416.241

0,00%

4,80%

0,81%

0,61%

0,16%

0,14%

0,12%

0,07%

0,00%

0

35.630.569

EIB/EC loans

55.715.204

EIB/EC loans

EIB loans

EIB loans

EIB loans

EIB loans

EIB loans

45.033.282

185.299.547

5.318.632

135

241.220.210

0

568.217.579

The  stability  of  guarantee  disbursements  from  the  Fund:  disbursements
from  the  Fund  amounted  to  €  410  million  during  the  period  1994-1997.
During the period 1998-2002 they declined substantially and never exceeded
€ 17 million. In 2002, there was no call on the Fund. The ratio between the
liabilities  and  the  disbursements  has  steadily  declined.  There  were  also
significant  financial  flows  in  the  opposite  direction:  during  the  1998-2002
late
period  € 432 million  were  recovered  by  the  Fund  by  way  of 
reimbursements (see Table 3)

The  total  volume  of  liabilities  covered  by  the  Fund  has  substantially
increased  since  1998:  guaranteed  liabilities  rose  from  € 9.481 million  in
1998 to € 15.358 million at the end of 2002. Over the same period the Fund
itself grew € 365 million from € 1.280 million to € 1.646 million. The Fund
exceeded its target amount (initially 10% then 9% of liabilities on loans) at
the end of each year of the whole 1998-2002 period, giving rise to transfers
of  the  excess  amounts  to  the  budget  (for  more  detail  see  Annex  3  and
Annex 8).  Yet  there  has  been  no  decrease  in  lending  activities  since  1998;
indeed,  the  volume  of  new  guaranteed  operations,  all  three  instruments
together,  has 
these
operations are spread over several years). Over the same period, however, the
amounts reimbursed on earlier guarantees have amounted to € 4.574 million.

increased  by  € 5.877 million  (disbursements  for 

11

 
 
The  theoretical  maximum  annual  risk  borne  by  the  Community  budget  from
guaranteed  loans  and  loan  guarantees  can  be  calculated  as  the  estimated  amount  of
principal and interest due each financial year, assuming that all payments due would
be  in  default.  The  resulting  figure  (annual  liquidity  risk)  represents  the  maximum
stress  for  the  Community  budget.  In  this  estimation8  all  operations  –  disbursed,
adopted and proposed – are included. This annual liquidity risk is estimated to amount
to € 1.915 million in 2003 rising to € 3.098 million by 2006.

Table 4:                     Maximum annual risk borne by the Community Budget

 Non EU countries

2003

2004

2005

2006

Total

Principal

  A. EC loans

  B. Euratom

  C. EIB loans

Interest

  A. EC loans

  B. Euratom

  C. EIB loans

115

145

133

131

524

1.004

1.235

1.223

1.554

5.016

 sub-total

1.119

1.380

1.356

1.685

5.540

51

745

796

48

5

947

42

7

38

9

1.159

1.366

179

21

4.217

1.000

1.208

1.413

4.417

 sub-total

 Non EU countries - Total

1.915

2.380

2.564

3.098

9.957

NB: estimate in MEUR based on all operations disbursed, adopted and proposed  
by the Commission at 31.12.2002
This Table does not take into account the impact of enlargment

The  Fund’s  assets  (1.646  million)  cover  88  %  of  the  annual  liquidity  risk  in  2003.
Based  on  available  forecasts  on  guaranteed  lending  activities,  it  is  estimated  that  in
the coming years, this annual risk coverage ratio is expected to decline, and to reach
approximately 46 % in 2006.

An important explanation for this trend is the increasing repayments of principal due
on EIB loans issued under the 2000-2007 lending mandate, which have a particularly
important effect in 2006.

8 Only  an  estimation  is  possible  as  changes  in  interest  and  exchange  rates  as  well  early

reimbursements (assumed to be zero in this context) cannot be forecast with certainty.

12

 
                                                
Table 5:                       Annual risk coverage ratio of the Guarantee Fund 

2002

2003

2004

2005

2006

Risk on Non EU Countries

   Principal
   Interest

1.057
807

1.119
796

1.380
1.002

1.356
1.210

1.674
1.417

Total

1.864

1.915

2.382

2.566

3.091

Guarantee Fund

1.646

1.683

1.545

1.457

1.410

Risk coverage ratio

88%

88%

65%

57%

46%

The  trend  in  liquidity  coverage  does  not  imply  a  growing  risk  of  default  and  the
forecast  ratios  are  considered  to  be  sufficient  for  covering  such  risks.  It  should  be
recalled that actual loan defaults on EIB lending, representing about 90% of the risks
covered by the Fund, have remained so far at a very low level of less than 1% of the
EIB guaranteed loans.

3.2

Budgetary discipline

As explained above, the parameters of the Fund place an upper limit for the maximum
amounts  available  for  guaranteed  loans  or  loan  guarantees.  On  the  occasion  of  the
decision  on  the  Regulation  of  1999  amending  the  Regulation  establishing  the  Fund,
the  Council  expressed  the  hope  that  the  main  parameters  of  the  Fund  mechanism
could  be  kept  at  their  present  level  until  2006  in  order  to  maintain  budgetary
discipline.

The  aim  to  maintain  budgetary  discipline  has,  however,  to  be  judged  against  the
political objectives of the Community that relate to granting loans in third countries.
The Commission is presenting separately its mid-term review of the 2000-2007 EIB
external  lending  mandate,  with  proposals  for  restructuring  the  mandate  and  to
introduce  a  new  envelope  for  EIB  lending  to  Russia  and  the  Western  NIS.  These
Commission proposals can be contained within the ceilings currently available in the
Fund. The margin available in the Fund for further increases of guaranteed operations
beyond  those  now  proposed  for  the  remaining  period  of  the  financial  perspectives
amounts to € 80 million until 2006 which corresponds to € 891 million in additional
guaranteed lending operations (see Tab 7 for details). This amount effectively sets a
budgetary  ceiling  on  additional  needs  for  MFA  and  Euratom  lending  in  this  period
beyond those foreseen at present, on the basis of the existing parameters of the Fund.
This situation is examined further in section 5.

13

 
 
 
 
 
 
 
 
 
 
 
4.

IMPACT OF ENLARGEMENT ON THE GUARANTEE FUND

The  Fund  covers  the  risk  of  loans  and  loan  guarantees  to  third  countries9.  The
approaching accession of 10 countries to the EU in 2004 will therefore affect the Fund
as  several  of  these  countries  have  benefited  from  EIB  loans  guaranteed  by  the  EU
Budget.  It  should  be  noted  that  there  are  no  MFA  or  Euratom  loans  outstanding  in
these countries.

The  guaranteed  loans  to  these  countries  will  no  longer  be  covered  by  the  target
amount  of  the  Fund  as  soon  as  they  join  the  European  Union  and  thus  cease  to  be
“third  countries”.  It  should  be  stressed  that  this  does  not  mean  a  withdrawal  of  the
guarantee from these loans, rather that a call on such a guarantee would impact on the
EU budget directly. This implies that any call on the guarantee for these loans would
have to be provisioned via a dedicated budget line and would impact directly on the
contribution of Member States to the budget.

A  proposal  for  an  amendment  to  the  Council  regulation  on  the  Fund  is  being
presented by the Commission to fix the rules for an orderly transfer of these liabilities
from the Fund to the budget. These rules will apply to similar situations arising under
future  accessions.  According  to  forecasts  for  1  May  2004,  the  outstanding  amount
affected will be about € 3.808 million.

If  it  is  assumed  that  all  10  new  Member  States  will  accede  to  the  EU  as  of  1  May
2004, then the withdrawal of the outstanding amount of guaranteed loans to these ten
states  from  the  Fund  would  imply  that  the  Fund  would  be  reduced  by,  and  the  EU
budget  receive  an  estimated  amount  of  about  €  343  million10.  Since  the  credit  risk
reflected  in  such  loans  would  have  to  be  directly  assumed  by  the  EU  budget  and
frequent significant calls directly on the budget would create uncertainties for budget
execution, it is appropriate to analyse the nature of this credit risk in some detail.

The  credit  risk  relating  to  these  loans  concerns  two  types  of  risk:  political  risk  and
commercial risk. The Community guarantee always covers the ultimate political risk.
However in some cases, the Community guarantee also covers the commercial risk of
a loan.

The  distinction  between  commercial  and  political  credit  risk  for  the  Community
budget concerning the EIB loans under guarantee can be  evaluated  by  analysing  the
three possible configurations of risk coverage that exist:

1)

loans under the Risk Sharing scheme : under the Risk Sharing scheme11, the
EIB  assumes  the  commercial  risk,  and  the  Community  budget  only  the
political risk;

9 Annex to the Council Regulation (EC, EURATOM) No 2728/94 of 31 October 1994
10 Calculated at the current target rate of 9%. The application of historical rates is not considered as
the rebalancing mechanism of the fund has effectively reduced the provisions for these loans to 9%.
11 For  a  more  detailed  discussion  of  the  risk  sharing  see:  Commission  Report  to  the  European
Parliament and the Council Mid-term review of EIB external lending Mandate pursuant to Council
Decision 2000/24/EC of 22 December 1999, as amended.

14

                                                
2)

3)

loans  without  risk  sharing  but  with  a  third-party  guarantee  of  a  public
authority : due to the sovereign nature of the guarantee, the residual risk for
the Community budget is limited to the political risk; and

loans without risk sharing but with a third-party guarantee of a private entity
(financial institution, enterprise, etc.) : in these cases, the Community budget
is  also  exposed  to  the  commercial  risk  as  it  cannot  be  assumed  that  the
private guarantor will always honour its guarantee.

The  table  below  indicates  the  risk  coverage  of  the  guaranteed  loans  to  the  ten  new
Member States as of the accession date12.

TAB 6: Breakdown of outstanding amounts per country according to the risk coverage at 01.May 2004 (in EUR )

Country

No commercial risk

Risk-sharing 1
1

Public guarantees 2
2

Residual 
commercial risk 3

Total 1+2+3

% of loans with no 
commercial risk

% of loans with 
commercial risk

3

4

5

6

  CYPRUS
  ESTONIA
  HUNGARY
  LATVIA
  LITUANIA

  MALTA
  POLAND
  SLOVAKIA
  CZECH REP
  SLOVENIA

  Sub-total

  Total

0
0
16.514.788
0
9.447.234
0
24.824.681
360.988.450
0
112.952.308

524.727.461

128.416.462
26.308.254
224.222.850
43.106.605
126.598.233
7.954.959
707.817.360
415.979.952
730.228.724
139.404.746

0
4.538.118
183.948.901
6.021.879
0
0
241.506.067
78.186.978
219.014.280
0

128.416.462
30.846.372
424.686.539
49.128.484
136.045.467
7.954.959
974.148.108
855.155.380
949.243.004
252.357.054

2.550.038.145

733.216.223

3.807.981.829

3.074.765.606

100%
85%
57%
88%
100%
100%
75%
91%
77%
100%

86%

0%
15%
43%
12%
0%
0%
25%
9%
23%
0%

14%

1 loans under the risk sharing agreement : the EIB assumes the commercial risk, the Community budget only the political risk

2 loans without risk sharing but with a third-party guarantee of a public authority : due to the sovereign nature of the guarantee, the residual risk for the 
Community budget is limited to the political risk

3 loans without risk sharing but with a third-party guarantee of a private entity (financial institution, enterprise, etc.)

The  entry  of  the  new  Member  States  to  the  European  Union  implies  that  only  the
commercial risk of those loans not covered by the Risk Sharing scheme with the EIB
need now to be considered as a risk for the budget. The residual commercial risk for
the EU budget, and therefore Member States, could materialise if both the commercial
project and  the private  guarantor  would not  be  able to service the debt  according  to
the loan contract. At present, 68 out of the 264 projects realised in the new Member
States fall in this category. This maximum risk exposure will, due to amortisation of
the loans, decrease over time. Annex 2 shows the development of the maximum risk
exposure  of  the  commercial  risk  that  would  fall  from  €853,7  million  at  the  end  of
2002 to € 733,2 million at the time of the accession.

At the end of the financial perspectives in 2006, the commercial risk on the amount
outstanding for the 10 new Member States will have fallen to about € 480 million. In

12 These figures are estimates as certain details such as interest and exchange rate developments, early
reimbursements etc. cannot be known with certainty. The situation as of 31 December 2002 and a
table providing information on the reimbursement pattern of these loans can be found in the annex.

15

 
 
                                                
2021  the  last  loan  to  the  10  new  Member  States  will  have  been  repaid  (see  also
Annex 4).

While it is not possible to quantify the probability of a default of the individual loans
concerned,  it  should  be  noted  that  during  the  reporting  period  there  has  not  been  a
single case where the Guarantee Fund has been called to assume the commercial risk
of a loan. In other words, the debtors or their private guarantors have in the past been
always able to service the respective loans.

This  analysis  of  the  risk  coverage  of  guaranteed  EIB  loans  to  the  10  new  Member
States suggests therefore that it seems feasible to withdraw these loans from the Fund
as  of  the  date  of  accession.  The  additional  contingent  liability  on  the  EU  budget
appears to be acceptably low.

As enlargement takes place on 1 May 2004, this would give rise to a special transfer
from the Fund to the EU budget. The amount of the transfer would be calculated on
the basis  of the  outstanding  amount  of  guaranteed  loans  to  the  new  Member  States.
The  amounts  of  the  loans  would  then  be  multiplied  by  the  target  rate  of  9%.  The
amount calculated that way is then to be transferred from the Fund to the EU budget.

It  should  be  noted  that  a  decision  to  transfer  the  credit  risk  of  the  10  new  Member
States  covered  by  the  Fund  directly  to  the  EU  budget  would  create  a  precedent  for
future enlargements. Therefore the risk situation concerning the three applicant states,
Turkey, Bulgaria and Romania, should also be mentioned. The amount of the overall
risk for these 3 countries on 31 December 2002 was € 2.457 million. There were no
loans with a commercial risk (see annex 7).

5.

THE PARAMETERS OF THE GUARANTEE FUND

The  capacity  of  the  Guarantee  Fund  to  absorb  the  planned/estimated  guaranteed
operations by the Commission (macro-financial assistance and Euratom) and the EIB
is  an  important  indicator  for  the  evaluation  of  the  appropriateness  of  the  Fund’s
parameters. Table 7 below shows the Fund’s capacity on the basis of EU guaranteed
lending (MFA, Euratom) forecasts as of May 2003 and the Commission’s proposals
set  out  in  the  review  of  the  EIB  external  lending  mandate  2000-2007.  The  forecast
covers only the period remaining within the existing Financial Perspectives, i.e. 2003-
2006 represent a ceiling on EIB lending. While the amount for the EIB represents a
ceiling,  the  figures  for  Euratom  and  MFA  are  only  indicative.  Decisions  on  macro-
financial  assistance  are  made  on  an  ad  hoc  basis,  while  the  trend  in  future  Euratom
lending  will  depend  both  on  the  available  loan  volume  set  by  the  Council  and  the
speed at which acceptable projects to enhance safety are put forward.

16

TAB 7:             Amounts of loans and Loan guarantees to be provisioned under the Reserve for guarantees ( in € mio )

at 26 June 2003

loan

provision.

loan

provision.

loan

provision.

loan

provision.

2003

2004

2005

2006

Expected

Expected

Expected

Expected

Expected

Expected

Expected

Expected

        Amount of the reserve 

        Total lending and guarantee capacity

1. GUARANTEES OF EIB LOANS 1

Decided operations

2000-2007 general lending mandate 
correction forecasted/realized  2 

Special Turkey reconstruction facility
correction forecasted/realized  2

Baltic sea Russia special action
correction forecasted/realized  2

amounts

amounts

amounts

amounts

217

2411

3709

min.  6
max.  7

221

2456

3778

225

2500

3846

229

2545

3915

3.015,00

-525,00

150,00

-150,00

40,00

-25,00

176,38

2.953,00

172,75

3.148,00

184,16

3.249,00

190,07

-30,71

8,78

-8,78

3,60

-2,25

60,00

5,40

Additionnal EIB Operations ( at 65% guarantee rate)

0,00

0,00

0,00

0,00

0,00

s/total BEI  8 9

2.505,00

147,02

3.013,00

178,15

3.148,00

184,16

3.249,00

0,00

190,07

2. MACROFINANCIAL ASSISTANCE LOANS

Possible operations 3
Serbia and Montenegro 
Moldova

3. EURATOM LOANS

Provisional estimates
Ukraine   4
 Romania 5

s/total MFA  

s/total Euratom  

30,00
-15,00
15,00

223,50

223,50

2,70
-1,35
1,35

0,00

20,12

20,12

250,00

22,50

250,00

22,50

250,00

22,50

250,00

22,50

250,00

22,50

250,00

22,50

154,00

13,86

0,00

0,00

154,00

13,86

0,00

0,00

Use of the reserve (1+2+3)

2.743,50

168,48

3.263,00

200,65

3.552,00

220,52

3.499,00

212,57

Margin within the reserve (after provisioning of above-indicated 
loans)

Residual lending and guarantee capacity  100%

Residual lending and guarantee capacity    65% 

48,52

539,11

829,40

min.  6
max.  7

20,35

226,11

347,85

4,46

49,56

76,24

16,46

182,90

281,39

1  The figures mentioned under the 2000-2007 general lending mandate include the amounts for Croatia and the Federal Republic of Yugoslavia and those for the 
Turkey customs special action.

2  Correction of estimated levels of implementation for the 2002 provisioning

3  On the basis of EC forecasts

4  For Ukraine, under the envisaged EUR 657 million loan for the K2R4 project, EUR 503 million are already provisioned from previous years and EUR 154 million are planned to 
be provisioned in 2005. For 2006, figures are subject to receipt of applications.

5  For Romania, the estimated amount corresponding to the Cernavoda 2 project is still tentative and subject  to a Commission decision

6  For macro-financial assistance and Euratom loans.

7  For guarantees of EIB loans.

8  The amount of € 2.505 mio includes correction for the year 2002 and does not reflect the amount of new EIB loans expected for the year 2003 ( € 3.205 Mio) which is the 
aggregate of € 3.015 mio + € 150 mio + € 40 mio).

9  including Russia/WNIS

Table  7  clearly  shows  that  the  Fund’s  absorption  capacity  is  sufficient  to
accommodate the planned and forecast lending operations. It should however be noted
that the remaining margin of manoeuvre is rather limited. For the whole period 2004-
2006 the cumulated margin for  additional  guaranteed loans  is estimated to be €  459
million in the case of macro-financial  assistance  and Euratom  (at  a  100%  guarantee
rate).

5.1

The target amount and the Fund’s capacity for guaranteed lending

While  therefore  there  is  no  immediate  need  to  consider  changes  in  the  Fund’s
parameters, the Commission is keeping the question under review so as to be able to
respond  as  necessary  to  unforeseen  future  developments  in  lending  and  guarantee
requirements.

In 1998, the Commission proposed (COM(1998)168 final – 98/0117(CNS)) a revision
of the existing parameters of the Fund by lowering the target amount from 10% to 8%
and  the  provisioning  rate  from  14%  to  6%.  Experience  of  the  functioning  of  the
Guarantee Fund at that time indicated that a ratio of 8% between the Fund’s resources

17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
and guaranteed liabilities, would have been adequate. In addition, the provisioning of
the  Guarantee  Fund  at  a  6%  rate  was  deemed  sufficient  to  attain  the  target  amount.
Therefore, the Commission proposed that the  Council should decide to  modify  both
the target amount and the provisioning rate. The Council fixed both rates at 9%, i.e. at
levels above those suggested by the Commission. However, in parallel, the Budgetary
Authority decided  to  lower,  more than  proportionally,  the  amount  of  the  reserve  for
Guarantees  from  €356  million  to  €200  million  for  1999.  This  adjustment  led  to  a
further tightening (by 13% in terms of MFA and Euratom operations) of the limit in
the external lending and guarantee capacity of the Community.

Experience  since  1998  suggests  that  a  provisioning  rate  of  9%  may  be  higher  than
necessary  to  meet  the  Fund’s  liquidity  requirements,  taking  into  account  interest
earned on the Fund’s invested assets. If additional annual guarantee capacity were to
be  needed  therefore,  this  could  be  relatively  easily  achieved  by  adjusting  the
provisioning  rate.  This  measure  would  increase  the  available  margin  for  new  loans
without any additional financial resources needed. A simulation of a decrease of the
provisioning rate can for information purposes be found in the annex. A decrease in
the  provisioning  rate  of  1%  would,  for  example,  allow  the  provisioning  of  €312
million in additional macro-financial assistance or in Euratom lending initiatives over
the period 2004-2006.

A modification of the target rate, on the other hand, would necessitate a fuller review
of  the  underlying  loans  and  guarantees.  There  are  however  good  grounds  for
considering that the target rate is unduly high. First, calls on the Fund have been very
low and would  have to increase substantially  before  affecting  the  liquidity  provided
by  the  Fund.  Second,  the  effective  target  rate  is  considerably  higher  than  9%  since,
under  the  Regulation,  the  target  volume  includes  100%  of  total  outstanding  of  EIB
lending rather than the total outstanding contingent liabilities falling on the EU budget
(which are limited under most current Mandates to 65% of the total volume).

5.2

Terms and conditions of the Community Guarantees to the EIB

Given  the  historically  low  default  rate  and  the  additional  security  of  third  party
guarantees,  coverage  of  65  %  of  the  EIB  loan  portfolio  exposure  also  appears  to  be
extremely  prudent.  The  risks  in  the  EIB’s  guaranteed  loan  book  will  be  affected,
however, to some extent by the shift away from enlargement countries towards other
countries with a higher credit risk.

In addition, as shown in table 5, (the “worst-case” scenario), the annual risk coverage
ratio will deteriorate over the period 2003-2006.

Against  that  background  it  does  not  appear  opportune  to  propose  any  change  in  the
rate  of  coverage  at  this  stage.  But  this  will  need  to  be  re-examined  in  depth  as  the
current  mandates  come  to  an  end  and  the  arrangement  under  the  new  Financial
Perspective are considered.

18

6.

TECHNICAL IMPROVEMENTS

As  can  be  seen  from  Annex  8,  the  provisioning  of  the  EIB  guaranteed  loans  that  is
based on the EIB forecast for each year, has always exceeded the realisation of loan
signatures as recorded at the end of such year. This leads to an unnecessary strain on
the  margins  and  the  risk  of  apparent  excess  demand  for  Fund  resources  at  the
beginning of each year.

In  order  to  avoid  this  problem,  the  Commission  services  are  considering  the
possibility of changing the timing of provisioning of EIB loans. Under this scenario,
at  the  beginning  of  each  year  the  EIB  would  present  a  preliminary  forecast  for  the
whole year and a more precise forecast for the first 6 or 7 months. On the basis of the
latter, a first provisioning of the Guarantee Fund would take place at the beginning of
each year, in line with the present procedure.

Towards the middle of each  year, the EIB would provide the latest available figures
on  the  realised  signatures  for  the  year  and  an  updated  forecast  for  the  remainder  of
that year. On the basis of this information, a second provisioning would take place for
the second half of the  year. At this time, the competent Commission services would
also collect updated forecasts for MFA and Euratom loan decisions/signatures for the
remainder  of  the  year  (on  the  basis  of  realised  loan  decisions/signatures  and  an
improved forecast).

The  likelihood  of  a  conflict  concerning  the  utilisation  of  the  Reserve  should  at  this
stage be much lower than at the present, as the over-estimations current in the actual
system  would  be  less  likely.  Forecasts  for  a  shorter  period  of  time  have  a  higher
probability  of  being  correct.  If  this  analysis  is  confirmed  by  further  discussion  with
the  EIB,  the  Commission  intends  to  implement  this  technical  change  from  2004.

19

ANNEXES

Annex 1: Breakdown of outstanding amounts per country according to risk coverage
(situation at 31 December 2002).

Annex  2:  Outstanding  amounts  on  EIB  guaranteed  loans  signed  with  amortisations
over the 2003-2006 period.

Annex 3: The Fund over the 2002-2006 period based on current parameters.

Annex  4:  Outstanding  amounts  on  EIB  guaranteed  loans  signed  in  favor  of  the  10
new Member states.

Annex  5:  Theoretical  assumptions  based  on  the  provisioning  and  guarantee  rates
parameters.

Annex  6:  Use  of  the  Reserve  in  the  framework  of  the  2000-2006  Financial
Perspectives.

Annex  7:  Breakdown  of  outstanding  amounts  per  country  (Bulgaria,  Romania  and
Turkey) according to risk coverage (situation at 31 December 2002).

Annex 8: Historical data on differences between EIB forecasts and loans signed

Annex 9: Financial flows from and to the Fund.

20

ANNEX 1: Breakdown of outstanding amounts on EIB loans per country according to the Risk coverage at 31.12.2002 (in EUR )

No commercial risk

Country

Risk-sharing 1

Public guarantees 2

Residual 
commercial risk 3

Total 1+2+3

% of loans with no 
commercial risk

% of loans with 
commercial risk

CYPRUS

ESTONIA
HUNGARY
LATVIA
LITUANIA
MALTA
POLAND

SLOVAKIA
CZECH REP
SLOVENIA
Sub-total

Total

1

0
0
21.590.527
0
10.489.177
0
28.142.916
399.975.877
0
111.890.900
572.089.397

2
148.799.268
31.441.202
293.136.045
48.066.865
140.560.853
10.604.481
802.429.029
460.906.563
802.345.857
200.656.589
2.938.946.752

3

0
5.423.770
240.484.166
6.714.852
0
0
273.787.406
86.631.317
240.644.054
0
853.685.565

3.511.036.149

4

5

6

148.799.268
36.864.972
555.210.738
54.781.717
151.050.030
10.604.481
1.104.359.351
947.513.757
1.042.989.911
312.547.489
4.364.721.714

100%
85%
57%
88%
100%
100%
75%
91%
77%
100%
86%

0%
15%
43%
12%
0%
0%
25%
9%
23%
0%
14%

1 loans under the risk sharing agreement : the EIB assumes the commercial risk, the Community budget only the political risk

2 loans without risk sharing but with a third-party guarantee of a public authority : due to the sovereign nature of the guarantee, the residual risk for the Community budget is 
limited to the political risk

3 loans without risk sharing but with a third-party guarantee of a private entity (financial institution, enterprise, etc.)

21

 
 
 
ANNEX 2                                             Oustanding amounts on EIB guaranteed loans in the 10 new Member States

Country

 Loans signed - 
cancellations

 Outstanding 
amounts 

 Amortizations

 Outstanding 
amounts 

 Amortizations

 Theoretical 
outstanding 
amounts*

Deprovisioning in 
the Guarantee 
Fund  

 Amortizations

 Outstanding 
amounts 

 Amortizations

 Outstanding 
amounts 

1

31.12.2002
2

 in 2003
3

HUNGARY

40.000.000

40.000.000

0

31.12.2003
4=2-3
40.000.000

2004
5

au 1 mai 2004
6=4-5

* * 
7 =6 * 9%

0

85.200.000

81.590.527

6.296.983

75.293.544

6.296.983

797.500.199

433.620.211

84.531.386

349.088.825

112.790.300

s/total

922.700.199

555.210.738

90.828.369

464.382.369

119.087.283

LITUANIA

60.000.000

7.700.000

0

7.700.000

131.000.000

69.194.743

101.000.000

74.155.288

3.621.126

7.101.474

65.573.617

67.053.814

s/total

292.000.000

151.050.030

10.722.600

140.327.430

SLOVENIA

35.000.000

35.000.000

0

35.000.000

110.000.000

76.890.900

18.571.700

58.319.200

341.845.412

200.656.589

25.772.717

174.883.872

s/total

486.845.412

312.547.489

44.344.417

268.203.072

SLOVAKIA

288.944.299

179.244.826

0

179.244.826

594.531.962

578.567.051

35.270.791

543.296.260

338.019.291

189.701.880

30.434.202

159.267.678

s/total

1.221.495.552

947.513.757

65.704.993

881.808.764

CYPRUS

60.000.000

44.506.715

3.193.577

41.313.138

173.806.000

104.292.552

12.302.565

91.989.987

s/total

233.806.000

148.799.267

15.496.142

133.303.125

CZECH REP

440.000.000

413.174.719

14.310.468

398.864.251

726.508.379

629.815.191

53.354.441

576.460.750

s/total

1.166.508.379

1.042.989.910

67.664.909

975.325.001

ESTONIA

s/total

LATVIA

20.000.000

41.000.000
61.000.000
82.000.000

9.500.000

27.364.972
36.864.972
35.606.274

26.000.000

19.175.443

1.000.000

3.513.950
4.513.950
2.434.563

1.420.403

8.500.000

23.851.022
32.351.022
33.171.711

17.755.040

s/total

108.000.000

54.781.717

3.854.966

50.926.751

0

5.744.417

7.101.474

12.845.891

4.666.666

18.571.700

24.299.688

47.538.054

0

49.183.094

30.777.059

79.960.153

3.344.047

11.315.943

14.659.990

24.891.551

53.354.441

78.245.992

1.000.000

3.513.950
4.513.950
3.974.296

1.420.403

5.394.699

POLAND

465.000.000

293.142.916

9.213.305

283.929.611

21.596.750

1.336.649.987

811.216.435

75.498.900

735.717.535

114.900.364

s/total

1.801.649.987

1.104.359.351

84.712.205

1.019.647.146

136.497.114

MALTA

51.864.341

10.604.481

1.954.964

8.649.517

2.083.675

40.000.000

73.194.550

311.492.058

424.686.608

7.700.000

63.658.811

64.686.656

136.045.467

33.444.445

52.128.634

166.783.976

252.357.054

179.244.826

526.901.895

149.008.658

855.155.379

40.198.456

88.218.006

128.416.462

390.567.068

558.675.936

949.243.004

8.166.667

22.679.706
30.846.372
31.846.946

17.281.572

49.128.518

276.730.694

697.417.414

974.148.108

7.954.959

2005
8

31.12.2005
9=7-8
40.000.000

0

2006
10

31.12.2006
11=9-10
40.000.000

0

6.296.983

62.699.578

6.296.983

56.402.595

50.843.038

185.455.487

40.717.004

144.738.483

57.140.021

288.155.065

47.013.987

241.141.078

0

7.700.000

256.666

7.443.334

6.344.417

53.484.783

6.344.417

47.140.366

7.101.474

52.850.866

7.101.474

45.749.392

3.600.000

6.587.510

28.034.285

38.221.795

693.000

5.729.293

5.821.799

12.244.092

13.445.891

114.035.648

13.702.557

100.333.091

3.010.000

4.691.577

15.010.558

22.712.135

16.132.034

47.421.171

13.410.779

76.963.984

3.617.861

7.939.621

11.557.482

35.151.036

50.280.834

85.431.870

735.000

2.041.174
2.776.174
2.866.225

1.555.341

4.421.567

24.905.762

62.767.567

87.673.330

715.946

4.666.666

7.215.000

25.666.668

32.532.500

4.666.666

7.215.000

21.000.002

25.317.500

20.679.201

129.904.983

21.513.767

108.391.216

32.560.867

188.104.151

33.395.433

154.708.718

500.000

178.744.826

164.244.825

14.500.001

107.769.372

386.343.794

60.487.195

325.856.599

29.627.546

98.863.073

29.204.458

69.658.615

137.896.918

663.951.693

253.936.478

410.015.215

3.502.102

34.466.989

3.666.249

30.800.740

11.926.408

68.747.636

12.572.228

56.175.408

15.428.510

103.214.625

16.238.477

86.976.148

24.891.551

349.081.149

24.891.551

324.189.598

66.021.889

457.084.420

53.354.441

403.729.979

90.913.440

806.165.569

78.245.992

727.919.577

1.000.000

3.513.950
4.513.950
3.974.296

6.500.000

16.823.122
23.323.122
25.223.119

1.000.000

3.513.950
4.513.950
3.974.296

5.500.000

13.309.172
18.809.172
21.248.823

1.420.403

14.914.234

1.420.403

13.493.831

5.394.699

40.137.353

5.394.699

34.742.654

21.085.458

241.247.403

21.085.458

220.161.945

81.534.832

539.282.339

81.324.775

457.957.564

102.620.290

780.529.742

102.410.233

678.119.509

1.481.939

5.083.903

805.195

4.278.708

6.345.869.870

4.364.721.714

389.797.515

3.974.924.199

500.826.801

3.807.981.932

342.718.374

461.396.525

3.012.700.873

555.657.001

2.457.043.872

* prorata temporis ( up to 1st May 2004) of the 2004 total amortization   / * *  at current target rate  

NB: no disbursement of EIB loans with EU guarantee in the 10 countries is forecasted 

22

 
 
 
 
 
 
 
 
 
 
 
 
 
   ANNEX 3                                                   The guarantee Fund over the 2002-2006 period based on current parameters 

Opérations

  crédits

Situation 
 at
31.12.2002

Situation 
at
31.12.2003

Situation 
at
31.12.2004

Situation
at
31.12.2005

Situation 
at
31.12.2006

   Transferts from the Reserve

2.198.599.500

2.427.036.891

2.619.759.500

2.835.309.500

3.034.659.500

   Financial interests

  Recovery of arrears

394.412.044

568.217.578

476.398.042

568.217.578

565.649.839

568.217.578

642.135.884

568.217.578

711.172.174

568.217.578

Total of Ressources

3.161.229.122

3.471.652.511

3.753.626.917

4.045.662.962

4.314.049.252

  Débits

   Calls to the Fund

468.662.140

468.662.140

468.662.140

468.662.140

468.662.140

   EIB Commissions and other fees

37.492.611

46.886.372

50.436.425

57.026.090

61.690.103

   Transferts from the Fund to the reseve

1.009.520.000

1.272.850.000

1.689.522.347

2.062.655.488

2.374.222.195

Total costs

1.515.674.751

1.788.398.512

2.208.620.912

2.588.343.718

2.904.574.438

Fund assets

1.645.554.371

1.683.253.999

1.545.006.005

1.457.319.244

1.409.474.814

23

ANNEX 4                    Oustanding amounts on EIB guaranteed loans signed in favor of the 10 new Member states

COUNTRY

GUARANTEE 
RATE

GUARANTEE CONTRACT

LOANS SIGNED - 
CANCELLATIONS

AMOUNTS REPAID

OUTSTANDING 
AMOUNTS

TO BE 
DISBURSED

FINAL 
MATURITY 
DATE

HUNGARY

LITUANIA

SLOVENIA

SLOVAKIA

CYPRUS

CZECH REP

ESTONIA

LATVIA

POLAND

65%
70%
100%
100%

65%
70%
100%

65%
70%
75%
75%
75%
75%

65%
70%
100%
100%

70%
75%
75%
75%
75%

70%
100%
100%

70%
100%

70%
100%

70%
100%
100%

PECO - 8680M - 2/2000-7/2007
PECO - 3520M -DEC.    29.01.97
PECO - 1 MRD -DEC. CG 29.11.89
PECO - 3 MRD -DEC. CG 02.05.94

s/total

PECO - 8680M - 2/2000-7/2007
PECO - 3520M -DEC.    29.01.97
PECO - 3 MRD -DEC. CG 02.05.94

PECO - 8680M - 2/2000-7/2007
PECO - 3520M -DEC.    29.01.97
YOUGOSLAVIE - PROTOCOLE 1
YOUGOSLAVIE - ART.18 (1984)
YOUGOSLAVIE - PROTOCOLE 2
SLOVENIE - PROTOCOLE 1

s/total

s/total

PECO - 8680M - 2/2000-7/2007
PECO - 3520M -DEC.    29.01.97
PECO - 700 M -DEC. CG 18.04.91
PECO - 3 MRD -DEC. CG 02.05.94

s/total

EUROMED(BEI)-2310M -  29.01.97
CHYPRE - PROTOCOLE 2
CHYPRE - PROTOCOLE 3
CHYPRE - PROTOCOLE 4
MED HORS-PRO.-DEC. CG 06.10.92

s/total

PECO - 3520M -DEC.    29.01.97
PECO - 700 M -DEC. CG 18.04.91
PECO - 3 MRD -DEC. CG 02.05.94

s/total

PECO - 3520M -DEC.    29.01.97
PECO - 3 MRD -DEC. CG 02.05.94

PECO - 3520M -DEC.    29.01.97
PECO - 3 MRD -DEC. CG 02.05.94

s/total

s/total

PECO - 3520M -DEC.    29.01.97
PECO - 1 MRD -DEC. CG 29.11.89
PECO - 3 MRD -DEC. CG 02.05.94

MALTA

75%

MALTE - PROTOCOLE 3

s/total

s/total

1

40.000.000
85.200.000
393.805.000
403.695.199
922.700.199
60.000.000
131.000.000
101.000.000
292.000.000
35.000.000
110.000.000
30.260.000
26.530.000
127.439.000
150.000.000
479.229.000
288.944.299
594.531.962
126.954.152
211.065.140
1.221.495.552
60.000.000
28.000.000
44.000.000
50.000.000
31.806.000
213.806.000
440.000.000
71.508.379
655.000.000
1.166.508.379
20.000.000
41.000.000
61.000.000
82.000.000
26.000.000
108.000.000
465.000.000
518.649.987
818.000.000
1.801.649.987
19.864.341
19.864.341

2

0
4.723.973
299.261.655
130.698.567
434.684.195
0
15.637.289
34.231.747
49.869.035
0
33.535.900
25.398.642
20.531.700
81.702.105
28.459.216
189.627.563
0
19.460.265
90.330.775
73.927.902
183.718.943
1.087.625
26.880.361
17.328.360
9.150.645
3.695.420
58.142.411
30.316.970
31.433.978
91.175.355
152.926.302
10.532.139
13.117.508
23.649.647
6.159.912
8.102.164
14.262.076
117.169.319
268.300.625
94.366.801
479.836.745
11.179.248
11.179.248

3 = 1 - 2

40.000.000
81.590.527
144.364.790
289.255.421
555.210.738
7.700.000
69.194.743
74.155.288
151.050.030
35.000.000
76.890.900
4.652.030
6.346.218
68.354.375
121.303.966
312.547.489
179.244.826
578.567.051
39.738.230
149.963.650
947.513.757
44.506.715
1.565.148
30.487.794
43.537.140
28.702.471
148.799.268
413.174.719
38.436.725
591.378.466
1.042.989.910
9.500.000
27.364.972
36.864.972
35.606.274
19.175.443
54.781.717
293.142.916
302.734.903
508.481.532
1.104.359.351
10.604.481
10.604.481

0
0
0
0
0
52.300.000
45.041.628
0
97.341.628
0
0
0
0
0
0
0
113.000.000
0
0
0
113.000.000
15.000.000
0
0
0
0
15.000.000
0
0
0
0
0
0
0
38.709.894
0
38.709.894
55.000.000
0
219.000.000
274.000.000
0
0

Total 10

6.286.253.458

1.597.896.165

4.364.721.714

538.051.522

BULGARIA

ROMANIA

TURKEY

65%
70%
100%
100%

65%
70%

65%
65%
65%
70%

PECO - 8680M - 2/2000-7/2007
PECO - 3520M -DEC.    29.01.97
PECO - 700 M -DEC. CG 18.04.91
PECO - 3 MRD -DEC. CG 02.05.94

s/total

PECO - 8680M - 2/2000-7/2007
PECO - 3520M -DEC.    29.01.97
PECO - 700 M -DEC. CG 18.04.91
PECO - 3 MRD -DEC. CG 02.05.94

s/total

Total 2

TURQUIE-TERRA-11/1999-11/2002
TURQUIE ACTION SPECIALE(2001)
EUROMED II - 2/2000-7/2007
EUROMED(BEI)-2310M -  29.01.97
MED HORS-PRO.-DEC. CG 06.10.92

367.000.000
339.632.577
170.148.849
90.000.000
966.781.426
1.276.000.000
950.848.065
124.332.721
301.000.000
2.652.180.786

3.618.962.212
450.000.000
130.000.000
770.000.000
205.000.000
339.500.000

Total 1

1.894.500.000

0
4.771.875
75.639.628
29.122.079
109.533.582
0
13.222.592
72.999.925
55.209.607
141.432.124

250.965.706
0
0
0
2.645.919
59.929.761

62.575.681

43.000.000
94.050.000
105.289.228
66.435.003
308.774.231
286.800.000
586.946.233
69.969.799
249.638.559
1.193.354.590

1.502.128.821
342.860.000
0
166.535.280
149.113.814
295.347.316

324.000.000
233.000.000
0
0
557.000.000
989.200.000
344.730.000
0
0
1.333.930.000

1.890.930.000
107.140.000
130.000.000  
602.354.577
51.000.000
0

953.856.410

890.494.577

Total 13 countries

11.799.715.671

1.911.437.552

6.820.706.945

3.319.476.099

2012
2017
2013
2015

2021
2021
2016

2011
2010
2004
2004
2009
2016

2021
2014
2008
2011

2014
2003
2014
2012
2012

2022
2008
2016

2012
2014

2018
2016

2022
2013
2018

2013

2025
2018
2009
2011

2025
2024
2010
2016

2029

2022
2019
2016

24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 5                    Theoretical assumptions based on the Provisioning and the Guarantee rates parameters

2003

2004

2005

2006

Assumptions on Provisioning and Guarantee rates

Theoretical assumption: provisionning rate  9%

                                              guarantee rate 65%

Theoretical assumption: provisionning rate  9%

                                              guarantee rate 60%

Theoretical assumption: provisionning rate  9%

                                              guarantee rate 50%

Theoretical assumption: provisionning rate  8%

                                              guarantee rate 65%

Theoretical assumption: provisionning rate  8%

                                              guarantee rate 60%

Theoretical assumption: provisionning rate  8%

                                              guarantee rate 50%

*   EC and Euratom loans
** EIB loans

 Amount of the reserve 

Total lending and guarantee capacity

Use of the reserve (1+2+3)
Margin within the reserve (after provisioning of above-
indicated loans)
Residual lending and guarantee capacity  100%*

Residual lending and guarantee capacity    65% **

Total lending and guarantee capacity

Use of the reserve (1+2+3)
Margin within the reserve (after provisioning of above-
indicated loans)
Residual lending and guarantee capacity  100%

Residual lending and guarantee capacity    65%

Total lending and guarantee capacity

Use of the reserve (1+2+3)
Margin within the reserve (after provisioning of above-
indicated loans)
Residual lending and guarantee capacity  100%

Total lending and guarantee capacity

Use of the reserve (1+2+3)
Margin within the reserve (after provisioning of above-
indicated loans)
Residual lending and guarantee capacity  100%

Residual lending and guarantee capacity    65% 

Total lending and guarantee capacity

Use of the reserve (1+2+3)
Margin within the reserve (after provisioning of above-
indicated loans)
Residual lending and guarantee capacity  100%
Residual lending and guarantee capacity    65% 

Total lending and guarantee capacity

Use of the reserve (1+2+3)
Margin within the reserve (after provisioning of above-
indicated loans)
Residual lending and guarantee capacity  100%
Residual lending and guarantee capacity    65% 

Expected Expected Expected Expected Expected Expected Expected Expected
provision.

provision.

provision.

provision.

loan
amounts

loan
amounts

loan
amounts

loan
amounts

217

221

225

229

min.*
max.**

min.*

max.**

min.*
max.**

min.*

max.**

min.*
max.**

2411
3709
194,00

23,01

255,61

393,25

2411
4019
179,80

37,20

413,36

688,94

2411
4822
151,40

65,60

min.*

728,86

min.*
max.**

min.*

max.**

min.*
max.**

2713
4173
167,80

49,20

614,97

946,11

2713
4521
155,18

61,82

3.507,00

3.507,00

3.507,00

3.507,00

3.507,00

min.*
max.**

772,72
1.287,86

min.
min.*

2713
5425
129,94

87,06

3.507,00

min.*
max.**

1.088,22
2.176,44

777,00
1.554,00

2456
3778
219,78

1,22

13,61

20,93

2456
4093
206,08

14,92

165,76

276,26

2456
4911
178,70

42,31

470,06

940,11

2763
4250
195,36

25,64

320,55

493,15

2763
4604
183,18

37,82

472,70
787,83

2763
5525
158,84

62,16

2500
3846

3.393,00

206,37 3.393,00

18,61

206,81

318,16

2500
4166

3.393,00

192,22 3.393,00

32,76

363,96

606,59

2500
5000

3.393,00

163,94 3.393,00

61,04

678,26

1.356,51

2812
4327

3.393,00

183,44 3.393,00

41,54

519,28

798,88

2812
4687

3.393,00

170,86 3.393,00

54,11

676,43
1.127,38

2812
5624

3.393,00

145,72 3.393,00

79,26

990,73
1.981,45

2545
3915
206,37

22,66

251,80

387,39

2545
4241
192,22

36,81

408,95

681,59

2545
5090
163,94

65,09

723,25

1.446,50

2863
4404
183,44

45,59

569,90

876,76

2863
4771
170,86

58,16

727,05
1.211,74

2863
5726
145,72

83,31

1.041,35
2.082,69

Residual lending and guarantee capacity    65% 

max.**

1.457,72

ANNEX 6                            Use of the Reserve in the framework of the 2000-2006 Financial perspectives

( in MEUR )

Financial perspectives

Operations realised

Forecasts

2000

2001

2002

2000-2002

2003

2004

2005

2006

2000-2006

1.Reserve

200,00

208,00

213,00

207,00

217,00

2. Actual transferts to the Fund

186,29

207,18

170,49

187,99

194,58

221,00

204,16

225,00

213,44

229,00

199,64

3. Rate (2/1)

93,1% 99,6% 80,0%

90,9% 89,7%

92,4%

94,9%

87,2%

216,14

196,54

91,0%

19,60

16,84

11,54

29,36

3.323,00

3.467,00

3.273,00

3.386,93

287,85

187,11

194,24

128,21

502,39

326,55

334,68

217,83

4. Margin available (1-2)

13,71

0,82

42,51

5. New guaranteed operations

3.747,00 3.468,00 3.397,00

6. Residual lending and guarantee capacity *

234,36

14,09

726,62

19,01

22,42
3.537,33 3.033,50
383,25

325,02

6. Residual lending and guarantee capacity ** 152,33

9,16

472,31

211,27

249,11

* at a 65% guarantee rate
** at a 100% guarantee rate

25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 7: Breakdown of outstanding amounts per country daccording to the risk coverage at 31.12.2002 (in EUR)

No commercial risk

Country

Risk-sharing 1 Public guarantees 2

Residual 
commercial 
risk 3

Total 1+2+3

% of loans with 
no commercial 
risk

% of loans with 
commercial risk

  BULGARIA

  ROMANIA

  TURKEY

  Sub-total

  Total

1

2

3

69.067.164

122.123.166

0
191.190.330

239.707.067

1.073.018.947

953.856.410

2.266.582.424

2.457.772.754

4
308.774.231

0

0 1.195.142.113

0

953.856.410

0 2.457.772.754

5

6

78%

90%

100%

89%

22%

10%

0%

11%

1 loans under the risk sharing agreement : the EIB assumes the commercial risk, the Community budget only the political risk

2 loans without risk sharing but with a third-party guarantee of a public authority : due to the sovereign nature of the guarantee, the residual risk for the 
Community budget is limited to the political risk

3 loans without risk sharing but with a third-party guarantee of a private entity (financial institution, enterprise, etc.)

ANNEX 8     Historical data on the difference between EIB forecasts leading to provisionings into the Fund and EIB loans 
actually signed 

in MEUR

in %

EIB Loans

Forecasts ( used for the 
provisioning of the Fund)      

1

Loans actually signed 
2 

Difference      

3

% of Loans 
signed against 
forecasts

Difference    
( as a % of 1 )

  1995-2000 loans ( average )
  2001 loans
  2002 loans

Total over the 1995-2002 period *    

Annual average over the 2001-2002 period

1.210
2.858
3.225

7.293

3.042

1.143
2.531
2.550

-68
-327
-675

94,4%
88,5%
79,1%

5,6%
11,5%
20,9%

6.224

-1.070 **             91,8% **              8,3%

2.540

-501

83,8%

16,2%

*   Annual reserve = 350 MEUR per year over the 1994-1999 period and 200 MEUR per year over the current 2000-2006 Financial perspectives
** weighted average

Annex 9                    Financial flows from and to the Fund ( in € )

Year

1994

1995

1996

1997

1998

1999

2000

2001

2002

Total

Transfers from the 
Reserve to the Fund      

Transfers from the Fund to 
the Budget              

1

2

Net flows                

3 = 1-2

293.520.000

251.000.000

235.000.000

286.095.000

272.389.000

300.069.000

186.290.500

207.176.000

166.720.000

0

0

0

0

66.000.000

297.800.000

107.900.000

165.360.000

372.460.000

0

293.520.000

251.000.000

235.000.000

286.095.000

206.389.000

2.269.000

78.390.500

41.816.000

-205.740.000

2.198.259.500

1.009.520.000

1.188.739.500

26

 
 
 
 
 
 
 
 
 
 
 
 
 
EXPLANATORY MEMORANDUM

1.

INTRODUCTION

This  amendment  to  the  Council  Regulation  (EC,  Euratom)  No 2728/94  of  31 October 1994
(“the Regulation”) deals with the impact on the Guarantee Fund (the “Fund”) of the accession
of up to ten countries to the EU in 2004.

The  Regulation  established  a  Fund  for  external  actions  so  that  the  Community’s  creditors
could  be  reimbursed  in  the  event  of  any  default  by  the  beneficiaries  of  loans  granted  or
guaranteed by the Community. The accession of new countries to the EU changes their status
from  non-member  country  to  Member  State  and,  therefore,  the  Community  loans  and  loan
guarantees for loans in these countries are no longer been covered by the Regulation.

An amendment to the Regulation is being presented here by the Commission to fix the rules
for an orderly transfer of these liabilities from the Fund to the budget. These rules will apply
to similar situations arising under future accessions.

The proposed amendment also changes the deadline for the submission of an annual report on
the  situation  of  the  Fund  and  the  management  thereof  in  the  previous  year  to  the  European
Parliament, the Council and the Court of Auditors.

2.

THE FUND AND THE PROPOSED CHANGES

The  Regulation  established  a  Fund  for  external  actions  so  that  the  Community’s  creditors
could  be  reimbursed  in  the  event  of  any  default  by  the  beneficiaries  of  loans  granted  or
guaranteed  by  the  Community.  The  Fund  is  provisioned  from  the  EU  budget  and  has  to  be
maintained at a certain percentage, the target rate, of outstanding amount of the loans and loan
guarantees covered by the Fund.

The  Fund  covers  the  risk  of  loans  and  loan  guarantees  to  third  countries.  The  approaching
accession  of  up  to  ten  countries  to  the  EU  in  2004,  implying  that  they  cease  to  be  third
countries as of the accession date, will therefore affect the Fund as several of these countries
have benefited from European Investment Bank (“EIB”) loans guaranteed by the Community.
It  should  be  noted  that  there  will  be  no  Macro-Financial  Assistance  or  Euratom  loans
outstanding in these countries at the time of accession.

In the case of guarantees issued to the EIB, these guarantees are issued with respect to loans
granted in third countries by the EIB. When the recipient of a guaranteed loan fails to make a
payment on the due date, the EIB asks the Community to pay through the Fund the amounts
owed by the defaulting debtor in accordance with the respective guarantee contract.

The  amendment  to  the  Regulation  stipulates  that  the  guaranteed  loans  to  the  accession
countries will no longer be covered by the target amount of the Fund as soon as they join the
European Union and thus cease to be “third countries”. It should be stressed that this does not
mean a withdrawal of the  guarantee from these loans, rather that  a  call  on  such  a  guarantee
would have an impact on the EU budget directly. This implies that any call on the guarantee
for these loans  would have to  be provisioned via a dedicated budget line  and would impact
directly on the contribution of Member States to the budget.

27

The  accession  to  the  EU  of  a  country  that  has  benefited  from  a  Community  loan  or  a  loan
guaranteed by the Community would give rise to a special transfer from the Fund to the EU
budget.  The  amount  of  the  transfer  would  be  calculated  on  the  basis  of  the  outstanding
amount of guaranteed loans and Community loans to the new Member States at the time of
accession. The amounts of the loans would then be multiplied by the target rate applicable at
the date of accession. The amount calculated that way is then to be transferred from the Fund
to the EU budget.

3.

DEADLINE  FOR  THE  ANNUAL  REPORT  ON  THE  SITUATION  OF  THE  FUND  AND  THE
MANAGEMENT THEREOF IN THE PREVIOUS YEAR.

The availability of final data for the previous year only by the end of February, the necessary
delay  for  drafting  and  the  complex  procedures  (translations,  inter-service  consultations,
written  procedure)  that  have  to  be  accomplished  before  an  adoption  of  the  report  by  the
Commission have proven to be incompatible with the deadline  for submission of the report,
31 March, foreseen in the Regulation (EC, Euratom) No 2728/94. Therefore a new deadline,
30  June,  for  the  submission  of  the  report  to  the  European  Parliament,  the  Council  and  the
Court of Auditors is proposed.

4.

NO MODIFICATIONS TO THE PARAMETERS

The report13 prepared by the Commission in accordance with Article 9 of Council Regulation
(EC, Euratom) No 2728/9414 concludes that no parameters of the Guarantee Fund need to be
amended to take into account the enlargement of the European Union.

13 COM(2003) [...].
14 OJ L 293, 12.11.1994, p. 1. Regulation as amended by Regulation (EC, Euratom) No 1149/1999 (OJ L 139,

2.6.1999, p. 1).

28

                                                
2003/0233 (CNS)

Proposal for a

COUNCIL REGULATION

amending Regulation (EC, Euratom) No 2728/94 establishing a Guarantee Fund for
external actions

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 308 thereof,

Having  regard  to  Treaty  establishing  the  European  Atomic  Energy  Community,  and  in
particular Article 203 thereof,

Having regard to the proposal from the Commission15,

Having regard to the opinion of the European Parliament16,

Having regard to the opinion of the Court of Auditors17,

Whereas:

(1)

(2)

(3)

(4)

The accession of new Member States is due to take place on 1 May 2004.

In addition, the possibility of further accessions should be taken into account.

The  Communities have granted  loans  and  guaranteed loans  to  candidate  countries  or
for  projects  executed  in  those  countries.  Those  loans  and  guarantees  are  currently
covered by the Guarantee Fund and will remain outstanding or in force after the date
of accession. From that date, they will cease to be external actions of the Communities
and should therefore be covered directly by the Community budget and no longer by
the Guarantee Fund.

The  European  Investment  Bank  should  inform  the  Commission  of  the  amount  of  its
outstanding operations under the Community guarantee in new Members States on the
day of accession.

15 OJ C …, …, p. …
16 OJ C …, …, p. …
17 OJ C …, …, p. …

29

                                                
(5)

(6)

(7)

(8)

The  report18  prepared  by  the  Commission  in  accordance  with  Article  9  of  Council
Regulation  (EC, Euratom)  No  2728/94  of  31  October  1994  establishing  a  Guarantee
Fund for external actions19 concludes that it is not necessary to amend any parameters
of the Guarantee Fund to take into account the enlargement of the European Union.

In  view  of  the  amount  of  information  needed  for  the  annual  report  required  by
Article 7  of  Regulation  (EC,  Euratom)  No  2728/94  and  the  complexity  of  the
procedures to be accomplished before submission of the report, the time provided for
its preparation should be extended.

Regulation (EC, Euratom) No 2728/94 should therefore be amended accordingly.

The Treaties do not provide any powers other than those pursuant to Article 308 of the
EC Treaty and Article 203 of the Euratom Treaty for the adoption of this Regulation,

HAS ADOPTED THIS REGULATION:

Article 1

Regulation (EC, Euratom) No 2728/94 is amended as follows:

(1) In Article 1, the following paragraph is added :

”All operations carried out for the benefit of a third country or for the  purpose of financing
projects in a third country shall fall outside the scope of this Regulation with effect from the
date on which that country accedes to the Communities.”

(2) The following Article 3a is inserted :

“Article 3a

On  the  accession  of  a  new  Member  State  to  the  Communities,  the  target  amount  shall  be
reduced  by  an  amount  calculated  on  the  basis  of  the  operations  referred  to  in  the  third
paragraph of Article 1.

In order to calculate the amount of the reduction, the percentage rate referred to in the second
paragraph of Article 3 applicable on the date of accession shall be applied to the amount of
those operations outstanding on that date.

The surplus shall be paid back to a special heading in the statement of revenue in the general
budget of the European Union.”

(3) In Article 7, the date “31 March” shall be replaced by “30 June”.

18 COM(2003) [...].
19 OJ L 293, 12.11.1994, p. 1. Regulation as amended by Regulation (EC, Euratom) No 1149/1999 (OJ L 139,

2.6.1999, p. 1).

30

                                                
This Regulation shall enter into force on the third day following that of its publication in the
Official Journal of the European Union.

Article 2

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the Council
The President

31

1.

2.

3.

4.

FINANCIAL STATEMENT

BUDGET HEADING:

SURPLUSES, BALANCES AND ADJUSTMENTS

DATE:
APPROPRIATIONS:

TITLE 3 article 302: Surplus own resources resulting from repayment of the surplus from the Guarantee
Fund for external actions

LEGAL BASIS: Proposal for a Council Regulation (EC, Euratom) amending Regulation (EC, Euratom)
No 2728/94 establishing a Guarantee Fund for external actions

AIMS: The accession of new Member States is foreseen to take place on 1 May 2004. The Communities
have  granted  loans  and  guaranteed  loans  granted  to  the  new  Member  States  or  for  projects  executed  in
these countries that are covered by the Guarantee Fund and will remain outstanding or in  force after the
accession. The approaching accession of up to ten countries to the EU in 2004, implying that they cease to
be third countries as of the accession date, will therefore affect the Fund as several of these countries have
benefited  from  European  Investment  Bank  (“EIB”)  loans  guaranteed  by  the  Community.  It  should  be
stressed that this does not mean a withdrawal of the guarantee from these loans, rather that a call on such a
guarantee would have an impact on the EU budget directly.

5.

FINANCIAL IMPLICATIONS

5.0

5.1

CHARGED TO THE EC BUDGET

NATIONAL AUTHORITIES
OTHER

EXPENDITURE
-
(REFUNDS/INTERVENTIONS)
-
-
REVENUE
-
(LEVIES/CUSTOMS DUTIES)
NATIONAL
-

OWN RESOURCES OF THE EC

5.0.1 ESTIMATED EXPENDITURE
5.1.1 ESTIMATED REVENUE
5.2 METHOD OF CALCULATION:

12 MONTH
PERIOD

(EUR million)
pm

CURRENT
FINANCIAL
YEAR
2003
(EUR million)
pm

FOLLOWING
FINANCIAL YEAR
2004
(EUR million)

pm

pm

pm

343

 N+1
0
0

N+2
0
0

N+3
0
0

N+4
0
0

This is a one-time event due to the accession of third countries to the Communities. The amount of € 343
Mio to be reversed to the Community budget after the accession in 2004 is calculated as follows:
Estimated outstanding amount at accession date * target rate = 3,808 Mio * 9% = 343 Mio. This amount is
calculated according to the mechanism of the Guarantee Fund which stipulates that the amount held in the
Fund shall correspond to the target amount (currently 9% of outstanding liabilities). As a result, the de-
provisioning amount shall be based only on this parameter, independently of how it has been provisioned
in the past. Similar events will occur when further third countries will become member."
CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE
RELEVANT CHAPTER OF THE CURRENT BUDGET?

NOT
APPLICABLE

CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF
THE CURRENT BUDGET?

6.0

6.1

NOT
APPLICABLE
 NO
 NO

6.2 WILL A SUPPLEMENTARY BUDGET BE NECESSARY?
6.3 WILL APPROPRIATIONS NEED TO BE ENTERED IN FUTURE BUDGETS?
OBSERVATIONS:

32