Proposal for a Council Decision establishing a separate liability of Montenegro and reducing proportionately the liability of Serbia with regard to the long-term loans granted by the Community to the State Union of Serbia and Montenegro (formerly the Federal Republic of Yugoslavia) pursuant to Council Decisions 2001/549/EC and 2002/882/EC
Date: 2008-04-29
Institutions: European Commission
Subjects: Community loan, EU relations, Serbia and Montenegro, financial agreement, financial aid

EN 

EN 

   EN 

 
 
COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 29.4.2008 
COM(2008) 228 final 

2008/0086 (CNS) 

Proposal for a 

COUNCIL DECISION 

establishing a separate liability of Montenegro and reducing proportionately the liability 
of Serbia with regard to the long-term loans granted by the Community to the State 
Union of Serbia and Montenegro (formerly the Federal Republic of Yugoslavia) 
pursuant to Council Decisions 2001/549/EC and 2002/882/EC 

(presented by the Commission) 

EN 

   EN 

 
 
 
  
EXPLANATORY MEMORANDUM 

(1) 

Context of the proposal 

110 

•  Grounds for and objectives of the proposal 

The  Commission  proposes  the  adoption  of  a  new  Council  Decision  to  establish  a 
separate liability for Montenegro for the repayment of a part of the Community macro-
financial  assistance  ("MFA")  loans  granted  to  the  former  Federal  Republic  of 
Yugoslavia  ("FRY"),  later  renamed  the  State  Union  of  Serbia  and  Montenegro 
("SUSaM"). MFA loans of a total amount of EUR 280 million were disbursed to the 
FRY/SUSaM  between  October  2001  and  May  2005  pursuant  to  the  now  expired 
Council  Decisions  2001/549/EC  and  2002/882/EC,  as  amended  (hereinafter  together 
referred to as the "Council Decisions"). 

Following  the  declaration  of  independence  of  Montenegro  in  June  2006,  the  SUSaM 
was dissolved and Serbia declared itself the successor state of the SUSaM on the basis 
on  Article  60  of  the  Constitutional  Charter  of  the  SUSaM.  As  a  consequence,  Serbia 
has  succeeded  the  SUSaM  as  the  legal  entity  liable  for  state  debts  contracted  by  the 
FRY or the SUSaM, including the above mentioned MFA loans.  

However, on 10 July 2006 Serbia and Montenegro concluded a bilateral agreement on 
the distribution of the financial liabilities of the now dissolved SUSaM. According to 
this  agreement,  financial  liabilities  towards  the  European  Community  in  respect  of 
MFA loans are serviced in the proportion of 90% for Serbia and 10% for Montenegro, 
unless another percentage is to be used on the basis of the final beneficiary principle.  

As  a  consequence  of  the  bilateral  agreement,  the  Commission  is  currently  receiving 
interest due on the loans in two separate payments, one from each of the two countries, 
in the proportion of 90% from Serbia and 10% from Montenegro, with the exception of 
the  interest  due  on  the  largest  single  MFA  loan  of  EUR  225  million,  which  is  being 
serviced in the proportion of 99.47% for Serbia and 0.53% for Montenegro following 
the final beneficiary principle. 

loan  agreements  concluded  between 

the 
The  existing 
FRY/SUSaM  do  not  establish  any  liability  or  obligations  for  Montenegro  as  an 
independent state as regards the loans, which it is de facto servicing in part, but solely 
for  Serbia  pursuant  to  its  status  as  successor  state  of  the  SUSaM.  In  the  event  of  a 
default,  the  Community  would  therefore  be  obliged  to  direct  its  claim  against  Serbia 
regardless of whether the non-payment or delayed payment occurs on a part of the loan 
for which Montenegro is liable according to the bilateral agreement. 

the  Commission  and 

In  view  of  the  long  period  over  which  repayments  will  take  place  (repayments  of 
principal  are  scheduled  to  take  place  from  2012  until  2020)  and  considering  the 
political  relations  which  the  European  Union  has  developed  and  is  developing  with 
Montenegro since the dissolution of the SUSaM, the Commission proposes:  

(i) 

to  adopt  a  new  Council  Decision,  establishing  (a)  a  separate  liability  of 
Montenegro  to  the  European  Community  and  (b)  that  Serbia's  liability  to  the 
European Community is being reduced accordingly; and  

EN 

2 

   EN 

 
(ii) 

upon  the  adoption  of  the  attached  draft  Council  Decision,  to  conclude  a  loan 
agreement  with  Montenegro  establishing  its  liability  vis-à-vis  the  Community 
with  regard  to  the  proportion  of  the  MFA  loans  for  which  Montenegro  has 
assumed  the  liability  vis-à-vis  Serbia.  At  the  same  time,  the  Commission 
proposes to agree the appropriate amendments to the existing loan agreements 
with Serbia which will reduce its liability accordingly. 

120 

•  General context 

Following  the  political  changes  in  the  FRY  in  late  2000,  the  country's  authorities 
achieved  substantial  progress  in  economic  reform  and  stabilisation.  In  addition  to 
external financing provided by international financial institutions and bilateral donors, 
the reform process was supported by EC macro-financial assistance subject to the prior 
fulfilment of a number of economic and structural policy conditions.  

A first MFA operation comprising a loan component of EUR 225 million was granted 
in  2001  by  Council  Decision  2001/549/EC  of  16  July  2001.  The  loan  agreement 
between the Community and the FRY was signed on 17 September 2001, and payment 
followed in one instalment on 17 October 2001. By Council Decision 2002/882/EC of 
5 November  2002, the Community provided further macro-financial assistance to the 
FRY,  including  a  long-term  loan  of  EUR  55  million,  with  a  view  to  ensuring  a 
sustainable  balance-of-payments  situation  and  strengthening  the  country's  reserve 
position  over  and  above  the  financing  provided  in  the  context  of  a  three-year  IMF 
Extended  Arrangement  and  a  package  of  concessional  loans  made  available  by  the 
World Bank. The loan agreement between the Community and the FRY was signed on 
13 December 2002. 

On  4  February  2003  a  new  Constitutional  Charter  for  the  country  entered  into  force, 
according to which the FRY was renamed the State Union of Serbia and Montenegro. 
The  Commission  paid  the  first  two  tranches  of  the  EUR  55  million  loan  (EUR  10 
million  and  EUR  30  million)  to  the  SUSaM  on  28 February  and  1  September  2003 
(according to the supplemental loan agreement of 25 July 2003).  

By Council Decision 2003/825/EC of 25 November 2003, the loan component of the 
macro-financial assistance was increased to a maximum of EUR 80 million in the form 
of loans in order to help addressing additional financing needs identified by the IMF. 
The implementation of the MFA assistance was subsequently prolonged until 30 June 
2006 (Council Decision 2004/862/EC of 7 December 2004), and a third loan tranche of 
EUR  15  million  was  disbursed  to  the  SUSaM  on  4  May  2005  according  to  the 
supplemental  loan  agreement  of  7  April  2005.  However,  due  to  the  subsequent 
profound improvements of the external financing situation in Montenegro and Serbia in 
2006, the loan components of the fourth and fifth (and final) tranche of this assistance 
were  not  disbursed.  At  present,  the  two  countries  do  not  require  any  further  external 
macro-financial assistance from the Community. 

When  the  above  mentioned  macro-financial  assistance  was  provided  to  the  Federal 
Republic of Yugoslavia and, as of 2003, to the State Union of Serbia and Montenegro, 
Serbia and Montenegro jointly formed a single sovereign state. The situation gradually 
evolved with increased autonomy of the two countries. In particular, the Constitutional 
Charter of the SUSaM adopted on 4 February 2003 opened up for the possibility that 
upon  the  expiry  of  a  3-year  period  each  of  the  member  states  of  the  SUSaM  could 

EN 

3 

   EN 

 
decide to break away from the SUSaM on the basis of a referendum. In such a case the 
remaining state would become the successor state of the SUSaM. 

A referendum on the independence of the country took place in Montenegro on 21 May 
2006.  The  majority  of  the  voters  (55.4%)  cast  their  votes  in  favour  of  Montenegro's 
independence.  On  3  June  2006  the  Parliament  of  Montenegro  declared  the  full 
independence of Montenegro under international law. Serbia recognised Montenegro's 
independence  and  on  5  June  2006  the  Parliament  of  Serbia  adopted  a  decision  that 
defined Serbia as the successor state of the State Union of Serbia and Montenegro. 

On 12 June 2006, the Council recognised Montenegro as a sovereign and independent 
State and took note of the above mentioned decision of the Parliament of Serbia. 

On  10  July  2006,  Serbia  and  Montenegro  concluded  a  bilateral  agreement  on  the 
regulation  of  membership  in  international  financial  organisations  and  the  distribution 
of  financial  assets  and  liabilities.  According  to  Appendix  4  of  that  Agreement  (as 
transcribed  in  the  Annex  to  this  Memorandum),  macro-financial  loans  granted  to  the 
FRY  or  the  SUSaM  are  attributed  in  the  proportion  of  90%  for  Serbia  and  10%  for 
Montenegro,  with  the  exception  of  the  largest  Community  loan  of  EUR  225  million, 
for  which  the  final  beneficiary  principle  applies  (99.47%  for  Serbia  and  0.53  %  for 
Montenegro).  Pursuant  to  this  agreement,  Serbia  and  Montenegro  have  subsequently 
discharged  their  debt  servicing  obligations  to  the  Community  and  have  not  incurred 
any arrears. 

On 18 January 2007, Montenegro received membership in the International Monetary 
Fund and the World Bank Group. On 22 January 2007, the Council adopted Decision 
2007/49/EC establishing a new European Partnership with Montenegro. On 15 October 
the  European 
2007, 
Communities and their Member States and Montenegro was signed (COM(2007) 350). 

the  Stabilisation  and  Association  Agreement  between 

139 

140 

•  Existing provisions in the area of the proposal 

There are no existing provisions in the area of the proposal. 

•  Consistency with other policies and objectives of the Union 

The  proposal  is  in  line  with  the  Conclusions  of  the  General  Affairs  and  External 
Relations  Council  of  12  June  2006,  according  to  which  the  European  Union  and  its 
Member  States  have  decided  that  they  will  develop  their  further  relations  with 
Montenegro as a sovereign, independent state. Furthermore, it is in line with Council 
Decision  2007/49/EC  of  22  January  2007  on  the  principles,  priorities  and  conditions 
contained  in  the  European  Partnership  with  Montenegro,  according  to  which  it  is  a 
short-term key priority to complete the establishment of the legal and institutional set-
up required for an independent country including the signature and ratification of the 
international instruments to which the SUSaM had adhered. 

(2) 

Consultation of interested parties and impact assessment 

•  Consultation of interested parties 

EN 

4 

   EN 

 
 
 
211 

Consultation methods, main sectors targeted and general profile of respondents 

Commission  services  have  been  in  contact  with  the  Serbian  and  Montenegrin 
authorities  during  the  preparation  of  the  present  Commission  proposal.  Furthermore, 
the Commission has informed the Economic and Financial Committee of the outline of 
the proposal before submitting it to the Council. 

212 

Summary of responses and how they have been taken into account 

EFC  members  did  not  raise  any  objection.  Nor  did  the  Serbian  and  Montenegrin 
authorities. 

•  Collection and use of expertise 

There was no need for external expertise. 

•  Impact assessment 

229 

230 

Following the independence of Montenegro, Serbia declared itself the successor state 
of the SUSaM and thereby assumed the legal liability for repayment of the MFA loans. 
In  late  2006  the  Commission  received  a  translation  into  English  of  the  bilateral 
agreement concluded between the two countries on 10 July 2006, according to which 
the  financial  liability  for  repayment  of  the  loans  were  split  up  between  the  two 
countries. Furthermore, as interest payments on the MFA loans are now being serviced 
in two separate payments, and not, as was previously the case, in one payment from the 
National  Bank  of  Serbia,  the  Commission  deems  it  appropriate  to  adapt  the  legal 
situation concerning the outstanding loans to the bilaterally agreed split. 

One of the options considered was to obtain express written confirmation from Serbia 
that notwithstanding the bilateral agreement between Serbia and Montenegro of 10 July 
2006  it  remains  the  liable  sovereign  borrower  and  therefore  responsible  for  the  full 
service of the loans, including the Montenegrin loan components. However, in view of 
the  long  period  over  which  repayments  will  take  place  and  taking  into  account  the 
relations the Community is developing with both countries, it is deemed appropriate for 
the  Community  to  endorse  the  split  of  the  debt  agreed  bilaterally  between  the  two 
countries.  This  option  was  the  one  chosen  in  the  case  of  the  split  of  Czechoslovakia 
(Council Decision 94/61/EC of 24 January 1994). 

A new loan agreement concluded with Montenegro will create clarity about the legal 
situation of the Community as regards the repayment of the MFA loans. As for Serbia, 
loan agreements already exist and will merely need to be modified to adapt them to the 
new circumstances following the establishment of a separate liability for Montenegro. 
This could be done by an exchange of letters with the Serbian authorities. 

(3) 

Legal elements of the proposal 

305 

•  Summary of the proposed action 

According to Article 1 of the proposal, Montenegro shall assume separate liability for 
the  payments  of  principal,  interest  and  expenses  associated  with  the  servicing  of 
EUR 6 703 388,62 out of the Community long-term loans of in total EUR 280 million 

EN 

5 

   EN 

 
 
granted to the FRY/SUSaM. To this end, the Commission is authorised to sign with the 
authorities  of  Montenegro  a  new  loan  agreement  for  the  amounts  attributed  to 
Montenegro  and  essentially  on  the  terms  and  conditions  set  out  in  the  existing  loan 
agreements. 

According to Article 2 of the proposal, Serbia's liabilities to the Community under the 
existing  loan  agreements  in  its  capacity  of  successor  state  to  the  SUSaM  shall  be 
reduced  proportionately  upon  the  signature  of  the  new  loan  agreement  between  the 
Community and Montenegro. The Commission is to the extent appropriate authorised 
to conclude with Serbia arrangements to amend the existing loan agreements.  

According to Article 3 of the proposal, all related costs and expenses incurred by the 
Community in concluding and carrying out the arrangements provided for by Article 1 
and Article 2 shall be borne by Montenegro and Serbia, respectively. 

The  proposed  Council  Decision  does  not  entitle  the  two  countries  to  any  additional 
disbursement  of  macro-financial  assistance  from  the  Community.  It  will  take  effect 
from the third day of its publication in the Official Journal. 

•  Legal basis 

EC Treaty Article 308. 

•  Subsidiarity principle 

The proposal is a legal adjustment of existing macro-financial assistance granted by the 
Community to the new reality, which can only be done by the Community itself.  

•  Proportionality principle 

The proposal complies with the proportionality principle for the following reasons: 

The  proposed  form  of  action  involves  the  conclusion  of  a  new  loan  agreement  with 
Montenegro, whereas it is envisaged that the existing loan agreement with Serbia will 
be amended by an exchange of letters with the Serbian authorities. 

The administrative burden falling upon the Community and the national governments 
is thereby minimized and proportionate to the objective of the proposal. 

•  Choice of instruments 

Other means would not be adequate for the following reasons: 

The  existing  loan  agreements  entered  into  with  the  FRY/SUSaM  were  concluded  on 
the  basis  of  Council  Decisions.  As  these  Council  Decisions  have  expired,  and  as  the 
Commission has not been authorised to conclude an agreement with Montenegro with 
respect to macro-financial assistance or been given the power to accept a limitation of 
the  liability  of  Serbia  as  successor  state  to  the  FRY/SUSaM,  the  adoption  of  a  new 
Council Decision is necessary for the implementation of the proposed actions.  

310 

329 

331 

332 

342 

(4) 

Budgetary implication 

EN 

6 

   EN 

 
 
 
409 

The proposal has no implication for the Community budget. 

ANNEX 

AGREEMENT 

BETWEEN THE REPUBLIC OF SERBIA AND THE REPUBLIC OF MONTENEGRO ON 
THE REGULATION OF MEMBERSHIP IN INTERNATIONAL FINANCIAL 
ORGANIZATIONS AND THE DISTRIBUTION OF FINANCIAL ASSETS AND LIABILITIES

(unofficial translation) 

The  Republic  of  Serbia  and  the  Republic  of  Montenegro  held  talks  and  negotiations  in 
Belgrade on June 13, 2006 and in Podgorica on June 28, 2006, and,  

In the best interest of their respective countries and citizens, have expressed their willingness 
to  resolve  in  good  faith  the  issues  pertaining  to  the  membership  in  international  financial 
organizations and decide on an equitable distribution of financial assets and liabilities, and  

have reached this Agreement as follows: 

General Provisions 

Article 1 

For the purposes of this Agreement: 

[…] 

- “FRY“ means the former Federal Republic of Yugoslavia;  

-“SUSaM“ means the former State Union of Serbia and Montenegro;  

[…]  

Financial Assets and Liabilities 

Financial Assets 

[…] 

Financial liabilities 

[…] 

Article 12 

Appendix 4 – Survey on the external debt stock of the SUSaM under the Contracts signed by 
the former FRY, and SUSaM respectively, constitutes an integral part of this Agreement.[…] 

[…] 

EN 

Article 16 

7 

   EN 

 
The  Republic  of  Serbia  and  the  Republic  of  Montenegro  have  agreed  to  continue  to  service 
financial  liabilities  towards  to  the  European  Commission  in  respect  to  macro-financial 
assistance loans in proportion of 90% for the Republic of Serbia and 10% for the Republic of 
Montenegro. 

[…] 

In Belgrade, on July 10, 2006 

Signed for and on behalf of the Republic of Serbia  

Signed for and on behalf of the Republic of Montenegro 

[…] 

APPENDIX 4 

SURVEY ON THE EXTERNAL DEBT STOCK OF THE SUSaM 

UNDER AGREEMENTS SIGNED BY THE FRY AND SUSaM 

on May 21, 2006 

in USD according to exchange rate list no.121 applicable on June 30,2006 

BASIS 

CURRENCY 

SERBIA 

MONTENEGRO 

TOTAL 

INTERNATIONAL 
FINANCIAL 
ORGANIZATIONS 
AND EU 

 […] 

E U 

EU - 225 million 

EU - 55 million 

[…] 

[…] 

 […] 

 […] 

 […] 

 […] 

EUR 

EUR 

EUR 

EUR 

223.796.611,38  

1.203.388,62  

225.000.000,00  

49.500.000,00  

5.500.000,00  

55.000.000,00  

273.296.611,38  

6.703.388,62  

280.000.000,00  

total in USD 

342.686.679,19   8.405.380,42  

351.092.059,60  

EN 

8 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
 
 
 
  
 
 
 
 
 
2008/0086 (CNS) 

Proposal for a 

COUNCIL DECISION 

establishing a separate liability of Montenegro and reducing proportionately the liability 
of Serbia with regard to the long-term loans granted by the Community to the State 
Union of Serbia and Montenegro (formerly the Federal Republic of Yugoslavia) 
pursuant to Council Decisions 2001/549/EC and 2002/882/EC 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to the proposal from the Commission1, 

Having regard to the opinion of the European Parliament2, 

Whereas: 

(1) 

(2) 

Pursuant to Council Decision 2001/549/EC of 16 July 2001 providing macro-financial 
assistance  to  the  Federal  Republic  of  Yugoslavia3,  the  Community  granted  to  the 
Federal  Republic  of  Yugoslavia  a  long-term  loan  of  up  to  EUR  225  million  with  a 
view  to  ensuring  a  sustainable  balance-of-payments  situation  and  strengthening  the 
country's  reserve  position.  The  loan  was  fully  disbursed  by  the  Commission  in  one 
instalment in October 2001.  

Pursuant  to  Council  Decision  2002/882/EC  of  5 November  2002  providing  further 
macro-financial  assistance  to  the  Federal  Republic  of  Yugoslavia4,  the  Community 
granted  the  Federal  Republic  of  Yugoslavia  a  loan  of  up  to  EUR  55  million  with  a 
view  to  ensuring  a  sustainable  balance-of-payments  situation  and  strengthening  the 
country's  reserve  position.  The  loan  was  fully  disbursed  by  the  Commission  in  three 
instalments  of  respectively  EUR  10  million  in  February  2003,  EUR  30  million  in 
September 2003 and EUR 15 million in April 2005.  

(3) 

According  to  the  Constitutional  Charter  adopted  on  4 February  2003,  the  Federal 
Republic  of  Yugoslavia  was  reconstituted  as  the  State  Union  of  Serbia  and 
Montenegro.  

1 
2 
3 

4 

OJ C , , p. . 
OJ C , , p. . 
OJ  L  197,  21.7.2001,  p.  38.  Decision  as  amended  by  Council  Decision  2001/901/EC  (OJ  L  334, 
18.12.2001, p. 30). 
OJ  L  308,  9.11.2002,  p.  25.  Decision  as  last  amended  by  Council  Decision  2004/862/EC  (OJ  L  370, 
17.12.2004, p. 81). 

EN 

9 

   EN 

 
                                                 
(4) 

(5) 

(6) 

(7) 

On 3 June 2006, based on Article 60 of the Constitutional Charter of the State Union 
of  Serbia  and  Montenegro  and  following  the  Montenegrin  referendum  of  21  May 
2006, the Parliament of Montenegro passed a declaration on the independence of the 
country,  which  stated  that  Montenegro  is  an  independent  State  with  full  legal 
personality under international law. 

The Parliament of Serbia adopted on 5 June 2006 a decision that defined Serbia as the 
successor state to the State Union of Serbia and Montenegro. 

The  Council,  in  its  conclusions  of  12 June  2006,  took  note  of  the  declaration  of  the 
Parliament of Montenegro and the decision of the Parliament of Serbia and stated that 
the European Union  and  the  Member States had decided to develop further relations 
with Montenegro as a sovereign and independent State.  

On 10 July 2006, Montenegro and Serbia entered into an agreement on the regulation 
of membership in international financial organisations and the distribution of financial 
assets  and  liabilities,  according  to  which  macro-financial  assistance  loans  granted  to 
the Federal Republic of Yugoslavia or the State Union of Serbia and Montenegro shall 
continue  to  be  serviced  in  proportion  of  90%  for  Serbia  and  10%  for  Montenegro, 
unless another percentage is to be used on the basis of the final beneficiary principle.  

(8)  Montenegro and Serbia are via the Central Bank of Montenegro and the National Bank 
of Serbia continuing to discharge fully the debt servicing obligations stemming from 
the Community loan operations. 

(9) 

According to Appendix 4 of the agreement of 10 July 2006 between Montenegro and 
Serbia a total debt of EUR 6 703 388,62 stemming from the macro-financial assistance 
loans has been attributed to Montenegro. 

(10)  The  two  countries  are  discharging  the  debt  servicing  obligations  in  accordance  with 
the  10:90  split  agreed  between  them,  with  the  exception  of  one  operation  which  is 
being serviced following the final beneficiary principle (99,47% for Serbia and 0,53% 
for Montenegro). 

(11)  Considering the relations developed between the European Union and Montenegro as 
an  independent  state,  notably  the  European  Partnership  established  by  Council 
Decision 2007/49/EC5, and the long period of time over which repayments are due to 
take  place,  the  Commission  should  be  authorised  to  take  the  appropriate  action  to 
ensure that the liabilities arising under the loans granted pursuant to Council Decisions 
2001/549/EC  and  2002/882/EC  are  divided  between  Montenegro  and  Serbia  in  the 
proportions agreed bilaterally between the two countries. 

(12)  Montenegro  or  Serbia  will  not  be  entitled  to  any  additional  disbursement  of  macro-

financial assistance under this Decision. 

(13)  The Commission consulted the Economic and Financial Committee before submitting 

its proposal. 

5 

OJ L 20, 27.1.2007, p. 16. 

EN 

10 

   EN 

 
                                                 
(14)  The Treaty does not provide, for the adoption of this Decision, powers other than those 

of Article 308, 

HAS DECIDED AS FOLLOWS: 

Article 1 

1. 
Montenegro shall assume separate liability for the payments of principal and interest 
as well as all and any costs and expenses associated with the servicing of EUR 6 703 388,62 
out of the Community long-term loans of in total EUR 280 million paid to the State Union of 
Serbia  and  Montenegro  (the  former  Federal  Republic  of  Yugoslavia)  pursuant  to  Council 
Decisions 2001/549/EC and 2002/882/EC. 

2. 
To this end, the Commission is authorised to sign, after consultation of the Economic 
and  Financial  Committee,  a  separate  loan  agreement  with  the  authorities  of  Montenegro  for 
the amounts attributed to Montenegro and essentially on the terms and conditions set out in:  

–  Loan  Agreement  of  17  September  2001  between  the  European  Community  and 

the Federal Republic of Yugoslavia,  

–  Loan Agreement of 13 December 2002 between the European Community and the 

Federal Republic of Yugoslavia,  

–  Supplemental  Loan  Agreement  of  25  July  2003  between  the  European 

Community and State Union of Serbia and Montenegro, and  

–  Supplemental  Loan  Agreement  of  7  April  2005  between  the  European 

Community and State Union of Serbia and Montenegro. 

In particular, the interest rate and the due dates for payment of interest and repayment 
of principal shall be the same as those determined in the borrowing contracts annexed to the 
agreements mentioned in this paragraph. 

The  present  Decision  does  not  entitle  Montenegro  to  any  additional  disbursement  of 

3. 
macro-financial assistance from the Community.  

Article 2 

1. 
Upon  the  signature  of  the  separate  loan  agreement  between  the  Community  and 
Montenegro referred to in Article 1 (2), Serbia's liabilities to the Community in its capacity of 
successor state to the State Union of Serbia and Montenegro shall be reduced accordingly. 

The  Commission  is  authorised  to  conclude  with  Serbia  arrangements  to  amend  the 

2. 
existing loan agreements referred to in Article 1(2) . 

The present Decision does not entitle Serbia to any additional disbursement of macro-

3. 
financial assistance from the Community. 

EN 

11 

   EN 

 
 
Article 3 

1. All related costs and expenses incurred by the Community in concluding and carrying out 
the arrangements provided for by Article 1 shall be borne by Montenegro. 

2. All related costs and expenses incurred by the Community in concluding and carrying out 
the arrangements provided for by Article 2 shall be borne by Serbia. 

Article 4 

This  Decision  shall  take  effect  on  the  third  day  following  its  publication  in  the  Official 
Journal of the European Union.  

Done in Brussels,  

For the Council 
The President 

EN 

12 

   EN 

 
 
 
LEGISLATIVE FINANCIAL STATEMENT 

Policy area: Title 01 – Economic and Financial Affairs 

Activity: 03 – International economic and financial affairs 

TITLE OF ACTION:  PROPOSAL FOR A COUNCIL DECISION ESTABLISHING A SEPARATE 

LIABILITY OF MONTENEGRO 

1. 

BUDGET LINE(S) + HEADING(S) 

Article 01 03 02 — Macroeconomic assistance 

2. 

OVERALL FIGURES  

2.1. 

Total allocation for action (Part B):  

The present initiative has no financial impact. 

2.2. 

Period of application: 

Not applicable; one-off measure. 

2.3. 

Overall multi-annual estimate of expenditure: 

(a) 

Indicative schedule of commitment appropriations/payment appropriations  
(financial intervention) (see point 6.1.1) 

€ Million ( to three decimal places) 

Commitments 

Payments 

2007 

2008 

2009 

0 

0 

0 

0 

0 

0 

Total 

0 

0 

(b) 

Technical and administrative assistance and support expenditure (see point 6.1.2) 

Commitments 

Payments 

Subtotal a+b 

Commitments 

Payments 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

(c) 

Overall financial impact of human resources and other administrative expenditure  
(see points 7.2 and 7.3) 

Commitments/ 
payments 

0 

0 

0 

0 

EN 

13 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL a+b+c 

Commitments 

Payments 

0 

0 

0 

0 

0 

0 

0 

0 

2.4. 

Compatibility with financial programming and financial perspective 

The proposal has no financial impact. 

2.5. 

Financial impact on revenue 

The proposal has no financial implications on revenues 

3. 

BUDGET CHARACTERISTICS 

Type of expenditure 

New 

EFTA 
contribution 

Contributions 
from applicant 
countries 

Heading in 
financial 
perspective 

Non-
compulsory 

Differen-
tiated 

4. 

LEGAL BASIS  

NO 

NO 

NO 

No 4 

Article 308 of the Treaty 

5. 

DESCRIPTION AND GROUNDS 

5.1. 

Need for Community intervention 

5.1.1.  Objectives pursued 

The present proposal aims at: 

–  establishing  separate  liabilities  for  Montenegro  vis-à-vis  the  Community, 
corresponding  to  and  replacing  its  share  of  the  existing  EC  macro-financial 
assistance loans to the former State Union of Serbia and Montenegro (SUSaM);  

–  and  reducing  accordingly  the  current  total  amount  of  liabilities  which  Serbia 
legally  has  to  service  pursuant  to  previous  Council  decisions  and  to  its  declared 
status of successor state of the State Union of Serbia and Montenegro. 

This  should  in  particular  facilitate  any  eventual  future  refinancing  or  restructuring 
operations either to permit an improvement in the interest rate of the loans, or in the 
event one of the two countries would request an early repayment. 

5.1.2.  Measures taken in connection with ex ante evaluation  

None. (There is no financial impact).  

5.1.3.  Measures taken following ex post evaluation 

EN 

14 

   EN 

 
 
 
 
 
 
 
 
 
 
 
An ex-post evaluation of past Community macro-financial assistance provided to the 
State  Union  of  Serbia  and  Montenegro  has  already  been  commissioned  from 
Commission appointed external consultants and is under way.  

5.2. 

Action envisaged and budget intervention arrangements 

The current legal base does no longer provide for the appropriate legal certainty as 
regards the book of credits of EC macro-financial assistance to the former FRY and 
to  the  State  Union  of  Serbia  and  Montenegro,  as  the  existing  decisions  do  not 
establish  any  liability  or  contractual  obligations  of  Montenegro.  Therefore,  the 
Commission intends to proceed with the proposal for a Council Decision establishing 
a  separate  liability  of  Montenegro  and  reducing  accordingly  the  liability  of  the 
Republic of Serbia with regard to the long-term loans granted by the Community to 
the State Union of Serbia and Montenegro. 

According  to  the  proposal,  Montenegro  shall  assume  separate  liability  for  the 
payments  of  principal,  interest  and  expenses  associated  with  the  servicing  of 
EUR 6 703 388,62  out  of  the  Community  long-term  loans  of  in  total  EUR  280 
million  granted  to  the  FRY/SUSaM.  To  this  end,  the  Commission  is  authorised  to 
sign  with  the  authorities  of  Montenegro  a  new  loan  agreement  for  the  amounts 
attributed  to  Montenegro  and  essentially  on  the  terms  and  conditions  set  out  in  the 
existing loan agreements. 

At  the  same  time,  Serbia's  liabilities  to  the  Community  under  the  existing  loan 
agreements  in  its  capacity  of  successor  state  to  the  SUSaM  shall  be  reduced 
proportionately  upon  the  signature  of  the  new  loan  agreement  between  the 
Community  and  Montenegro.  The  Commission  is  to  the  extent  appropriate 
authorised  to  conclude  with  Serbia  arrangements  to  amend  the  existing  loan 
agreements.  This  could  be  done  by  an  exchange  of  letters  with  the  Serbian 
authorities. 

All  related  costs  and  expenses  incurred  by  the  Community  in  concluding  and 
carrying  out  the  arrangements  provided  for  in  the  new  proposal  shall  be  borne  by 
Montenegro and Serbia, respectively. 

The proposed Council Decision does not entitle the two Republics to any additional 
disbursement of macro-financial assistance from the Community. It will take effect 
from the third day of its publication in the Official Journal. 

5.3.  Methods of implementation 

This assistance will be implemented in the form of centralised direct management by 
the Commission using regular staff. 

6. 

FINANCIAL IMPACT 

6.1. 

Total financial impact on Part B - (over the entire programming period) 

There is no financial impact 

EN 

15 

   EN 

 
6.1.1.  Financial intervention 

Commitments (in € million to three decimal places) 

Breakdown 

2007 

2008 

2009 

Grant instalments to 
Montenegro 

0 

0 

0 

TOTAL 

0 

0 

0 

Total 

0 

0 

6.1.2.  Technical and administrative assistance, support expenditure and IT expenditure 

(commitment appropriations) 

1) Technical and 

administrative assistance 

a) Technical assistance 

offices 

b) Other technical and 

administrative assistance: 

- intra muros: 
- extra muros: 
of which for construction 
and maintenance of 
computerised management 
systems 

Subtotal 1 

2) Support expenditure 

a) Studies (Operational 

Assessments) 

b) Meetings of experts 

c) Information and 
publications 

Subtotal 2 

TOTAL 

2007 
0 

2008 
0 

2009 
0 

Total 
0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

EN 

16 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.2. 

Calculation of costs by measure envisaged in Part B  
(over the entire programming period)6 

Commitments (in € million to three decimal places) 

Breakdown  

Type  
of outputs 
(projects, files ) 

Number of 
outputs 
(total for years 
1…n)  

Average unit 
cost 

Total cost 
(total for years 
1…n)  

1 

2 

3 

4=(2X3) 

Action 1 
- Measure 1 
- Measure 2  
Action 2 
- Measure 1- 
- Measure 2 
- Measure 3 

etc. 

TOTAL COST 

0 

0 

0 

0 

7. 

IMPACT ON STAFF AND ADMINISTRATIVE EXPENDITURE  

7.1. 

Impact on human resources 

Staff to be assigned to management of 
the action using existing and/or 
additional resources 

Number of 
permanent posts 

Number of 
temporary posts 

Total 

Description of tasks deriving from the 
action 

None.  

Types of post 

Officials or 
temporary staff 

A 
B 
C 

Other human resources 

Total 

7.2. 

Overall financial impact of human resources 

Type of human resources 

Amount (€) 

Method of calculation  *  

1/3 x average annual expenditure for an 
A*5 – A*12 grade official 

Officials 

Temporary staff 

Other human resources 

0 

0 

(specify budget line) 

Total 

The amounts are total expenditure for twelve months. 

6 

For further information, see separate explanatory note. 

EN 

17 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
7.3. 

Other administrative expenditure deriving from the action 

Budget line 
(number and heading) 

Overall allocation (Title A7) 
A0701 – Missions 
A07030 – Meetings 
A07031 – Compulsory committees 1 
A07032 – Non-compulsory committees 1 
A07040 – Conferences 
A0705 – Studies and consultations 
Other expenditure (specify) - An ex-post evaluation - 

Information systems (A-5001/A-4300) 

Other expenditure - Part A (specify) 

Total 

Amount € 

Method of calculation 

0 

0 

0 

0 

The amounts are total expenditure for twelve months. 
1 Specify the type of committee and the group to which it belongs. 

I. 

II. 

Annual total (7.2 + 7.3) 

0 

Duration of action 

One off action 

III. 

Total cost of action (I x II) 

0 

8. 

FOLLOW-UP AND EVALUATION 

8.1. 

Follow-up arrangements 

The signature of the new loan agreement between the Community and Montenegro is 
foreseen.  The  Commission  is  to  the  extent  appropriate  also  authorised  to  conclude 
with Serbia arrangements to amend the existing loan agreements. This could be done 
by an exchange of letters with the Serbian authorities. 

The  Commission  will  regularly  monitor  compliance  with  the  repayments  schedule 
that has been agreed.  

8.2. 

Arrangements and schedule for the planned evaluation 

An  annual  report  to  the  European  Parliament  and  to  the  Council  is  foreseen  in  the 
proposed Council decision, comprising an assessment of the implementation of this 
assistance  operation.  An  ex-post  evaluation  of  past  Community  macro-financial 
assistance  provided  to  the  State  Union  of  Serbia  and  Montenegro  has  already  been 
commissioned from Commission appointed external consultants and is under way. 

9. 

ANTI-FRAUD MEASURES 

The  funds  have  already  been  released,  and  re-payment  is  taking  place  according  to 
the  expected  schedule.  The  use  of  macro-financial  assistance  remains  liable  to 
verification,  control  and  auditing  procedures  under  the  responsibility  of  the 

EN 

18 

   EN 

 
 
 
 
 
Commission, including the European Antifraud Office (OLAF), and by the European 
Court of Auditors. 

EN 

19 

   EN