REPORT FROM THE COMMISSION TO THE COUNCIL  AND THE EUROPEAN PARLIAMENT comprehensive report on the functioning of the Guarantee Fund   SEC(2010) 968
Date: 2010-08-03
Institutions: European Commission
Subjects: Community loan, activity report, credit guarantee, financial management, fund (EU), third country

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EUROPEAN COMMISSION 

Brussels, 3.8.2010 
COM(2010) 418 final 

REPORT FROM THE COMMISSION TO THE COUNCIL  
AND THE EUROPEAN PARLIAMENT 

comprehensive report on the functioning of the Guarantee Fund 

SEC(2010) 968 

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TABLE OF CONTENTS 

1. 

2. 

Introduction- The Fund shielding the Union budget from calls due to defaults since 
1994.............................................................................................................................. 3 

Functioning of the Fund in the period 2007-2009 ....................................................... 3 

2.1. 

Operations covered by the Fund .................................................................................. 3 

2.1.1.  Monitoring of Risks ..................................................................................................... 4 

2.1.2.  EIB external lending – volumes and main risk characteristics of guarantees given to 

the EIB ......................................................................................................................... 4 

2.1.3.  Macro-Financial Assistance covered by the Fund ....................................................... 5 

2.1.4.  Euratom operations covered by the Fund..................................................................... 5 

2.2. 

Provisioning of the Fund – satisfactory experience with the new provisioning 
mechanism.................................................................................................................... 5 

2.3. 

Other parameters of the new provisioning mechanism................................................ 6 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

5. 

5.1. 

5.2. 

5.3. 

5.4. 

5.5. 

5.6. 

5.7. 

Management of the Fund's assets in a difficult market environment - Development 
and performance of the Fund over the period 2007-2009............................................ 6 

Crisis context................................................................................................................ 6 

Development of the Fund's portfolio ........................................................................... 6 

Evaluation of the Target rate........................................................................................ 7 

Credit risk profile analysis ........................................................................................... 7 

Target rate .................................................................................................................... 7 

Evaluation of the Fund by an external consultant........................................................ 8 

Main Findings: ............................................................................................................. 8 

Recommendations:....................................................................................................... 9 

Specific quantitative assessment of the target rate....................................................... 9 

Impact of the financial crisis – increased volume of Macro-Financial assistance loans
...................................................................................................................................... 9 

Potential impact of the increase in the rhythm of EIB disbursements ......................... 9 

Recommendations for the next financial framework post 2013 ................................ 10 

Review of the institutional arrangements for the management of the assets of the 
Fund raised in the 2006's comprehensive report........................................................ 10 

6. 

Conclusion.................................................................................................................. 11 

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1. 

INTRODUCTION-  THE  FUND  SHIELDING  THE  UNION  BUDGET  FROM  CALLS  DUE  TO 
DEFAULTS SINCE 1994 

The Guarantee Fund for external actions ("The Fund") was established in 1994 by the Council 
Regulation  (EC,  Euratom)  No 2728/94  of  31  October  19941  in  order  to  shield  the  Union 
budget in the event of any default by the beneficiaries of loans granted or guaranteed by the 
European  Union.  The  Fund  regulation  was  amended  three  times2  and  is  currently  operating 
under Council Regulation (EC, Euratom) No 480/2009 of 25 May 20093 (codified version). 

Three reviews of the functioning of the Fund took place in 1998, 2003 and 2006. Further to 
the last review in 2006, a new provisioning mechanism was implemented which entered into 
force  in  2007.  An  Inter-institutional  agreement4  between  the  Council  and  the  Commission 
concluded  that  in  the  context  of  the  next  Comprehensive  report  on  the  functioning  of  the 
Guarantee  Fund  a  full  analysis  of  the  new  provisioning  mechanism  be  provided.  In  this 
framework,  an  evaluation  of  the  Guarantee  Fund  was  commissioned  by  the  Commission  in 
September 2009 with an external Consulting company in order to assess the functioning of the 
new provisioning mechanism and the different parameters of the Guarantee Fund particularly 
the 9% provisioning target rate. 

The Commission Staff Working Document (SWD) completes this report by providing graphs 
and tables. 

The present report demonstrates that the Guarantee Fund in its present setting functions well 
and  that  the  new  provisioning  mechanism  fulfilled  the  expectations.  This  analysis  is 
underpinned by the findings of the evaluation of the Guarantee Fund by an external consultant 
which in particular confirms that the 9% target rate is appropriate in view of the risk covered 
by the Fund. 

Consequently, the report concludes that there is at present no need to change the legal base of 
the Fund or any of the Fund's parameters. 

2. 

FUNCTIONING OF THE FUND IN THE PERIOD 2007-2009 

2.1. 

Operations covered by the Fund 

The lending operations covered by the Fund relate to three different instruments which benefit 
from  a  guarantee  from  the  European  Union  budget:  guarantees  to  the  European  Investment 
Bank  (EIB)  external  loans  and  loan  guarantees,  Euratom  external  lending  and  EU  Macro-
Financial Assistance (MFA) loans to third countries. The organization chart of the Fund in the 
SWD  describes  the  functioning  of  the  Fund  and  all  the  financial  flows  involved  in  the 
functioning of the Fund. 

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Council Regulation (EC, Euratom) No 2728/94 (OJ L 293, 12.11.1994, p. 1). 
Council Regulation (EC, Euratom) No 1149/1999 (OJ L 139, 2.6.1999, p. 1); Council Regulation (EC, 
Euratom) No 2273/2004 (OJ L 396, 31.12.2004, p. 28); Council Regulation (EC, Euratom) No 89/2007 
(OJ L 22, 31.1.2007, p. 1). 
OJ L 2009 145, 10.6.2009, p. 10. 
2005/0025 (CNS) of 16 January 2007. 

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2.1.1.  Monitoring of Risks 

The Fund covers the risk of loans and loan guarantees to third countries. At the end of 2009, 
the  Fund  has  covered  an  amount  of  EUR 16.361 billion  guaranteed  lending  composed  of 
EUR 16.239 billion  for  outstanding  and  EUR 122 million  for  accrued  interest.  Since  the 
implementation of the EIB current external mandate5 started in 2007, the outstanding amount 
covered  increased  on  average  by  15%  per  year  to  EUR 16 361 million.  The  growth  of  the 
outstanding amount covered by the fund does not mean that the Fund bears a higher risk per 
euro covered. The monitoring of the risks borne by the Fund shows that risks remain stable 
regarding the credit exposure of the new operations as long as the new loans are signed for 
projects having the same risk profile as the current loans portfolio (see graphs in section 5 of 
the  SWD).  This  has  been  the  case  since  2000.  For  this  reason,  the  previous  comprehensive 
report concluded in 2006 that the target rate was maintained at its 9% level. 

2.1.2.  EIB external lending – volumes and main risk characteristics of guarantees given to 

the EIB  

About  97%  of  the  total  outstanding  amount  covered  by  the  Fund  concern  loan  guarantees 
issued with respect to loans granted for projects in third countries by the EIB. Based on the 
forecasted execution of the present mandate, this predominance of the EIB guarantees in the 
risk covered by the Fund will remain unchanged in the future. If the recipient of a guaranteed 
loan  fails  to  make  a  payment  on  the  due  date,  the  EIB  asks  the  Commission  to  pay  the 
amounts  owed  by  the  defaulting  debtor  in  accordance  with  the  Commission-EIB  guarantee 
agreement.  If  the  EIB  has  a  second  public  or  private  guarantor  in  addition  to  the  EU 
guarantee, it is activated before a call under the EU guarantee is made. 

Table1: Share of EIB operations covered by the Fund in 2009 (capital and interest due) 

MFA
3%

Euratom
0%

EIB
97%

The EU Guarantee covers all credit risks of a guaranteed lending operation in third countries. 
All EIB Financing Operations entered into with a State, with a public sector or a private sector 
entity covered by a State guarantee, are 'ipso facto' covered by a Comprehensive Guarantee. 
For other types of operations, notably private sector operations, the guarantee is limited to the 
well defined political risk events. 

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"Mandate"  refers  to  the  Guarantee  envelope  provided  by  the  EU  budget  to  the  EIB.  Mandates  are 
usually granted for the length of a financial framework (present period 2007-2013) and are sub-divided 
according to regions and by activity sectors. 

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2.1.3.  Macro-Financial Assistance covered by the Fund 

In this type of operations covered by the Fund, the European Union borrows on the financial 
markets  and  on-lends  the  proceeds  (on  a  "back-to-back"  basis)  to  non-member  countries 
(MFA  loans).  All  MFA  loans  have  to  be  authorised  individually  by  the  Council.  The  loan 
repayments are scheduled to match the repayments of the borrowings due by the EU. 

2.1.4.  Euratom operations covered by the Fund   

The  Euratom  loan  facility  may  be  used  to  finance  projects  within  Member  States  (Council 
Decision 77/270/Euratom) or in certain third countries (Ukraine, Russia or Armenia) (Council 
Decision 94/179/Euratom). In 1990 the Council fixed a borrowing limit of EUR 4 billion, of 
which  some  EUR 3.4 billion  have  been  decided  and  disbursed.  In  2002  the  Commission 
proposed an increase in the borrowing limit from EUR 4 billion to EUR 6 billion, for which 
agreement has not yet been reached at the Council. 

As for MFA loans, Euratom borrows on the financial markets and on-lends the proceeds (on a 
"back-to-back"  basis)  to  companies  active  in  the  field  of  nuclear  energy  in  certain  third 
countries. The loan repayments are scheduled to match the repayments of the borrowings due 
by Euratom. 

In 2009, the share of Euratom operations is marginal (less than 1%) in comparison with the 
total outstanding amount of capital and interests covered by the Fund (see table 1 above). 

2.2. 

Provisioning  of  the  Fund  –  satisfactory  experience  with  the  new  provisioning 
mechanism 

The new provisioning mechanism introduced in 2007 changed the provisioning rules for the 
Fund by ending the former practice to provision the Fund on the basis of projections of loans 
signed  independent  of  the  actual  disbursements.  The  new  provisioning  mechanism  is  now 
based  on  net  disbursements.  This  change  fulfilled  its  main  objective  namely  to  improve  the 
functioning of the Fund by reducing to only one the number of annual transfers between the 
Union Budget and the Fund and by improving the precision of the budgetary flows between 
the Fund and the budget. In fact, as the provisioning takes place on the basis of the observed 
net disbursements of guaranteed loans, the necessary budgetary resources for the provisioning 
can be introduced in good time into the regular budgetary process. This change has ended the 
structural  over-provisioning  observed  under  the  old  provisioning  mechanism  which  was 
appropriate during the set-up of the Fund. 

As it can be seen in table 2 of the SWD, over the first half of the present financial framework 
period 2007-2011, the available budgetary resources for the provisioning of the Fund of EUR 
200  million  p.a.  decided  by  the  budgetary  authority  were  more  than  sufficient  for  the 
provisioning  of  the  Fund.  However,  depending  on  the  rate  of  implementation  of  the  EIB 
external lending mandate, estimations of the Fund's provisioning needs for the years 2012 and 
2013 show that the Fund may require around EUR 598 million. The amount included in the 
indicative  financial  programming  for  2012-2013  is  EUR  400  million.  This  will  be 
complemented  by  the  interests  earned  on  the  assets  of  the  Fund  (see  section  3.2).  For  the 
entire period 2007-2013 the total resources used and estimated are expected to be well below 
the  total  amount  of  EUR  1.4  billion  originally  foreseen  for  the  financial  framework  2007-
2013. The ratio between the total of transfers from the budget to the Fund and the total budget 
allocation is expected to be about 60% at the end of the period 2007-2013. 

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2.3. 

Other parameters of the new provisioning mechanism 

In  order  to  protect  the  EU  budget  from  shocks,  the  provisioning  mechanism  foresees  a 
smoothing  mechanism  which  aims  at  limiting  the  annual  amount  transferred  to  the  Fund  in 
case  of  major  defaults.  In  addition,  so-called  trigger  values  have  been  introduced.  Their 
function is to keep the budgetary authority informed about major losses in the Fund (trigger 
value of 80 %, i.e. when the value of the Fund falls below 80 % of the target amount) or to 
induce a report by the Commission on exceptional measures that may be required to replenish 
the Fund (trigger value 70 %). 

The functioning of the smoothing mechanism can be explained as follows: If as a result of one 
or more defaults, the amount to be covered by the Fund exceeds EUR 100 million in a given 
year  (impacting  the  budget  at  the  beginning  of  the  year  n+2  after  the  default),  the  amount 
exceeding EUR 100 million is paid back into the Fund in annual tranches of a maximum of 
EUR 100 million in the following years. The size of the annual tranche will be the lesser of 
EUR 100 million, or the remaining amount due (Article 6 of Regulation No 480/2009). 

The  smoothing  mechanism  has  not  been  activated  since  the  implementation  of  the  new 
provisioning mechanism as the Fund was not called during this period. 

3. 

MANAGEMENT  OF  THE  FUND'S  ASSETS  IN  A  DIFFICULT  MARKET  ENVIRONMENT  - 
DEVELOPMENT AND PERFORMANCE OF THE FUND OVER THE PERIOD 2007-2009 

3.1. 

Crisis context 

During the period 2007 – 2009, the absolute return of the Fund's portfolio remained always 
positive  and  the  portfolio  did  not  suffer  from  any capital  losses  resulting  from  the  financial 
crisis. Neither the external nor the internal auditors or the European Court of Auditors have 
raised  any  concern  regarding  the  management  of  the  Fund's  assets  by  the  EIB  under  the 
oversight  of  the  Commission  services.  The  EIB  managed  the  fund's  assets  under  the 
supervision of the Commission very successfully in a difficult financial environment. 

During  the  whole  period  2007-2009,  the  Fund  had  overall  an  absolute  return  on  average  of 
+4.6928% p.a.. However, against the background of the most severe crisis in global financial 
markets in recent history, the Fund underperformed its benchmark index on average by -15.27 
basis  points  p.a..  The  current  size  of  total  funds  under  management  in  the  Guarantee  Fund 
portfolio  on  31  December  2009  amounted  to  a  market  value  of  EUR 1,240.5 million  (cash 
included), with a modified duration of 3.01 years. 

3.2. 

Development of the Fund's portfolio 

Graph  2  in  the  SWD  shows  that  the  volume  of  the  Fund  decreased  in  2007  following  the 
implementation  of  the  new  provisioning  mechanism  and  increased  in  2008  to  reach 
EUR 1,240.5 million in 2009. The decrease in 2007 is explained by the slow pattern of loan 
disbursements at the beginning of the current EIB external mandate resulting in a surplus of 
EUR 125.75 million  transferred  from  the  Fund  to  the  Budget.  On  average  the  Fund's  assets 
have increased by +2.5% p.a. on average since 2007. The value of the Fund's assets should 
continue  to  increase  and  reach  about  EUR 2.2 billion  in  2013.  The  potential  acceleration  in 
the rhythm of disbursements of the external lending mandate in 2010 and the potential growth 
of  MFA  operations  explain  this  expected  acceleration  in  the  value  of  the  Fund's  assets  (see 
sections 6 and 7 of the SWD). 

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In addition to provisioning via its budget line, the Fund's other main source of income is the 
interest earned on its assets. The interest earned on the Fund's assets fell since 2007due to the 
general  decline  in  the  market  interest  rates  to  historically  low  levels.  The  interest  earned 
during the period 2007-2009 amounted to EUR 146 million (see table 1 of the SWD, flows in 
and out since the creation of the Fund). At the end of 2009 the total assets of the Fund stood at 
EUR 1,240.5 million (market value). 84.3% of this amount were invested in bonds, 15.6% in 
deposits and 0.1% were held on current accounts. 

4. 

EVALUATION OF THE TARGET RATE 

In  2006,  the  legal  base  of  the  Fund  was  changed  with  a  view  to  implement  the  new 
provisioning  mechanism  in  20076,  the  Commission  agreed  to  provide  in  the  present 
comprehensive report an analysis of the functioning of the new mechanism. In addition it was 
agreed  to  review  the  appropriateness  of  the  Fund's  main  parameters,  notably  the  9  %  target 
rate (relation of the size of the Fund to the overall amount of risks covered). 

4.1. 

Credit risk profile analysis 

The  credit  risk  profile  of  the  Fund  has  not  changed  since  the  last  comprehensive  report  in 
2006 (see paragraph 2.1.1 above and graphs in section 5 in SWD; the risk profile of the loans 
covered by the Fund in 2006 and 2009). During the same period the Fund has not been called 
to  cover  defaults.  The  analysis  of  the  credit  risk  profile  of  the  loans  covered  by  the  Fund 
suggests that the target rate should not be changed. The risk of default from a beneficiary of 
loan exists and is reflected in maintaining the target rate at 9%. It can be noticed that about 
14% of the loan guaranteed portfolio in 2009 has a credit rating below B level (Moody's or 
equivalent) which means that according to the historical cumulative default rates for different 
credit  ratings  for  sovereign  risks  over  different  time  horizons  published  by  the  major  credit 
rating agencies, the probability of default in 1 year is not negligible. 

The relative stability of the sovereign risk profile is due to the geographical distribution of the 
lending operations covered by the Fund which is relatively stable over the period 2000-2009. 
The  distribution  of  EIB  mandate  explained  this  stability  as  the  repartition  of  lending 
operations between the previous and the current mandate is similar. About 81% of the lending 
operations  are  focused  on  the  Mediterranean  countries  and  both  potential  and  candidate 
countries  (see  the  graph  3  in  the  SWD:  the  geographical  distribution  of  lending  operations 
covered by the Fund in 2009). The Fund covers the credit risk of defaults in 42 countries. The 
10 highest countries account for about 81% of the total exposure. The maximum exposure in 
one country stands for 27% of the total risk in 2009. 

Since 1994 the Fund was called for a cumulative amount of about EUR 478 million and had a 
recovery  rate  of  100%  (see  table1  of  the  SWD).  The  last  calls  were  in  2003  and  2004  in 
relation  to  the  Republic  of  Argentina  for  a  total  amount  of  about  USD 10 million.  The 
amounts were fully recovered in 2004 and 2008 for the penalty interest. 

4.2. 

Target rate 

Based  on  our  past  observations  and  the  credit  risk  profile  analysis  of  the  current  lending 
operations  covered  by  the  Fund,  the  major  parameter  of  the  Fund  (the  9%  "target"  rate),  is 

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fixed  at  a  sufficient  level  to  take  into  account  the  risk  born  by  the  Fund  and  the  potential 
evolution of this credit risk due to the impact of the financial crisis. 

5. 

EVALUATION OF THE FUND BY AN EXTERNAL CONSULTANT 

An  evaluation  of  the  Fund  was  undertaken  by  GHK  Consulting  and  Volterra  Consulting 
between September 2009 and February 2010. 

The purpose of the evaluation was to assess the relevance, effectiveness and efficiency of the 
Fund,  with  a  particular  focus  on  the  appropriateness  of  the  current  levels  of  the  main 
parameters of the Fund, notably the target rate. 

To  address  the  evaluation  questions  the  study  combined  several  qualitative  and  quantitative 
techniques,  including  desk  research  and  analysis,  interviews  as  well  as  quantitative  risk 
modelling (Monte Carlo simulations). 

5.1.  Main Findings: 

–  the Fund is an effective and efficient mechanism for provisioning for the risks associated 

with EU’s external lending actions; 

–  the  costs  of  operating  the  Fund  are  modest  in  relation  to  the  budgetary  protection  and 

stability offered by the Fund; 

–  the  current  management  methods  for  the  Fund  are  working  effectively  and  are  fit  for 

purpose; 

–  the  9%  provision  target  rate  is  at  an  appropriate  level  and  provides  a  comfortable  buffer 
against  loss.  Even  under  an  accelerated  scenario7  (a  type  of  default  as  yet  not  observed 
with EU lending), the quantitative assessment indicates that a one in twenty year loss could 
potentially be provided for; 

–  the  provisioning  mechanism  takes  into  account  sufficiently  well  the  risk  profile  of  the 
Fund.  Given  the  ‘unlikeliness’  of  the  Fund  breaching  either  the  80  percent  or  70  percent 
triggers,  the  current  mechanism  does  allow  satisfactorily  for  the  associated  missed  loan 
payment risks. 

As regards the adequacy of budgetary resources foreseen for the Fund, the conclusions of the 
evaluation are that: 

–  the payments to the Fund that are due to losses are capped by the smoothing mechanism at 
EUR 100 million.  The  modelling  results  suggest  that  the  smoothing  mechanism  and  the 
EUR 100 million limit are appropriate; 

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Usually  the  Fund  is  only  called  to  compensate  for  the  amount  of  a  missed  payment  (interest  and/or 
capital) on a given due date. This means that the whole amount of future payments due affects the Fund 
only over time as these payments become due. Theoretically, after a missed payment, the creditor of a 
loan  could  demand  all  future  payments  if  it  is  not  to  be  expected  that  these  amounts  will  be  paid.  In 
order to simulate a maximum stress on the Fund, the quantitative analysis has also simulated a scenario 
in which missed payments trigger an acceleration of all future due payments. 

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–  the  payments  to  the  Fund  that  arise  from  additional  disbursements  are  projected  to  rise 

above the current annual budget allocation of EUR 200 million. 

5.2. 

Recommendations: 

–  the Fund should continue to cover the external lending operations of the EU; 

–  the  target  rate  of  the  Fund  should  be  maintained  at  9  per  cent;  although  it  should  be 

reviewed from time to time; 

–  in  the  next  financial  framework,  the  budgetary  resources  foreseen  for  the  Fund  should 
better reflect the expected profile of provisioning needs. Accordingly, it would be prudent 
to increase the annual budget allocation to between EUR 250-300 million; 

–  further  analysis  should  be  carried  out  to  determine  whether  the  same  quality  of  portfolio 
management  services  could  be  achieved  by  the  Commission  (as  compared  to  EIB)  at  a 
lower cost (in relation to management fees paid to EIB). 

5.3. 

Specific quantitative assessment of the target rate 

The external evaluation of the Fund focusing among other points on a quantitative analysis of 
the  Fund's  risk  profile  and  the  corresponding  level  of  the  Fund's  assets  confirmed  the 
conclusion  of  the  Commission  services  that  the  target  rate  level  of  9%  enables  the  Fund  to 
fulfil its main objective to provide a liquidity cushion in case of default by EU borrowers and 
ongoing budgetary stability. The study confirms that the current level of 9% is appropriate in 
relation to the current credit risk of the loans and guaranteed loan operations covered by the 
Fund.  The  sensitivity  analysis  performed  by  the  external  consultants,  has  shown  that  the 
approach  to  keep  the  target  rate  at  this  level  (9%)  is  a  prudent  approach  regarding  the  risk 
profile of the portfollio which takes already into account an unavoidable degree of uncertainty 
concerning the likelihood of defaults. The decrease of the target rate from its current level of 
9%,  which  would  allow  to  reduce  the  recourse  to  the  budgetary  resources  allocated  to  the 
financing  of  the  provisioning  of  the  Fund,  would  not  be  a  prudent  approach.  This  is  true  in 
particular  if  one  considers  the  risk  profile  of  the  existing  portfolio  of  loans  covered  by  the 
Fund  and  in  the  light  of  the  deterioration  of  the  economic  situation  in  many  countries 
subsequent to the financial crisis. 

5.4. 

Impact of the financial crisis – increased volume of Macro-Financial assistance 
loans 

The  intensity  of  the  international  financial  crisis  has  led  several  pre-accession  and 
neighbouring countries to approach the Commission formally or informally with requests for 
MFA loans. The implementation of potential MFA loan operations to these countries would 
amount  to  about  EUR 1.5 billion  over  the  period  2010  and  2011  (no  forecast  for  the  period 
beyond 2011 exists) and will have a maximum impact of an additional amount of EUR 135 
million  on  the  provisioning  of  the  Fund  in  2012  at  the  earliest  depending  on  the  rhythm  of 
loans disbursements. 

5.5. 

Potential impact of the increase in the rhythm of EIB disbursements 

The rhythm of EIB disbursements for loans signed under the current mandate observed in the 
period 2007-2009 was slow. Consequently, the annual transfers from the budget to the Fund 
have  been  substantially  below  the  available  budgetary  means.  The  possible  increase  in  the 

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rhythm  of  EIB  disbursements  together  with  the  increase  in  MFA  operations  of  about 
EUR 1.5 billion  would  imply  that  the  available  budget  for  the  Fund  will  most  likely  not  be 
sufficient without an increase of the budget line for the provisioning of the Fund during the 
period  2012-2013.  It  would  increase  the  pressure  on  the  budget  line  01 04 01 14  for  the 
provisioning of the Fund until the end of the financial framework in 2013. 

5.6. 

Recommendations for the next financial framework post 2013 

It is difficult to estimate the budgetary means of the Fund beyond 2014. It will depend mainly 
on  the  future  reform  regards  the  EU  financial  architecture  (on  the  basis  of  the  Camdessus 
Report8)  and  more  precisely  on  the  new  EIB  external  Mandate  under  the  new  financial 
frameworks.  In  the  situation  of  the  assessment  of  the  Fund,  simulations  were  performed  on 
the basis of a replicate mandate under the next financial framework. The results of simulations 
confirm that the profile of EIB disbursements would again strongly impact the provisioning 
needs  of  the  Fund  (see  section  9  in  the  SWD).  Based  on  the  current  situation,  a  flat  annual 
budget for the provisioning of the Fund would not be recommended. This aspect will have to 
be considered when the next financial framework post 2013 will be drawn up. 

5.7. 

Review  of  the  institutional  arrangements  for  the  management  of  the  assets 
of the Fund  raised in the 2006's comprehensive report 

In 2003 the EP budget committee has raised the issue of whether the Commission or the EIB 
should  manage  the  Fund's  portfolio.  The  only  reason  to  propose  such  a  change  would  be  a 
potential  cost  advantage  if  the  assets  were  directly  managed  by  the  Commission.  No 
indication exists that the quality of the EIB asset management could be criticised and justify 
such a change. However, only a comparative analysis of the management costs of the EIB and 
the Commission could provide the necessary hard facts to propose such a change. At present, 
no reliable, detailed data exist on the (opportunity) costs of the Commission in case it would 
manage the assets of the Fund directly as compared to the EIB. 

The  Commission  will  decide  in  the  future  whether  such  analysis  should  be  undertaken. 
Pending  such  a  decision,  no  proposal  is  made  to  change  the  arrangement  with  the  EIB.

8 

The Camdessus Report was prepared by a group of "Wise persons" in the framework of the Mid-Term 
Review of the EIB external mandate in February 2010. 

EN 

10 

   EN 

                                                 
6. 

CONCLUSION 

The new provisioning mechanism has delivered the promised improvement in the budgetary 
process with a provisioning based on the observed net-disbursements. This has resulted in an 
improved budgetary process for provisioning the Fund. 

A thorough quantitative analysis of the risk covered by the Fund and the Fund's 9% target rate 
has shown that this target rate and the other main parameters of the Fund are appropriate. The 
Commission therefore does not see a need to change the target rate or other Fund parameters. 
Nevertheless  these  parameters  should  be  reviewed  from  time  to  time  in  order  to  consider  if 
they  continue  to  take  sufficiently  into  account  the  risk  profile  borne  by  the  Fund.  Such  a 
review will be presented in the context of the next comprehensive report on the functioning of 
the Fund due in 2013. 

Under  the  present  financial  framework,  the  total  budgetary  resources  foreseen  for  the  Fund 
are appropriate however improvements exist regarding the profile of the provisioning needs of 
the Fund. These should be implemented in the planning of the post 2013 financial framework. 

EN 

11 

   EN