REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the Guarantee Fund and the management thereof in 2010
Date: 2011-08-05
Institutions: European Commission
Subjects: activity report, credit guarantee, financial control, fund (EU)

EUROPEAN COMMISSION 

Brussels, 5.8.2011 
COM(2011) 476 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on the Guarantee Fund and the management thereof in 2010  

{SEC(2011) 990 final} 

 
 
 
 
  
 
TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

2.3. 

Introduction .................................................................................................................. 3 

Position of the Fund at 31 December 2010.................................................................. 4 

Financial flows of the Fund.......................................................................................... 4 

Presentation of the accounts......................................................................................... 5 

Pre-consolidated financial statement for the Fund at 31 December 2010 ................... 5 

2.3.1.  Guarantee Fund: Pre-consolidated balance sheet......................................................... 7 

2.3.2.  Guarantee Fund: Pre-consolidated economic outturn account................................... 10 

3. 

3.1. 

3.2. 

Payments to or from the Fund.................................................................................... 12 

Legal basis for payments to the Fund from the general budget ................................. 12 

Payments to or from the general budget in the course of the financial year.............. 12 

3.2.1.  Provisioning of the Fund............................................................................................ 12 

3.2.2. 

Interest from the investment of the Fund’s liquid assets ........................................... 12 

3.2.2.1.  Investment policy ....................................................................................................... 12 

3.2.2.2.  Performance ............................................................................................................... 13 

3.2.2.3.  Interest income ........................................................................................................... 13 

3.3. 

Recovery from defaulting debtors.............................................................................. 14 

4. 

4.1. 

4.2. 

The Fund’s liabilities ................................................................................................. 14 

Default payments ....................................................................................................... 14 

EIB remuneration ....................................................................................................... 14 

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1. 

INTRODUCTION 

Council  Regulation  (EC,  Euratom)  No 480/2009  of  25 May 20091  (codified  version) 
established a Guarantee Fund for external actions (‘the Fund’) in order to repay the Union’s 
creditors  in  the  event  of  default  by  beneficiaries  of  loans  granted  or  guaranteed  by  the 
European  Union.  In  accordance  with  Article 7  of  the  Regulation,  the  Commission  entrusted 
the  financial  management  of  the  Fund  to  the  European  Investment  Bank  (EIB)  under  an 
Agreement  signed  between  the  Community  and  the  EIB  on  23 November 1994  in  Brussels 
and on 25 November 1994 in Luxembourg (‘the Agreement’).  

Under  Article 8(2)  of  the  Agreement,  by  1 March  of  each  year  the  EIB  must  send  the 
Commission an annual status report on the Fund and the management thereof (‘Statement of 
financial  performance’)  and  a  financial  statement  for  the  Fund  for  the  preceding  year 
(‘Statement of financial position of the Fund’). Further details of the report covering the year 
2010 can be found in the Commission Staff Working Document. 

In  addition,  Article 8  of  the  Regulation  requires  the  Commission  to  send  a  report  to  the 
European Parliament, the Council and the Court of Auditors on the situation of the Fund and 
the management thereof for each financial year by 31 May of the following year. 

1 

OJ L 145, 10.6.2009, p. 10 (‘the Regulation’). 

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2. 

POSITION OF THE FUND AT 31 DECEMBER 2010 

The position of the Fund is the sum of all the financial flows since the setting up of the Fund 
in 1994. 

2.1. 

Financial flows of the Fund 

The  position  of  the  Fund  is  presented  in  accordance  with  International  Financial  Reporting 
Standards (IFRS) at the close of the 2010 financial year. 

The  Fund  totalled  EUR 1,347,330,925.77  (see  Section  3  of  the  Staff  Working  Document: 
Statement  of  financial  position  of  the Fund  at 31  December 2010, as provided  by  the  EIB). 
This is the sum of the flows since the Fund was established: 

Guarantee Fund 

Budget payments to the Fund 

Successive yearly net results 

Recoveries  of  payments  made  by  the  Fund 
for defaults 

Accrued2  EIB  management  and  audit  fees  in 
2010  corresponding  to  the  payments  to  be 
made in 2011 

Commission  received  on  late  recovery  in 
2002 

Adjustment due to application of the IFRS for 
the  valuation  of  the  Fund’s  portfolio  (See 
item  ‘Reserves’  in  the  liabilities  on  the 
Guarantee Fund balance sheet in Section 3 of 
the SWD) 

Minus calls on the Fund’s resources 

Minus  successive  repayments  of  the  surplus 
in  the  Fund  to  the  general  budget  of  the 
European  Union  and  repayments  following 
accession of candidate countries to the EU 

Amount

+ EUR 2,985,684,500.00

+ EUR 760,201,245.08

+ EUR 576,705,008.19

+ EUR 747,058.18

+ EUR 5,090,662.91

- EUR 1,845,165.61

- EUR 477,860,856.19

- EUR 2,501,391,526.79

Accounting  value  of 
December 2010 

the  Fund  at  31 

EUR 1,347,330,925.77

2 

This amount of EUR 747,058.18 includes EUR 715,037.50 for EIB management fees plus external audit 
fees of EUR 32,020.67.00 in 2010 (see, ‘Current liabilities’, in the SWD). 

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Under Article 5 of the Regulation, the amount to be transferred from the budget to the Fund in 
year n + 1 is calculated on the basis of the difference between the target amount and the value 
of the Fund’s net assets at the end of year n - 1, calculated at the beginning of year n. 

The  Fund’s  net  assets  (i.e.  the  Fund’s  net  cash  resources)  at  31  December  2010  totalled 
EUR 1,485,463,867.59.  This 
the  Fund, 
i.e. EUR 1,347,330,925.77,  minus  accrued  EIB  and  audit  fees  of  EUR 747,058.18,  of  which 
EUR 715,037.50  were  management  fees  (2010  EIB  remuneration)  and  the  transfer  from  the 
budget of EUR 138,880,000.00, as established in 2010 for the 2011 budget3. 

the  accounting  value  of 

the  sum  of 

is 

Article 3 of the Regulation4 sets a target amount for the Fund of 9 % of the total outstanding 
capital liabilities arising from each operation, plus any unpaid interest due. 

Outstanding  lending  and  loan  guarantee  operations  for  third  countries  plus  accrued  interest 
totalled  EUR 19,395,882,340.31  at  31  December  2010,  of  which  EUR 137,336,644.89  was 
accrued  interest.  The  ratio  between  the  Fund’s  net  assets  of  EUR 1,485,463,867.59  and  the 
outstanding capital liabilities referred to in the Regulation was 7.7 %. Since this is lower than 
the  target  amount  of  9 %  of  the  total  guaranteed  outstanding  amount  (rounded  to 
EUR 1,745.63  million),  a  transfer  has  to  be  made  from  the  general  budget  of  the  European 
Union  to  the  Fund,  as  provided  for  in  Article 5  of  the  Regulation.  The  amount  included  in 
2011 as provisioning in the draft budget for 2012 is EUR 260,170,000.00. 

2.2. 

Presentation of the accounts 

Since  the  Commission  decided  to  present  its  accounts  in  accordance  with  new  accounting 
rules based on IPSAS5/IFRS principles, the pre-consolidated financial statements for the Fund 
have also been drawn up in accordance with these principles, as explained in the SWD. 

2.3. 

Pre-consolidated financial statement for the Fund at 31 December 2010 

A pre-consolidated financial statement of the Fund is prepared in order to include accounting 
operations which are not included in the Fund's financial statement prepared by the EIB (see 
Staff  Working  Document).  The  need  to  include  such  operations  is  due  to  the  successive 
defaults  occurred  since  the  existence  of  the  Fund.  If  the  beneficiary  of  a  loan  operation 
guaranteed by the Fund defaults the pre-consolidated balance sheet should include any arrears 
due  plus  the  interest  accrued  on  late  payments  and  other  accounting  accruals6  until  the  full 
repayments of amounts due to the Fund. Thus, there will be a full set of financial statements 
for the Fund at the end of the year to be consolidated in the EU consolidated balance sheet. At 
31.12.2010, there is no default. So, the total amount indicated in the pre-consolidated balance 
sheet is EUR 1,347,330,925.77. 

3 

4 

5 
6 

The amount of EUR 138,880,000.00 was paid to the Fund on 28 February 2011 from the general budget 
of the European Union. 
The Regulation stipulates that operations concerning accession countries covered by the Fund remain 
covered  by  the  EU  guarantee  after  the  date  of  accession.  However,  from  that  date  they  cease  to  be 
external actions of the EU and are covered directly by the general budget of the European Union and no 
longer by the Fund. 
IPSAS, International Public Sector Accounting Standards. 
Other accounting accruals includes exchange rate difference if any, payable in other liabilities (mainly 
the recovery fees due to the EIB). 

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The major changes in the presentation of accounts are explained in the notes and reconcile the 
figures with the EIB financial statement presented in the SWD. 

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2.3.1.  Guarantee Fund: Pre-consolidated balance sheet 

The pre-consolidated balance sheet is the preparation of the balance sheet for its consolidation 
in the EU's consolidated accounts. The main changes are explained in the notes to the balance 
sheet. 

Balance sheet: Assets (EUR) 

2010 

2009 

Current assets 

Short-term receivables 

Others 

3,626.09

Short-term investments 

1,153,319,651.66

1,049,413,310.19

AFS7 portfolio — cost 

1,134,968,726.10

1,004,786,115.50

AFS portfolio — actuarial difference 

-1,355,359.96

-3,096,484 .22

AFS portfolio — adjustment to fair 
value 

-1,888,129.14

27,525,747.60

AFS portfolio — accruals 

21,594,414.66

20,197,940.31

AFS portfolio — impairment 

Cash and cash equivalents 

194,011,274.11

191,080,815.35

Current accounts 

1,426,322.04

1,078,498.12

Short-term deposits — nominal 

123,637,000.00

153,300,000.00

Accrued interest on short-term deposits 

155,055.48

113,282.91

Other cash equivalents — cost 

68,708,475.06

36,554,203.91

Accrued interest on other cash 
equivalents 

84,421.53

34,830.41

Total current assets 

1,347,330,925.77

1,240,497,760.63

7 

Available For Sale 

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TOTAL 

1,347,330,925.77

1,240,497,760.63

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Balance sheet: Liabilities (EUR) 

2010 

2009 

A. EQUITY 

Capital (Guarantee Fund) 

484,292,973.21

390,482,973.21

Payment from the budget 

484,292,973.21

390,482,973.21

(surplus to be paid to the budget) 

Reserves 

-1,845,165.61

27,678,560.35

First-time application — fair value 
reserve 

42,963.53

152,812.75

Change in fair value of AFS assets 

-1,888,129.14

27,525,747.60

Accumulated surplus/deficit 

821,618,687.47

780,668,814.11

Results brought forward 

821,618,687.47

780,668,814.11

Economic result of the year 

42,517,372.53

40,949,873.36

Total equity 

1,346,583,867.60

1,239,780,221.03

B. CURRENT LIABILITIES 

Accounts payable 

747,058.17

717,539.60

Others 

747,058.17

717,539.60

Total current liabilities 

747,058.17

717,539.60

TOTAL 

1,347,330,925.77

1,240,497,760.63

Notes to the balance sheet: 

•  ‘Short-term  receivables/others’  means  the  amount  of  calls  on  the  Fund  that  is  now 
receivable.  This  includes  the  capital,  interest  and  penalties  due  to  the  budget  of  the 
European Union following release of the Fund guarantee. 

•  The difference in ‘accumulated surplus’ in equity compared with the financial position of 
the  Fund  presented  in  the  SWD  is  explained  by  the  successive  repayments  of  calls  and 
penalties to the Fund. 

•  ‘Accounts payables/others’ in 2010 include the EIB management commission, audit fees, 
and the accrual of the recovery fees due to the EIB following payment of the penalty fees 
due to the Fund. 

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2.3.2. 

Guarantee Fund: Pre-consolidated economic outturn account 

In  the  same  way  as  the  balance  sheet,  the  pre-consolidated  economic  outturn  account  is 
prepared for inclusion in the consolidated accounts of the EU. Main adjustments are explained 
in the note to the pre-consolidated economic outturn account. 

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Guarantee Fund — Pre-consolidated economic 
outturn account (EUR) 

2010 

2009 

Financial operations revenue 

43,367,717.93 

41,753,692.10

Interest income 

Interest income on cash and cash equivalents 

1,359,361.52 

3,496,637.06

Interest income on AFS assets 

40,351,233.09 

38,180,007.32

Other interest income 

Exchange gains 

80,574.54 

77,047.72

Realised gains on sale of AFS assets 

1,576,548.78 

Reversal of impairment losses on AFS assets 

Other financial income 

Financial operations expenses 

-850,345.40 

-803,818.74

Interest charges 

Interest charges on cash and cash equivalents 

Exchange losses 

Realised losses on sale of AFS assets 

Impairment losses on AFS assets 

Other financial charges 

-850,345.40 

-803,818.74

of which: Management fees 

-715,037.50 

-687,539.60

SURPLUS FROM NON-OPERATING ACTIVITIES 

42,517,372.53 

40,949,873.36

SURPLUS FROM ORDINARY ACTIVITIES 

Extraordinary gains 

Extraordinary losses 

SURPLUS FROM EXTRAORDINARY ITEMS 

ECONOMIC RESULT OF THE YEAR 

42,517,372.53 

40,949,873.36

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Note to the pre-consolidated economic outturn account: 

‘Other financial charges’ include the EIB management commission, audit fees, and accrual of 
the recovery fees due to the EIB following payment of the outstanding penalty fees due to the 
Fund. 

3. 

PAYMENTS TO OR FROM THE FUND 

This section explains the financial flows going to or out of the Fund. 

3.1. 

Legal basis for payments to the Fund from the general budget 

The Regulation was amended in 20078 to ensure a more efficient use of budgetary resources 
by  provisioning  the  Fund  on  the  basis  of  the  observed  amounts  of  guaranteed  loans 
outstanding. 

The target amount is 9 % of the loans and guaranteed loans outstanding, including all types of 
operations covered (EIB, MFA and Euratom loans) outside the EU. The difference between 
the  target  amount  and  the  value  of  the  Fund’s  net  assets  will  result  in  provisioning  from 
budget line 01040114 ‘Provisioning of the Guarantee Fund’ to the Fund or in payment from 
the Fund to the budget in the event of a surplus. 

The  amount  available  for  financing  the  Fund  is  provided  from  budget  line  01040114 
‘Provisioning of the Guarantee Fund’ under Heading 4 (External Relations). 

3.2. 

Payments to or from the general budget in the course of the financial year 

3.2.1.  Provisioning of the Fund 

On  the  basis  of  the  outstanding  guaranteed  operations  of  EUR 16,360.73 million  as  of 
31.12.2009, an amount of EUR 138.88 million, corresponding to the 2009 provisioning, was 
inserted  in  budget  line  01040114  ‘Provisioning  of  the  Guarantee  Fund’  for  2010  in  the 
statement of expenditure in the general budget of the European Union for 2011. This amount 
was paid in one transaction from the budget to the Fund on 28 February 2011. 

3.2.2. 

Interest from the investment of the Fund’s liquid assets 

3.2.2.1.  Investment policy 

The  Fund’s  liquid  assets  are  invested  in  accordance  with  the  management  principles  laid 
down in the Annex to the Community/EIB Agreement of 23/25 November 1994, as amended 
by  Supplementary  Agreement  No 1  of  17/23 September 1996,  Supplementary  Agreement 
No 2  of  26  April/8 May 2002,  Supplementary  Agreement  No  3  of  25  February  2008  and 
Supplementary Agreement No 4 of 9 November 2010. Accordingly, 20 % of the Fund must be 
invested in short-term investments (up to one year). These investments include variable-rate 
securities,  irrespective  of  their  maturity  dates,  and  fixed-rate  securities  with  a  maximum  of 
one  year  remaining  to  maturity,  irrespective  of  their  initial  maturity  period.  This  is  because 

8 

Council Regulation (EC, Euratom) No 89/2007 of 30 January 2007 amending Council Regulation (EC, 
Euratom) No 2728/94 establishing a Guarantee Fund for external actions, OJ L 22, 31.1.2007, p. 1. 

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fixed-rate securities are reimbursable at 100 % of their nominal value at the end of their life, 
while  variable-rate  securities  can  usually  be  sold  at  any  time  at  a  price  close  to  100 %, 
whatever  their  remaining  period  to  maturity.  To  maintain  a  balance  between  the  various 
instruments  providing  the  required  liquidity,  a  minimum  of  EUR 100,000,000.00  is  kept  in 
money market instrument, particularly bank deposits. 

The list of banks authorised to receive deposits is agreed by the Commission and the EIB. The 
list  has  been  regularly  revised  in  the  light  of  the  changes  in  bank  ratings.  All  banks  have  a 
Moody’s rating of at least P1 for short-term investments or an equivalent Standard & Poor’s 
or  Fitch  rating.  The  investments  made  with  them  are  governed  by  rules  to  ensure  a 
competitive return and to avoid any concentration of risk. 

3.2.2.2.  Performance 

This performance was achieved against the background of the financial crisis and a very low 
interest rate environment. 

Overall,  market  conditions  in  2010  slightly  improved  compared  to  2009,  mainly  due  to  the 
setting  up  of  a  rescue  mechanism  for  euro  area  countries  in  difficulties  and  accompanying 
measures from the ECB which kept interest rates low and liquidity abundant. 

The  portfolio  underperformed  its  benchmark  by  13.26  basis  points  (see  section  2.4. 
‘Performance’ of the SWD for details). While the Fund’s performance totalled 1.40 % during 
the first half of 2010, during the second half the performance deteriorated as the problems in 
Greece negatively impacted the Fund's holdings in bonds of other euro area Member States, 
mainly  Ireland,  Portugal,  Spain,  Italy  and  Belgium.  The  spread  widening  of  these  countries 
against the AAA euro area Member States contributed strongly to the observed performance 
of the Fund. 

3.2.2.3.  Interest income 

In 2010, interest income on cash and cash equivalents, on the Fund’s current accounts and on 
securities totalled EUR 43,367,717.93, broken down as follows: 

– 

– 

From  deposits  and  current  accounts:  EUR 1,359,361.52;  this  reflects  the 
situation at 31 December 2010, including interest received on bank deposits of 
EUR 1,253,213.48 and changes in accrued interest of +EUR 91,363.69 in 2010. 
Current accounts raised EUR 14,784.35 from interest. 

From  securities:  EUR 40,351,233.09;  this  includes  EUR 39,633,686.93  of 
interest on securities and changes in accrued interest of +EUR 1,396 ,474.35 at 
31  December  2010.  The  interest  on  securities  is  generated  by  investments 
placed  in  the  form  of  securities  in  accordance  with  the  investment  principles 
laid down in the Agreement giving the EIB the mandate to manage the Fund’s 
liquid assets. Of this amount, an adjustment of -EUR 678,928.19 must be made 
from the securities entered in the course of the year as the difference between 
the  entry  price  and  the  redemption  value  divided  pro  rata  temporis  over  the 
remaining  life  of  the  securities  held  (corresponding  to  the  spread  of  the 
premium or discount entered in the profit-and-loss account). 

The interest received is entered in the results for the financial year. 

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3.3. 

Recovery from defaulting debtors  

The Fund has no amount to be recovered. 

4. 

THE FUND’S LIABILITIES 

The Fund's liabilities correspond to all the financial commitments due by the Fund. 

4.1. 

Default payments 

The Fund was not called on for default payments in 2010. 

4.2. 

EIB remuneration 

The second Supplementary Agreement to the Agreement signed on 26 April and 8 May 2002 
lays  down  that  the  Bank’s  remuneration  is  to  be  calculated  by  applying  degressive  annual 
rates of fees to each tranche of the Fund’s assets. This remuneration is calculated on the basis 
of the annual average assets of the Fund. 

The Bank’s remuneration for 2010 was set at EUR 715,037.50 and was entered in the profit-
and-loss account and as accruals (liabilities) on the balance sheet.  

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