REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on guarantees covered by the general budgetSituation at 31 December 2010
Date: 2011-08-31
Institutions: European Commission
Subjects: Community loan, EU Member State, budgetary reserve (EU), economic analysis, economic stabilisation, financial aid, general budget (EU), investment protection

EUROPEAN COMMISSION 

Brussels, 31.8.2011 
COM(2011) 528 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on guarantees covered by the general budget 
Situation at 31 December 2010 

{SEC(2011) 1011 final} 

 
 
 
 
  
 
 
 
 
TABLE OF CONTENTS 

1. 

2. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

4. 

4.1. 

4.2. 

4.3. 

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

Types of operations covered by the EU budget ........................................................... 3 

Events since the last report at 30 June 2010 ................................................................ 4 

Balance of payments support to non-euro Member States........................................... 4 

Macro-financial assistance ........................................................................................... 4 

Euratom ........................................................................................................................ 4 

EU budget guarantee for EIB external financing......................................................... 4 

European Financial Stabilisation Mechanism.............................................................. 5 

Data on risks covered by the Budget............................................................................ 6 

Definition of risk .......................................................................................................... 6 

The total outstanding amount of capital and interest covered by the budget............... 7 

Annual risk covered by the Budget.............................................................................. 8 

4.3.1.  Risk linked to Member States ...................................................................................... 8 

4.3.2.  Risk linked to third countries ....................................................................................... 9 

4.4. 

Evolution of risk......................................................................................................... 10 

5. 

5.1. 

5.2. 

5.3. 

6. 

6.1. 

6.2. 

6.3. 

7. 

7.1. 

7.2. 

Defaults, activation of Budget guarantees and arrears............................................... 11 

Payments from cash resources ................................................................................... 11 

Payments from the Budget ......................................................................................... 12 

Activation of the Guarantee Fund for external actions .............................................. 12 

Guarantee Fund for external actions .......................................................................... 12 

Recoveries .................................................................................................................. 12 

Assets ......................................................................................................................... 12 

Target amount ............................................................................................................ 12 

Evaluation of risks: Economic and financial situation of third countries with the 
largest exposure.......................................................................................................... 13 

Objectives................................................................................................................... 13 

Risk assessment methods ........................................................................................... 13 

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1. 

INTRODUCTION 

The objective of this report is to monitor the credit risks borne by the budget of the European 
Union resulting from the guarantees given and the lending operations implemented directly by 
the European Union or indirectly through the EIB external mandates. 

This  report  is  submitted  pursuant  to  Article  130  of  the  Financial  Regulation  which  requires 
the  Commission  to  report  to  the  European  Parliament  and  to  the  Council  twice  a  year  on 
budgetary  guarantees  and  the  corresponding  risks1.  It  is  completed  by  a  Commission  Staff 
Working Document with a set of detailed tables and explanatory notes (the "SWD"). 

2. 

TYPES OF OPERATIONS COVERED BY THE EU BUDGET 

The risks covered by the budget of the European Union (the "Budget") derive from a variety 
of lending and guarantee operations which can be divided into two categories: 

–  loans granted by the European Union with macroeconomic objectives, i.e. macro-financial 
assistance2  ("MFA")  loans  to  third  countries  in  conjunction  with  the  Bretton  Woods 
institutions,  balance-of-payments3  ("BoP")  loans  granting  support  to  non-euro  Member 
States  experiencing  balance-of-payments  difficulties,  loans  under  the  European  financial 
stabilisation  mechanism  (EFSM)4  granting  support  to  Member  States  experiencing 
difficulties beyond their control; and 

–  loans  with  microeconomic  objectives,  i.e.  Euratom  loans  and  most  importantly  European 
Investment  Bank  ("EIB")  financing  of  operations  in  non-Member  States  ("EIB  external 
financing")5 that are covered by EU guarantees6. 

The  guaranteed  EIB  external  financing,  the  Euratom  loans  and  the  MFA  loans  have  since 
1994 been covered by the Guarantee Fund for external actions ("the Fund"),7 while BoP and 
EFSM loans are directly covered by the budget. 

The Fund covers defaults on loans and loan guarantees granted to non-Member States or for 
projects in non-Member States. It was established: 

1 

2 

3 

4 

5 

6 

7 

COM(2011)150  and  SEC(2011)371  make  up  the  previous  report  on  the  guarantees  covered  by  the 
Budget at 30 June 2010. 
MFA  may  also  take  the  form  of  grants  to  third  countries.  For  more  information  on  MFA,  see 
Commission report COM(2010)513 and SEC(2010)1117. 
Council Regulation (EC) N° 332/2002 of 18 February 2002 establishing a facility providing medium-
term financial assistance for Member States' balances of payments (OJ L 53, 23.2.2002, p.1). 
The EFSM was set up on 11 May 2010 on the basis of Council Regulation (EU) No 407/2010 of 11 
May 2010 (OJ L 118, 12.5.2010, p.1). It functions in a similar way as the Balance of Payments facility 
but is available to all Member States, i.e. including Euro area Member States. 
The figures concerning the EIB mandates are displayed in Table A1 and references to legal bases are 
listed in Table A4 of the SWD. 
Most  recently  established  for  the  period  1  February  2007—31  October  2011  by  Decision  No 
633/2009/EC of the European Parliament and of the Council of 13 July 2009 (OJ L 190, 22.7.2009, p. 
1) (the "External Mandate Decision"), replacing Council Decision 2006/1016/EC of 19 December 2006. 
Council  Regulation  (EC,  Euratom)  No  480/2009  of  25 May 2009  establishing  a  Guarantee  Fund  for 
external actions (codified version), the "Guarantee Fund Regulation" (OJ L 145, 10.6.2009, p.10). 

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–  to provide a 'liquidity cushion' in order to avoid calling on the Budget every time a default 

or late payment on a guaranteed loan arises; and 

–  to create an instrument of budgetary discipline by laying down a financial framework for 
the  development  of  EU  policy  on  guarantees  for  Commission  and  EIB  loans  to  non-
member countries8. 

The  Fund's  coverage  is  withdrawn  if  third  countries  become  Member  States  and  the  risk  is 
transferred from the Fund to be directly borne by the Budget. The Fund is provisioned from 
the Budget and has to be maintained at a certain percentage of the outstanding amount of the 
loans and loan guarantees covered by the Fund. This percentage, known as the target rate, is 
currently 9%. If there are insufficient resources in the Fund, the Budget will have to provide 
the necessary Funds. 

3. 

EVENTS SINCE THE LAST REPORT AT 30 JUNE 2010 

3.1. 

Balance of payments support to non-euro Member States 

During  the  second  semester  2010,  two  operations  took  place  for  a  total  amount  of 
EUR 1.35 billion.  The  fourth  tranche  of  EUR 0.2 billion  of  the  loan  granted  to  Latvia  was 
disbursed  on  20  October  2010.  This  loan  has  been  financed  "back  to  back"  via  a  private 
placement with a bank. On 22 September 2010 the third tranche of EUR 1.15 billion of the 
loan granted to Romania was disbursed. This loan has also been financed “back-to-back” via 
the issue of EU benchmark bonds. On average 83% of the BOP loan operations decided have 
already been implemented.9  

3.2.  Macro-financial assistance 

During the second semester 2010, no loan disbursement took place. 

The  Council  and  the  European  Parliament  adopted  in  July  2010  a  decision  to  provide  EUR 
500 million to Ukraine10 in the form of a loan. Together with a EUR 110 million loan from a 
decision taken by the Council in 2002, a total of up EUR 610 million is available for Ukraine. 

3.3. 

Euratom 

No loan disbursement took place during the reported period. 

3.4. 

EU budget guarantee for EIB external financing 

Under  the  2007-2013  external  mandate,  the  loan  signature  and  disbursement  rhythm 
accelerated during the second half of 2010 and amounted to respectively EUR 3,476 million 
signed  and  EUR  1,642  million  disbursed.  Thus,  the  cumulative  amount  of  loans  disbursed 
under  the  mandate  reached  the  amount  of  EUR  6,129  million  at  31  December  2010,  up  by 
37% compared to 30 June 2010. 

8 

9 
10 

Although external risks are covered in fine by the guarantee of the EU budget, the Guarantee Fund acts 
as  an  instrument  to  protect  the  EU  budget  against  the  risk  of  payment  defaults.  For  a  comprehensive 
report  on  the  functioning  of  the  Fund,  see  COM(2010)418  and  the  accompanying  Staff  Working 
Document (SEC(2010)968). 
See table A3a in the SWD. 
Decision  n°388/2010/EU  of  the  European  Parliament  and  of  the  Council  of  7  July  2010  providing 
macrofinancial assistance to Ukraine (OJ L 179 of 14.07.2010, p.1). 

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3.5. 

European Financial Stabilisation Mechanism 

• 

Background 

In response to the financial crisis, the Council and the Member States decided in May 2010 on 
a package of measures to preserve financial stability in the euro area and Europe at large. 

The European Financial Stabilisation Mechanism (EFSM)11 was set up on 11 May 2010based 
on Art. 122 (2) of the Treaty on the Functioning of the European Union (TFEU)12.  

Union financial assistance under EFSM takes the form of a loan, or of a credit line, granted to 
the  Member  State  concerned.  To  this  end,  the  Commission  is  empowered,  on  behalf  of  the 
European Union, to contract borrowings on the capital markets. The risk of operations under 
the  EFSM  is  fully  backed  by  the  EU  budget  which  guarantees  the  repayment  of  the 
borrowings in case of default of the Member State concerned. 

The activation of financial assistance under EFSM is subject to strong conditionality, in the 
context of a joint EU/International Monetary Fund (IMF) support programme. 

As  part  of  the  response  to  the  crisis,  two  other  mechanisms  have  been  established 
which,unlike the EFSM, do not imply any risk to the EU budget. Instead, these mechanisms 
are guaranteed by the Member States participating in them, on a pro-rata basis. 

The European Financial Stability Facility (EFSF) was created by the euro area member states 
as  a  Luxembourg-registered  company  owned  by  them,  following  the  decisions  taken  on  9 
May  2010  within  the  framework  of  the  Ecofin  Council.  EFSF  is  able  to  issue  bonds 
guaranteed by euro-area Member States for up to EUR 440 billion for on-lending to euro-area 
Member States in difficulty, subject to conditions negotiated with the European Commission 
in liaison with the European Central Bank and IMF and to be approved by the Eurogroup. 

Following  a  request  by  the  Greek  authorities,  euro  area  Ministers  unanimously  agreed  on  2 
May 2010 to activate stability support to Greece via bilateral loans from the other euro area 
member states, centrally pooled by the Commission. The support was provided in the context 
of  a  three  year  joint  programme  with  the  IMF  involving  a  financial  package  of  EUR  110 
billion to help Greece meet its financing needs. The programme was accompanied with strong 
policy conditionality13 negotiated with the Greek authorities by the Commission and the IMF, 
in liaison with the ECB. Euro area Member States contribute for their part EUR 80 billion14 
while  the  IMF  supports  this  programme  with  a  stand-by  arrangement  of  about  EUR  30 
billion15. The representatives of the Member States of the European Union have decided on 5 

11 

12 

13 

14 
15 

Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation 
mechanism (OJ L 118, 12.5.2010, p.1). 
Art.  122(2)  of  the  TFEU  foresees  financial  support  for  Member  States  in  difficulties  caused  by 
exceptional circumstances beyond Member States' control. 
The  main  elements  of  policy  conditionality  were  enshrined  in  Council  Decision  2010/320/EU  of  10 
May 2010 addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving 
notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of 
excessive deficit (OJ L 145, 11.6.2010, p.6). The conditionality was further detailed in a Memorandum 
of Understanding concluded between the Greek authorities and the Commission on behalf of euro area 
Member States. 
Of which, EUR 38 billion had been made available until March 2011. 
Of which, EUR 14.6 billion had been made available until March 2011. 

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May  2010  to  entrust  the  Commission  with  the  tasks  in  relation  to  the  coordination  and 
management  of  the  pooled  bilateral  loans.  This  role  does  not  imply  an  increase  in  the 
expenditure of the Commission or of any other item of expenditure under the EU budget.  

• 

Operations in the second half of 2010 

On 7 December 2010, the Council decided to grant Union financial assistance to Ireland in the 
context  of  a  three  year  joint  EU/IMF  programme  amounting  to  EUR  85  billion.  Of  this,  a 
maximum of EUR 22.5 billion will be granted under the EFSM (for addititional details on this 
operation see paragraph 4.4 Evolution of risk). 

4. 

DATA ON RISKS COVERED BY THE BUDGET 

4.1. 

Definition of risk 

The risk borne by the Budget derives from the outstanding amount of capital and interest in 
respect of guaranteed operations. 

Defaulting  operations  will  be  covered  by  the  Fund  when  they  are  linked  to  third  countries 
(55% of the total outstanding amount guaranteed as of 31 December 2010) and directly by the 
Budget  where  Member  States  are  involved  (BoP  loans  and  loans  to  or  for  the  benefit  of 
projects  in  Member  States  account  for  the  remaining  45%  of  the  total  outstanding  amount 
guaranteed  as  of  31 December 2010).  The  large  proportion  of  guaranteed  loans  linked  to 
Member States is the result of the enlargement rounds16 and the activation of the EU medium-
term financial assistance facility for non-euro Member States (the BoP facility). 

For  the  purpose  of  this  report,  two  methods  are  used  for  evaluating  the  risks  borne  by  the 
Budget (either directly or indirectly via the Fund): 

–  Calculating the total amount of capital outstanding for the operations concerned on a given 
date including accrued interest. This methodology makes it possible to determine the total 
amount of risk supported by the Budget on a given date for all future payment obligations 
independently of when in the future these payments are due and whether they are covered 
by the Fund or not. 

–  The budgetary approach defined as "the annual risk borne by the Budget" is based on the 
calculation of the maximum amount of annual due payments which the EU would have to 
pay  out  in  a  financial  year  assuming  that  all  payments  of  the  guaranteed  loans  are  in 
default17.  

–  The results of these two methods are presented in the following two sections. Finally, there 

is a section on the evolution of risks.  

16 

17 

According to Article 1, third paragraph, of the Guarantee Fund Regulation, once a country becomes a 
Member State, the risk on the loans is transferred from the Fund to the Budget. 
For the purpose of this calculation, it is assumed that defaulting loans are not accelerated, i.e. only due 
payments are taken into account (see also Section 2 of the SWD). 

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4.2. 

The total outstanding amount of capital and interest covered by the budget 

The  total  risk  supported  by  the  Budget  at  31  December  2010  is  presented  in  the  following 
table 1. 

Table  1:  Total  outstanding  amounts  covered  by  the  Budget  as  of  31 December 2010  in  EUR 
million 

Outstanding 
Capital 

Accrued Interest 

Total 

% 

Member States* 

MFA 

Euratom 

BoP 

EIB*** 

38 

417 

12,050 

3,240 

Sub-total Member States 

15,744 

Third Countries** 

MFA 

Euratom 

EIB*** 

Sub-total third countries 

Total 

463 

49 

18,747 

19,256 

35,002 

0 

3 

197 

30 

230 

2 

0 

135 

137 

367 

38 

420 

12,247 

3,269 

15,974 

465 

49 

18,882 

19,396 

<1% 

1% 

35% 

9% 

45% 

1% 

<1% 

53% 

55% 

35,370 

100% 

*  This risk is directly covered by the Budget. This also includes MFA, Euratom and EIB loans granted prior to EU 

accession. 

** This risk is covered by the Fund. 

***About  83%  of  EIB  lending  operations  (sovereign  and  sub-sovereign  lending  operations)  are  covered  by  a 
comprehensive guarantee while on the remaining operations the EIB benefits from a political risk coverage only. 

Tables  A1,  A2,  A3  and  A4  of  the  SWD  provide  more  detailed  information  on  these 
outstanding amounts, in particular in terms of ceiling, disbursed amounts or guarantee rates. 

The  total  outstanding  amount  of  capital  and  interest  covered  by  the  budget  increased  to 
EUR 35.4 billion (increase of EUR 2.6 billion compared with the situation at 30 June 2010). 
The  average  growth  amounted  to  8%.  The  increase  is  mainly  explained  by  the  amount  of 
EUR 1.4 billion disbursed under the BoP facility and by the increase of EIB disbursements in 
third countries (EUR 1.2 billion during the second semester 2010). 

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4.3. 

Annual risk covered by the Budget 

In 2011, the Budget will cover (directly and  via the Fund) EUR 4.8 billion representing the 
amount due during this period out of the total amount outstanding at 31 December 2010..  

Of this, 3 billion approximately (63%) is due from Member States while the balance is due 
from third countries. 

4.3.1.  Risk linked to Member States 

The  risk  linked  to  Member  States  concerns  (a)  EIB  lending  as  well  as  MFA  and  Euratom 
loans granted before the accession to the EU and (b) the loans granted under the BoP facility 
following accession. 

In  2011,  the  Budget  will  bear  a  maximum  direct  risk  linked  to  Member  States  of 
EUR 3 billion18 (63% of total annual risk).  

Table 2 shows that Hungary and Romania are ranked first and second among Member States 
in terms of their outstanding amount. 

Table 2: Ranking of the Member States according to the maximum risk borne by the budget in 
2011 (EUR million) 

Ranking 

Country 

Maximum risk  

% of the total 
maximum risk 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

Hungary 

Romania 

Latvia 

Poland 

Bulgaria 

Czech Republic  

Slovak Republic 

Slovenia 

Cyprus 

Lithuania 

Estonia 

2,209.6 

383.9 

98.3 

81.9 

76.9 

73.6 

58.1 

14.3 

9.8 

5.5 

1.0 

73.3% 

12.7% 

3.3% 

2.7% 

2.6% 

2.4% 

1.9% 

0.5% 

0.3% 

0.2% 

0% 

18 

Representing the amounts due in 2011 (out of the total outstanings at 31 December 2010) and assuming 
that defaulting loans are not accelerated. For details see Table A2 in SWD 

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12 

Malta 

Total 

0.7 

3,013.7 

0% 

100.0% 

4.3.2.  Risk linked to third countries 

The Fund covers guaranteed loans concerning third countries with maturities extending up to 
2040.  In  2011,  in  particular,  the  Fund  will  bear  a  maximum  annual  risk  related  to  third 
countries of EUR 1. 8 billion19 (37% of the total annual risk). 

The  top  ten  (out  of  fourty-four)  countries  are  ranked  below  according  to  their  total 
outstanding.  They  account  for  EUR  1,387.2  million  or 79% of the annual  risk  borne by the 
Fund. The economic situation of these countries is analysed and commented in the SWD. 

Table 3: Ranking of the 10 most important third countries according to the maximum risk 
borne by the Fund in 2011 (EUR million). 

Ranking 

Country 

Maximum 
risk 

% of the total 
maximum risk 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

Total of the 
10 

Turkey 

Egypt 

Morocco 

Tunisia  

South Africa 

Serbia  

Syria  

Lebanon  

Brazil 

Jordan 

395.9 

211.4 

171.3 

166.3 

99.5 

88.0 

76.8 

76.0 

55.0 

47.1 

28.5 

15.2% 

12.3% 

12% 

7.2% 

6.3% 

5.5% 

5.5% 

4.0% 

3.4% 

1,387.2 

100.0% 

Euromoney credit risk 
ranking20 

03/2010 

09/2010 

59/185 

50/185 

69/185 

64/185 

57/185 

62/185 

71/185 

69/185 

53/185 

44/185 

76/185 

70/185 

140/185 

128/185 

82/185 

76/185 

51/185 

42/185 

72/185 

67/185 

19 

20 

Representing the amounts due in 2011 (out of the total outstanings at 31 December 2010) and assuming 
that defaulting loans are not accelerated. For details see Table A2 in SWD 
The higher the ranking number, the lower the creditworthiness of the country. Countries are rated on a 
scale of zero to 185; 185 represents the highest risk of default. A given country may improve its rating 
and still fall in the ranking if the average global rating for all rated countries improves. 

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4.4. 

Evolution of risk 

Tensions  observed  in  some  sovereign-bond  markets  in  the  EU  remained  high  despite  the 
encouraging progress in economic sentiment during the second semester 2010. 

•  Balance of payments facility 

The  activation  of  the  EU  medium-term  financial  assistance  facility  (BoP)  facility)  in 
December 2008 helped Hungary, Latvia and Romania to restore market confidence. The first 
loan repayment will take place in December 2011. 

The BoP facility with its overall ceiling of EUR 50 billion has a remaining capacity of EUR 
36.4 billion EUR to provide further BoP assistance if required21.  

•  European Financial Stabilisation Mechanism (EFSM) 

The  Ecofin  Council  conclusions  restrict  the  overall  ceiling  of  the  mechanism  to  EUR  60 
billion22, but the legal limit is provided in Article 2.2 of the Council Regulation, which limits 
the outstanding amount to the margin available under the own resources ceiling23. 

In response to the Irish authorities' request on 21 November 2010, a three year joint EU/IMF 
financial  support  was  provided.  The  total  programme  for  Ireland  will  amount  to  EUR  85 
billion. EUR 17.5 billion will be financed by an Irish contribution through the Treasury cash 
buffer and investments of the National Pension Reserve Fund. The remainder of the overall 
package will be funded by: 

–  The European Financial Stabilisation Mechanism (EFSM) up to EUR 22.5 billion24 which 

is coveredby the EU budget; 

–  The European Financial Stability Facility (EFSF) for an amount of EUR 17.7 billion (not 

covered by the EU budget guarantee); 

–  The International Monetary Fund (IMF) for an amount of EUR 22.5 billion; 

–  Bilateral  loans  from  United  Kingdom  (EUR  3.8  billion),  Sweden  (EUR  0.6  billion)  and 

Denmark (EUR 0.4 billion). 

•  Macro-financial assistance loans 

MFA loans to third countries have been subject to individual decisions by the Council25 and 
since the entry into force of the Lisbon Treaty by the European Parliament and the Council. 

21 

22 

23 

24 

Please note that during the first semester 2011 the remaining ceiling has been reduced to EUR 35 billion 
due to the new precautionary assistance programme for Romania of EUR 1.4 billion decided on 27 May 
2011. 
Cf. Press release on extroardinary Ecofin Council meeting 9/10 May 2010 
(http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/114324.pdf) 
Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation 
mechanism (OJ L 118, 12.5.2010, p.1). 
A first tranche of EUR 5 billion was disbursed on 12 January 2011. Until June 2011 EUR 11.4 billion 
was disbursed. 

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The Council Decisions providing macrofinancial assistance to Armenia26, Serbia27 and Bosnia 
and Herzegovina28 has not yet been implemented at 31.12.2010. 

No MFA loans operations were implemented during the second semester 2010. 

Euratom loans 

The Euratom lending to Member States or in certain eligible non-member countries (Russian 
Federation,  Armenia,  Ukraine)  has  a  ceiling  of  EUR 4 billion  of  which  around  85%  has 
already been used. The remaining margin is about EUR 600 million and could be disbursed to 
new projects in the Member States and Ukraine.  

•  EIB loans 

The  EIB  general  mandate  covering  the  period  2000-2007  expired  on  31 July 2007.  At  this 
date,  contracts  corresponding  to  a  total  98%  of  the  overall  ceiling  under  this  mandate 
(EUR 20,060 million – see Table A5 of the SWD) had been signed. At 31 December 2010, a 
total amount of EUR 3,022 million remained to be disbursed under this mandate but may still 
be disbursed under EU guarantee within 10 years from the end of the mandate, at which time 
the EU guarantee lapses for any undisbursed amounts. 

Following the Commission proposal to amend the legal basis of the EIB external mandate for 
the  remainder  of  the  current  Financial  Perspective  2007-201329,  the  Parliament  and  the 
Council  are  expected  to  adopt  the  relevant  decision  before  31  October  2011.  The  EU 
guarantee  is  restricted  to  65%  of  the  aggregate  amount  of  credits  disbursed  and  guarantees 
provided  under  EIB  Financing  Operations,  less  amounts  reimbursed  plus  all  related  sums, 
with a maximum ceiling of EUR 27,800 million30. A total amount of EUR 16,600 million had 
been  signed  at  31  December  2010  under  this  mandate,  of  which  EUR 10,603  million 
remained undisbursed at that date (see Table A6 of the SWD). 

5. 

DEFAULTS, ACTIVATION OF BUDGET GUARANTEES AND ARREARS 

5.1. 

Payments from cash resources 

The Commission draws on its cash resources in order to avoid delays and resulting costs in 
servicing its borrowing operations when a debtor is late in paying the EU31. 

25 

26 

27 

28 

29 
30 

31 

After entry into force of the Lisbon Treaty, the co-decision procedure will be the ordinary legislative 
procedure.  
Council Decision 2009/890/EC of 30 November 2009 providing macro-financial assistance for Armenia 
(maximum of EUR 65 million in loan and EUR 35 million in grant). 
Council  Decision  2009/892/EC  of  30  November  2009  providing  macro-financial  assistance  to  Serbia 
(loan facility with a maximum amount of EUR 200 million). 
Council  Decision 2009/891/EC  of 30  November  2009  providing  macro-financial  assistance  to  Bosnia 
and Herzegovina (loan facility with a maximum amount of EUR 100 million). 
COM(2010)174 of 21 April 2010.  
Broken down into a basic ceiling of a fixed maximum amount of EUR 25 800 million and an optional 
mandate of EUR 2 000 million. 
See  Article  12  of  Council  Regulation  (EC, Euratom)  No  1150/2000  of  22  May  2000  implementing 
Decision  2007/436/EC,  Euratom,  on  the  system  of  the  European  Communities  own  resources  (OJ  L 
130, 31.5.2000, 1-12). 

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5.2. 

Payments from the Budget 

As no default was recorded during the second half of 2010, no appropriation was requested 
under Budget Article 01 04 01 (p.m. line) "European Union guarantees for Union and 
Euratom borrowing operations and for EIB lending operations". 

5.3. 

Activation of the Guarantee Fund for external actions32 

In  the  event  of  late  payment  by  the  beneficiary  of  a  loan  to  third  countries  granted  or 
guaranteed by the EU, the Fund is called on to cover the default within three months of the 
date on which payment is due33. 

The Fund was not called on during the second half of 2010. 

6. 

GUARANTEE FUND FOR EXTERNAL ACTIONS 

6.1. 

Recoveries34 

As of 31 December 2010, the Fund had no arrears to recover. 

6.2. 

Assets 

At 31 December 2010, the net assets35 of the Fund amounted to EUR 1,485,464,411. 

6.3. 

Target amount 

The Fund has to reach an appropriate level (target amount) set at 9% of the total outstanding 
capital  liabilities  arising  from  each  operation,  plus  accrued  interest.  The  ratio  between  the 
liabilities36 
Fund's 
(EUR 19,395,882,340) within the meaning of the Fund Regulation has decreased from 8.21% 
at 30 June 2010 to 7.7% at 31 December 2010. 

(EUR 1,485,464,411) 

outstanding 

resources 

capital 

and 

At  year-end  2010,  the  Fund  resources  were  lower  than  the  target  amount.  According  to  the 
provisioning rules of the Guarantee Fund Regulation, a provisioning of EUR 260,170,000 was 
inserted in the preliminary Budget of 2012. This amount will be paid from the Budget to the 
Fund in February 2012. 

32 
33 
34 

35 
36 

Since its inception in 1994, the Fund has been called for a cumulative amount of EUR 478 million. 
For more details, see Section 1.4.3 of the SWD. 
Since  its  inception  in  1994,  the  total  recoveries  by  the  Fund  have  amounted  to  EUR  576  million  (it 
includes  the  amount  of  capital  and  interest  repaid,  plus  penalties  interests  for  late  payments,  plus 
exchange rate gains and losses realized). 
Total assets of the Fund minus accrued payables (EIB fees and audit fees). 
Including accrued interests. 

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7. 

EVALUATION  OF  RISKS:  ECONOMIC  AND  FINANCIAL  SITUATION  OF  THIRD 
COUNTRIES WITH THE LARGEST EXPOSURE 

7.1. 

Objectives 

The  previous  sections  of  this  report  provide  information  on  quantitative  aspects  of  the  risk 
borne  by  the  Budget,  relating  to  third  countries.  However,  the  quality  of  the  risks  which 
depend  on  the  type  of  operation  and  the  standing  of  the  borrowers  (see  Section 4.3  above) 
should also be assessed. 

7.2. 

Risk assessment methods 

The risk assessment presented in the SWD is based on the information on the economic and 
financial situation, ratings and other known facts of the countries having received guaranteed 
loans. This assessment does not include estimations of expected losses and recoveries which 
are inevitably highly uncertain. 

Country  risk  indicators  included  in  the  tables  in  the  SWD  indicate  the  evolution  of  risk  of 
defaults. This analysis is provided in the section 3 of the SWD for the countries having the 
highest credit risk and exposure to the Budget (MFA and Euratom loans included) in 2011. 

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