REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON THE GUARANTEE FUND AND ITS MANAGEMENT IN 2013
Date: 2014-07-16
Institutions: European Commission
Subjects: Community loan, European Investment Bank, balance sheet, budgetary reserve (EU), credit guarantee, financial control, financial transaction, fund (EU), investment policy, publication of accounts













EUR-Lex - 52014DC0463 - EN











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52014DC0463

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON THE GUARANTEE FUND AND ITS MANAGEMENT IN 2013 /* COM/2014/0463 final */









Table of Contents
1............ Introduction. 3
2............ Financial Position of
the Fund at 31 December 2013. 4
2.1......... Financial flows of the
Fund. 4
2.2......... Significant transactions. 5
2.3......... Significant transaction
after the reporting date. 6
2.4......... Presentation of the
accounts. 6
2.4.1...... Basis of preparation. 6
2.4.2...... Pre-consolidated financial
statements for the Fund at 31 December 2013. 6
3............ Payments to or from
the Fund. 11
3.1......... Legal basis for payments
to the Fund from the general budget 11
3.2......... Payments to or from the
general budget in the course of the financial year 11
3.2.1...... Provisioning of the Fund. 11
3.2.2...... Interest from the
investment of the Fund’s liquid assets. 11
4............ The Fund’s
liabilities. 13
4.1......... Default payments. 13
4.2......... EIB remuneration. 14
1.           Introduction
Council Regulation (EC, Euratom)
No 480/2009 of 25 May 2009[1]
(codified version) (‘the Regulation‘) 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’), and subsequently amended on 17/23 September 1996,
8 May 2002, 25 February 2008, 20 October 2010 and 9 November 2010. 
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. 
This report together with the Commission
Staff Working Document (SWD) provides this information. It is based on data
received from the EIB, in line with the agreement.
2.           Financial
Position of the Fund at 31 December 2013
The financial 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 Fund totalled EUR 2,004,356,642.91
(see Section 3 of the SWD: Fund Financial Statements as at 31 December 2013, as
provided by the EIB). This is the sum of the flows since the Fund was established:
 Guarantee Fund || Amount at 31.12.2013 || Amount at 31.12.2012 || Change 
 budget contributions to the Fund || 3,598,826,794.00 || 3,540,394,500.00 || 58,432,294.00 
 successive yearly net results || 878,284,248.11 || 846,343,661.55 || 31,940,586.56 
 recoveries of payments made by the Fund for defaults || 578,854,353.78 || 578,854,353.78 || 0.00 
 other accounts payable (including called guarantee not yet paid and EIB management fees) || 23,066,612.47 || 18,819,492.23 || 4,247,120.24 
 fees received on late recovery (in 2002) || 5,090,662.91 || 5,090,662.91 || 0.00 
 calls on the Fund's resources (including called guarantee not yet paid) || (584,704,389.46) || (519,866,214.55) || (64,838,174.91) 
 successive repayments to the budget (including exceptional repayment to the budget due to the accession of new Member States) || (2,531,726,712.72) || (2,501,391,526.79) || (30,335,185.93) 
 adjustment of portfolio valuation according to IFRS valuation || 36,665,073.82 || 53,681,272.87 || (17,016,199.05) 
 Accounting value of the Fund ||  2,004,356,642.91 ||  2,021,926,202.00 || (17,569,559.09) 
The accounting value of the Fund decreased by
about EUR 18 million in 2013. This is explained by :
Increasing
·                        
The contribution from the budget (provisioning
amount) of EUR 58 million to adjust the Fund to the 9% target amount 
·                        
The net revenues on financial operations
amounted to EUR 32 million
·                        
A change of EUR 4 million consisting mainly of
the payable for the guarantee calls to the Fund (payment occurred early 2014)
Decreasing
·                        
Intervention of the Fund to cover defaulted
payments by Syria for a total amount of  EUR 65 millions thereof 22 million are
still to be paid as at 31 December 2013 (other accounts payable). 
·                        
Repayment to the budget of EUR 30 millions due
to the accession of a new Member State (Croatia)
·                        
The portfolio valuation decrease by EUR 17 million
due to the mark to market adjustment  of its value.
2.2.        Significant
transactions
(1)                   
Since November 2011, the EIB is facing arrears
on Syrian sovereign loans. As a consequence, and in line with the guarantee
agreement between the EU and the EIB, the EIB has made 4 calls on the EU
Guarantee Fund in 2012 for a total amount of EUR 42 million (from which EUR 2.15
million have been recovered) and 9 calls in 2013 for an amount of EUR 64.83
million (see point 4.1 Default payments).
(2)                   
In February 2013, the contribution from the
budget to the Fund was calculated following Article 3 and Article 5 of the Regulation:
Article 3 of the Regulation[2]
sets a target amount for the Fund of 9 % of the total outstanding capital
liabilities arising from each operation, plus any unpaid interest due.
Article 5 of the Regulation states that 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.
To adjust the Fund to the 9% of the total outstanding capital
liabilities, an amount of EUR 58.43 million was entered in the 2014 budget  for
the provisioning of the Fund. At 31.12.2012, the target amount was EUR 2,078.92
million corresponding to the 9% of the total outstanding guaranteed operations
(EUR 23,099.15 million). The difference between the target amount and the net
assets of the Fund of EUR 2,020.49 million at 31.12.2012 was equal to EUR 58.43
million.
This amount was requested for the provisioning of the Fund in 2014 and
was approved by the Council and the European Parliament as part of the approval
of the 2014 budget in November 2013. It was subsequently recognised as a receivable
of the Fund from the budget. 
(3)                   
On 20.02.2013 an amount of EUR 155.66 million
was transfered from the budget to the Fund corresponding to the provisioning
amount for 2013 (see details in paragraph 3.2.1 provisioning of the Fund).
2.3.        Significant
transaction after the reporting date
On 27 February 2014 an amount of EUR 58.43
million was transfered from the budget to the Fund corresponding to the
provisioning for 2014.
2.4.        Presentation
of the accounts
2.4.1.     Basis
of preparation
The Fund's financial statements (as well as
the pre-consolidated financial statements) have been prepared in accordance
with the accounting rules adopted by the Accounting Officer of the European
Commission, in particular "Accounting rule 11 - Financial instruments"
as explained in the SWD.
2.4.2.     Pre-consolidated
financial statements for the Fund at 31 December 2013
The pre-consolidated financial statements
of the Fund are prepared in order to include accounting operations which are
not included in the Fund's financial statements prepared by the EIB (see SWD).
The need to include such operations is due to the successive defaults which
occurred since the existence of the Fund. If the beneficiary of a loan
operation covered by the Fund defaults, the pre-consolidated balance sheet
should include any arrears due plus the interest accrued on late payments and
other accounting accruals[3] 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 31.12.2013, there
are defaulted payments for Syrian loans which have been covered by the Fund and
are recorded in the pre-consolidated financial statements as current assets
(subrogated loans) for a total amount of EUR 85,462,796.16. The current assets
also include a temporary receivable with the EIB of EUR 22,039,281.70 for calls
of guarantee not yet paid plus related amounts, where the EIB remains creditor
of Syria until the payment of the call.  The current liabilitites include a
payable to the EIB of EUR 22,839,314.22 for calls of guarantee not yet paid
plus related amounts. The total amount indicated in the pre-consolidated
balance sheet is EUR 2,111,858,720.77.
It should be noted that pre-consolidated
accounts reflect a recommendation of the Court of Auditors, to show the accrued
interest related to the available-for-sale (AFS) financial assets of the
European Institutions as it is expected to be paid within the next twelve
months of the reporting date. For comparative purpose, this categorisation has
been applied as well to the 2012 figures. 
2.4.2.1.  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
financial statements. The main changes are explained in the notes to the
balance sheet.
 Balance sheet: Assets in EUR || 31.12.2013 || 31.12.2012 
 NON-CURRENT ASSETS ||   ||   
 Long-term Investments ||              1,432,206,953.14 || 1,331,523,103.78 
 AFS Portfolio - cost ||     1,394,349,787.68 || 1,277,457,029.68 
 AFS Portfolio – actuarial difference ||            2,830,052.94 || 1,937,127.51 
 AFS Portfolio – adjustment to fair value ||          35,027,112.52 || 52,128,946.59 
 AFS Portfolio – impairment ||                               -   ||                          -   
   ||   ||   
 Total Non-Current Assets || 1,432,206,953.14 || 1,331,523,103.78 
   ||   ||   
 CURRENT ASSETS ||   ||   
 Short-term Investments || 361,614,283.35 || 284,047,864.76 
 AFS Portfolio - cost ||        345,762,688.23 || 265,916,314.50 
 AFS Portfolio – actuarial difference || -2,717,150.48 || -2,383,541.31 
 AFS Portfolio – adjustment to fair value ||            1,635,647.34 || 1,540,460.39 
 AFS Portfolio - accruals ||          16,933,098.26 || 18,974,631.18 
 AFS Portfolio – impairment ||                               -   ||                          -   
   ||   ||   
 Short-term receivables || 165,934,371.86 || 196,117,402.09 
 Other: Contributions receivable from EU Budget ||          58,432,294.00 || 155,660,000.00 
 Other: Coupon receivables ||                               -   || 601,389.32 
 Other: Guarantee calls (EIB receivable) ||          22,039,281.70 || 17,982,385.53 
 Other: Subrogated loans (Syria receivable) ||          85,462,796.16 || 21,873,627.24 
   ||   ||   
 Cash and Cash Equivalents || 152,103,112.42 || 250,093,844.14 
 Current accounts ||            1,222,298.07 || 8,074,235.40 
 Short-term deposits – nominal ||        150,872,000.00 || 242,000,000.00 
 Accrued interests on short-term deposits ||                   8,814.35 || 19,608.74 
   ||   ||   
 Total Current Assets || 679,651,767.63 || 730,259,110.99 
   ||   ||   
 TOTAL ASSETS || 2,111,858,720.77 || 2,061,782,214.77 
 Balance sheet: Liabilities in EUR || 31.12.2013 || 31.12.2012 
 EQUITY ||   ||   
 Capital (Guarantee Fund) || 1,067,100,081.26 || 1,039,002,973.21 
     Contributions allocated but not yet paid in ||                  58,432,294.00 || 155,660,000.00 
 Payment from the budget || 1,008,667,787.26 || 883,342,973.21 
 Reserves || 36,665,073.82 || 53,681,272.87 
      First Time application – FV reserve ||                   2,313.96 || 11,865.89 
      Change in fair value of AFS assets ||          36,662,759.86 || 53,669,406.98 
 Accumulated surplus / deficit || 950,218,191.35 || 906,288,860.95 
      Results brought forward || 950,218,191.35 || 906,288,860.95 
 Economic result of the year ||                33,562,793.32 || 43,929,330.40 
 Total Equity || 2,087,546,139.75 || 2,042,902,437.43 
   ||   ||   
 CURRENT LIABILITIES ||   ||   
 Accounts Payables || 24,312,581.02 || 18,879,777.34 
 Other: Guarantee calls (EIB payable) ||             22,839,314.22 || 17,982,385.53 
 Other: Handling fees (EIB payable) ||                   598,367.37 || 60,285.11 
 Others ||                   874,899.43 || 837,106.70 
 Total Current Liabilities || 24,312,581.02 || 18,879,777.34 
   ||   ||   
 TOTAL LIABILITIES || 2,111,858,720.77 || 2,061,782,214.77 
Notes to the balance sheet:
·      ‘Short-term receivables’ contains the provisioning amount for 2014 due
to be paid by the EU budget to the Fund in early 2014. It also includes the subrogated
loans plus related amounts, as well as amounts of loans that have been called
but not yet paid (payment in January/February 2014), plus related amounts.
These amounts include 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’ in 2013 include the calls to guarantees unpaid
at the balance sheet date plus related amounts, the accrual of the recovery
fees due to the EIB, EIB management commission and audit fees.
·      In 2013 and 2012, the Commission did not record any impairments in
respect of the subrogated loans and of the EU sovereign and sovereign
guaranteed bond holdings in the Fund portfolio. 
·      The Fund exposure against EU sovereign risk per country can be found
in the SWD. At 31/12/2013, the top 3 countries in terms of sovereign risk
exposure were France, Germany and Belgium  with a weight of about 21%, 20% and
respectively 12%.
·      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 financial statements of the EU. Main adjustments are explained in
the note to the pre-consolidated economic outturn account
   || 2013 || 2012 
 Financial operations revenues || 35,234,727.71 || 47,722,795.64 
 Interest income ||   ||   
      Interest income on cash and cash equivalents || 208,412.77 || 2,152,817.58 
      Interest income on AFS assets || 31,299,159.53 || 36,869,194.02 
      Other Interest income (securities' lending) || 83,827.76 || 104,765.51 
 Realised gains on sale of AFS assets || 1,364,029.81 || 8,596,018.53 
 Other: sub-rogated loans (accrued interest income) || 2,279,297.84 || -  
   ||   ||   
 Financial operations expenses || -1,671,934.39 || -3,793,465.24 
 Interest charges ||   ||   
 Realised losses on sale of AFS assets || - || -2,781,347.56 
 Other financial charges || -1,671,934.39 || -1,012,117.68 
     Other: GF Audit fees || -33,600.00 || -31,800.00 
     Other: GF Management & handling fees || -841,299.43 || -805,306.70 
     Other: Other financial charges || -139,943.88 || -114,725.87 
     Other: Unrealised exchange loss on sub-rog loans || -119,008.82 || -  
     Other: Recovery Management & handling fees || -538,082.26 || -60,285.11 
 ECONOMIC RESULT OF THE YEAR || 33,562,793.32 || 43,929,330.40 
Notes to the pre-consolidated economic
outturn account:
‘Other financial charges’ include the EIB
management fees, audit fees, unrealised exchange losses on the subrogated loans
and accrual of the EIB recovery fees. 
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 2007[4] to ensure a more
efficient use of budgetary resources by provisioning the Fund on the basis of
the observed amounts of guaranteed loans outstanding. As the amount of outstanding
liabilities increases, the Eu budget contribution required to maintain the
target amount for the Fund will also increase. Therefore EIB need to use the
guarantee only when it's absolutely necessary and make adequate use of the
possibility of own risk operations.
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 01.03.06 ‘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 01.03.06 ‘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 21,234.34 million as of 31.12.2011, an amount of
EUR 155.66 million, was inserted in budget line 01.03.06  ‘Provisioning of
the Guarantee Fund’ in the statement of expenditure in the general budget of
the European Union for 2013. This amount was paid in one transaction from the
budget to the Fund on 20 February 2013. 
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
Agreement, as amended[5]. 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. To maintain a balance between the various instruments
providing the required liquidity, a minimum of EUR 100 million is kept in
money market instruments, particularly bank deposits.
The list of banks authorised to receive
deposits is proposed by the EIB and agreed by the Commission. 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.
About 80% of the Fund will be placed in a
portfolio of bonds with a remaining maturity of no more than 10 years and 6
months from the date of payment. The average duration of the placements of all
Fund assets may not exceed 5 years. The investments in bonds should respect
some specific criteria such as liquidity, credit ratings, eligibility of the
counterparties and concentration limits. In order to ensure a good risk
diversification, the total amount invested in the bonds per single issuer must
not exceed 10% ofthe total nominal amount of the portfolio.
3.2.2.2.  Performance
The Fund delivered an absolute return of +0.7914%
during 2013, underperforming its benchmark by 33.71 bps. During the last 3
years, the Fund had an absolute return of 9.3% overperforming its benchmark by
2.2%. The benchmark of the Fund is a composite mainly built from iBoxx indices
(in particular EUR Eurozone Sovereign and EUR Collateralized Covered indices)
and Euribid for the short-term exposure. 
The whole year 2013 was in general
characterized by excess liquidity in the system to alleviate market pressures on
sluggish growth, a situation which kept short-term rates at extremely low
levels. While positive, the performance of the Fund in 2013 was in line with
this low-rate environnement (see section 2.4.2  ‘Performance’ of the SWD for more
details).
3.2.2.3.  Financial
operations revenues
In 2013, interest income on cash and cash
equivalents and on securities totalled EUR 35,234,727.71
, broken down as follows:
 Description: || 2013 || 2012 
 Interest income on cash and cash equivalent ||  208,412.77 || 2,152,817.58 
    Interests received on short-term deposits ||  205,694.91 || 2,660,950.98 
 Change in accrued interest on short-term  deposits || -10,794.39 || -522,446.95 
    Interest on current bank accounts ||  13,512.25 || 14,313.55 
 Interest income on AFS assets ||  31,299,159.53 || 36,869,194.02 
    Interest received - Available For Sale portfolio ||  36,599,210.68 || 38,824,106.90 
    Change in accrued interest – Available For Sale portfolio ||  -2,642,922.24 || -1,367,664.30 
    Premium discount ||  -2,657,128.91 || -587,248.58 
 Income from securities lending activities ||  83,827.76 || 104,765.51 
 Realized gain on sale of financial assets ||  1,364,029.81 || 8,596,018.53 
 Accrued interest on subrogated Loans || 2,279,297.84 || - 
 Interest from financial investment of the Fund's liquid assets || 35,234,727.71 || 47,722,795.64 
3.2.2.4.  Financial
operations expenses
The financial operations expenses amounted
to EUR  1,671,934.39, which include the EIB management fees for EUR 841,299.43,
other financial charges for EUR 139,943.88, the external audit fees for
EUR 33,600.00, unrealised exchange loss on subrogated Loans for EUR 119,008.82
and the handling fees for EUR 538.082,26.
4.           The
Fund’s liabilities
The Fund's liabilities correspond to all
the financial commitments due by the Fund.
4.1.        Default
payments
·                        
Calls on the Guarantee Fund following defaulted
payments
In the wake of the deteriorating situation in Syria, the Foreign Affairs Council, the
European Parliament and the Council had taken some decisions in 2011 towards
the country. In particular, they prohibited disbursements
by the EIB in connection with existing loan agreements as well as they supended
EIB technical assistance contracts for sovereign projects in Syria. This Decision has been thereafter consolidated in Council Decision 2011/782/CFSP of
1st December 2011 and Council Regulation (EU) N° 36/2012 of 18 January 2012.
As a consequence, no new financing
operation has been pursued by the EIB since May 2011 and all on-going
disbursements and technical assistance services to the Syrian Arab Republic have been suspended since November 2011 until further notice.
Whereas in recent years Syria had fully and timely serviced its loans to the Bank, since November 2011, the EIB is
facing arrears on Syrian sovereign loans. As a consequence, and in line with
the guarantee agreement between the EU and the EIB, the EIB has made 13 calls
on the EU Guarantee Fund in 2012 and 2013 for a total amount of EUR 107 million.
Two payments were made in 2012 (EUR 24 million out of which EUR 2.1 million
were recovered), 8 payments were made in 2013 (EUR 61 million). Payment for the
3 other calls (EUR 22 million) are due in the first quarter 2014.
·                        
Events after the reporting date
Until April 2014, two additional calls for
defaulting payments in Syria have been made for a total amount of EUR 12.1 million.

4.2.        EIB
remuneration
The EIB remuneration is composed by the
management fees and the recovery fees. The management fees cover the management
of the Fund.  The recovery fees cover the EIB's recovery efforts regarding claims following defaults covered by the EU guarantee for
EIB financing operations outside the Union.
The management fees
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 2013 was set at
EUR 841,299.43 and was entered in the economic outturn account and as
accruals (liabilities) on the balance sheet.  The
increase of EURO 35,992.73 compared to 2012 was caused by the growth of the
annual average value of the Fund's assets in 2013.
The recovery fees due to EIB are calculated
on the basis of the existing Recovery Agreement signed between the Commission
and the Bank in November 2010. At the end of 2013 the accrued amount of the
recovery fees was EUR 658,652.48. 
[1]               OJ L 145, 10.6.2009, p. 10 
[2]               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.
[3]               Other accounting accruals include exchange rate
differences and recovery fees due to the EIB.
[4]               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).
[5]               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.