REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON BORROWING AND LENDING ACTIVITIES OF THE EUROPEAN UNION IN 2013
Date: 2014-08-21
Institutions: European Commission
Subjects: Bosnia and Herzegovina, EIB loan, EU borrowing, Euratom loan, Greece, Hungary, Ireland, Kyrgyzstan, Latvia, Portugal, Romania, Ukraine, balance of payments, economic stabilisation, financial aid













EUR-Lex - 52014DC0529 - EN











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52014DC0529

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON BORROWING AND LENDING ACTIVITIES OF THE EUROPEAN UNION IN 2013 /* COM/2014/0529 final */









Table of Contents
1............ Introduction. 3
2............ Lending activities of
the European Union. 3
2.1......... BOP facility. 3
2.2......... EFSM... 5
2.3......... MFA facility. 6
2.4......... Euratom facility. 8
3............ Borrowing activities
of the European Union. 8
3.1......... BOP. 8
3.2......... EFSM... 9
3.3......... MFA.. 9
3.4......... Euratom.. 9
4............ European Investment
Bank. 9
4.1......... EIB lending activities. 9
4.2......... EIB borrowing activities. 10
5............ Ensuring financial
stability in the euro-area. 11
5.1......... Greek Loan
Facility (GLF) 11
5.2......... European Financial
Stability Facility (EFSF) 11
5.3......... European
Stability Mechanism (ESM) 12
1.           Introduction
The
Commission is required to inform every year the European Parliament and the
Council on the use of the various lending instruments of the European Union.
This
report describes the lending operations for each instrument as well as the
respective borrowing activities. 
Table 1: Evolution of operations of
the European Union (outstanding amounts of capital in EUR
million)
   || ECSC i.l.(1) (2) || Euratom (1) || BOP || MFA || EFSM || Total 
 2009 || 214 || 481 || 9,200 || 584 ||   || 10,479 
 2010 || 219 || 466 || 12,050 || 500 ||   || 13,235 
 2011 2012 2013 || 225 183 179 || 447 423 386 || 11,400 11,400 11,400 || 590 545 565 || 28,000 43,800 43,800 || 40,662 56,351 56,330 
 (1)The conversion rates used are those of 31 December of each year. (2)The European Coal & Steel Community is in liquidation since 2002. The last bond issued by ECSC matures in 2019. || 
2.           Lending activities of the European Union
Financial
support for third countries and Member States in the form of bilateral loans
financed from the capital markets with the guarantee of the EU budget is
provided by the Commission under various legal acts of the Council or of the
Council and the European Parliament, depending on the objectives pursued[1]. The
consistency of financial support to third countries with the overall objectives
of the EU external action is ensured by the Commission and the High Representative
of the
 Union for Foreign Affairs and Security Policy assisted by the
EEAS.
2.1.        BOP facility
Balance-of-payments
(BOP) assistance under Article 143 of the Treaty on the Functioning of the
European Union (TFEU) and Council Regulation (EC) No 332/2002 of 18 February
2002 establishing a facility providing medium-term financial assistance for
Member States' balances of payments[2]
(BOP Regulation) takes the form of medium-term loans provided by the Union. It
is generally granted in conjunction with financing by the International
Monetary Fund (IMF) and other multilateral lenders, such as the European Investment
Bank (EIB), the European Bank for Reconstruction and Development (EBRD) or the
World Bank.
BOP
assistance is granted on a case-by-case basis by the Council acting by
qualified majority. Potential beneficiaries are Member States outside the euro-area being faced with serious
balance-of-payments difficulties. It
aims at easing the recipient Member States’ external financing constraints and
at restoring the viability of a country's balance-of-payments. It is released
subject to the fulfilment of economic policy conditions decided by the Council –
after consultation with the Economic and Financial Committee (EFC) on a draft
adjustment programme – and whose details are agreed by the Commission and the
beneficiary Member State in a Memorandum of Understanding (MoU) prior to the
conclusion of a loan agreement. The continued compliance with measures in the
adjustment programme is reviewed regularly and is a condition for the disbursements
of further instalments. The required funds are raised by the Commission on
behalf of the European Union in capital markets.
The
Commission reports regularly to the EFC and to the Council on the
implementation of the BOP Regulation.
The
BOP facility was re-activated in 2008 in response to the international economic
and financial crisis and its ceiling was increased from
EUR 12 billion to finally EUR 50 billion in May 2009[3] to
enable the EU to respond quickly to any
further demand for BOP assistance. Up to 31 December 2013, a total
amount of EUR 18.0 billion had been committed to Hungary[4], Latvia[5] and Romania[6] of
which EUR 13.4 billion were disbursed.
The
precautionary financial assistance (PFA) for Romania of up to EUR
1.4 billion[7]
expired on 31 March 2013 without having been drawn down.
In
2013, the Council adopted a second PFA programme for Romania[8] of up
to EUR 2 billion. Disbursements may be requested until 30 September 2015.
In
2013, no disbursements were made under the BOP facility.
Table
2: BoP assistance up to 31.12.2013 (in EUR billion) 
 Country || Amount decided || Amount disbursed || Amount reimbursed || Amount outstanding || Average loan maturity (years) 
 Hungary || 6.5 || 5.5 || 2.0 || 3.5 || 5.0 
 Latvia || 3.1 || 2.9 || 0 || 2.9 || 6.6 
 Romania || 5.0 || 5.0 || 0 || 5.0 || 7.0 
 Romania (PFA) Romania (PFA) || 1.4 2.0 || 0 0 || 0 0 || 0.0 0.0 || 0 0 
 Total || 18.0 || 13.4 || 2.0 || 11.4 ||   
Operations
made since 31 December 2013
In
April 2014, EUR 1,000 million was reimbursed by Latvia. 
Detailed
information on BOP operations can be found at: http://ec.europa.eu/economy_finance/eu_borrower/balance_of_payments/index_en.htm
2.2.        EFSM
Council
Regulation (EU) No 407/2010 of 11 May 2010 set up the European Financial
Stabilisation Mechanism (EFSM) based on Article 122(2)[9] of the
TFEU. The EFSM is fully backed by the EU budget and has a total lending
capacity of up to EUR 60 billion. 
Potential beneficiaries for the EFSM assistance are Member States faced
with difficulties caused by a serious deterioration in the international
economic and financial environment. The use of EFSM is subject to policy conditionality
in the context of an economic and financial adjustment programme as agreed under
a Memorandum of Understanding concluded between the Commission and the
beneficiary Member State and it follows a similar decision making process as
for the BOP assistance. The assesment of the financial needs and regular
surveillance in the programme implementation are made by the Commission in
consultation with the European Central Bank (ECB), at least every six months
regarding the general economic policy conditions of the adjustment programme
and every three months for the verification of fulfilment by the Member State
of economic policy conditions attached to the assistance. Any changes that may
be needed to the adjustment programme are discussed with the beneficiary Member State. The Council, acting by a qualified majority on a proposal from the
Commission, shall decide on any adjustments to be made to the initial general
economic policy conditions and shall approve the revised adjustment programme
as prepared by the beneficiary Member State.
The
EFSM facility was activated in 2011 for Ireland[10] and
Portugal[11],
committing a loan amount of up to a EUR 22.5 billion and EUR 26 billion
respectively. The total commitments, including also the EFSF, the IMF and other
Member States amount to up to EUR 85 billion and EUR 78 billion respectively:
Table
3: Breakdown of commitments (in EUR billion)
 Country || EFSM || EFSF || IMF || Others || Total 
 Ireland || 22.5 || 17.7 || 22.5 || 22.3* || 85.0 
 Portugal || 26.0 || 26.0 || 26.0 ||   || 78.0 
 Total || 48.5 || 43.7 || 48.5 || 22.3 || 163.0 
*
EUR 4.8 billion from other Member States (United Kingdom, Sweden, Denmark) and
EUR 17.5 billion from the Irish State.
Since
the implementation of the Facility, reductions in the interest rate margin and extension
of maturities have been decided and applied to all the loans. 
In
2013, no disbursements were made under the EFSM facility.
The
total outstanding amount of the Facility is EUR 43,800 million at the end of
2013 (Ireland: EUR 21,700 million, Portugal: EUR 22,100 million).
Operations
made since 31 December 2013
In
March 2014, EUR 1,800 million were disbursed to Portugal and EUR 800 million to
  Ireland (final tranche). 
Ireland completed
the EU/IMF financial assistance programme in December 2013, while Portugal exited the programme in May 2014. 
Detailed
information on EFSM operations can be found at: http://ec.europa.eu/economy_finance/eu_borrower/efsm/index_en.htm
2.3.        MFA facility
Macro-Financial
Assistance (MFA) is being provided to support EU candidate,
potential candidate and neighbourhood countries to resolve short-term
balance-of-payments problems, to stabilise public finances and to encourage
structural reform implementation. MFA is provided on an exceptional and
temporary basis and is based on strict economic policy conditionality. MFA operations
typically complement IMF adjustment programmes. MFA can be provided in the form
of loans and/or non-reimbursable grants.
Should
a beneficiary country fail to honour its repayment obligations, the Commission
may activate the Guarantee Fund for External Actions[12] so
that the repayment of the corresponding borrowing by the Commission is done from
its funds[13].
In
2013, the MFA operation for Bosnia and Herzegovina[14],
approved in 2009 (amounting to a total of EUR 100 million in loans) was
completed. The first tranche of EUR 50 million was disbursed in February 2013
and the second one, also EUR 50 million, in September 2013. 
On 12
August 2013, the European Parliament and the Council decided to make MFA
available to Georgia of a maximum amount of EUR 46 million (up to EUR 23 million
in the form of grants and up to EUR 23 million in the form of loans) for a
maximum maturity of 15 years[15].
No disbursements have been made yet.
On
22 October 2013, the European Parliament and the Council decided to make MFA
available to the Kyrgyz Republic of a maximum amount of EUR 30 million (up to
EUR 15 million in the form of grants and up to EUR 15 million in the form of
loans) for a maximum maturity of 15 years[16].
No disbursements have been made yet.
On
11 December 2013, the European Parliament and the Council decided to make MFA
available to Jordan[17]
in the form of loans for a maximum amount of EUR 180 million and with a
maximum maturity of 15 years, to covering Jordan's balance of payments needs as
identified in the IMF programme. No disbursements have been made yet.
Operations
made since 31 December 2013
On
14 April 2014, the Council decided to make MFA available to Ukraine[18] in
the form of loans for a maximum amount of EUR 1 billion and with a maximum
maturity of 15 years, to cover Ukraine's urgent balance of payments needs as
identified in the government's economic programme supported by the IMF. The
first tranche of EUR 500 million was disbursed in June 2014.
Regarding
the implementation of the MFA to Ukraine, approved in 2010[19],
which, together with the funds available from a previous operation approved in
2002[20],
amounts to EUR 610 million in loans, the MoU was signed in the framework of a
Ukraine-EU summit in February 2013. The first tranche of EUR 100 million was
disbursed mid-May 2014.
Detailed
information on MFA operations can be found in the annual Commission Report to
the European Parliament and the Council on the implementation of MFA to third
countries[21]
and at: http://ec.europa.eu/economy_finance/eu_borrower/macro-financial_assistance/index_en.htm.
2.4.        Euratom facility
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 3.7 billion have been decided and EUR 3.4 billion already disbursed.
The Council asked the Commission to propose a new lending ceiling once the
signed amount reaches EUR 3.8 billion.
In
2013, the Commision adopted Decision C(2013) 3496 on granting an up to EUR 300
million Euratom loan in support of the Ukraine safety upgrade program of
nuclear power units. The Loan Agreement was signed in August 2013. The loan
will enter into force once all conditions for effectiveness have been
satisfactorily completed. A parallel EUR 300 million loan was signed in March 2013
by the EBRD.
3.           Borrowing activities of the European Union
In
order to finance the lending activities decided by the Council, the Commission
is empowered to borrow funds on the capital markets on behalf of both the
European Union and Euratom. Borrowing and lending is conducted as back to back
operations, which ensures that the EU budget does not take any interest rate or
foreign exchange risk[22].
Outstanding borrowings are matched by outstanding loans.
3.1.        BOP
In
2013, under the BOP facility, no borrowings were raised in the market.
The
total outstanding amount raised for BOP is EUR 11.4 billion at the end of 2013.
3.2.        EFSM
In
2013, under the EFSM facility, no borrowings were
raised in the market.
The
total outstanding amount raised for EFSM is EUR 43.8 billion at the end of 2013.
3.3.        MFA
In
2013, the MFA operation for Bosnia and Herzegovina,
approved in 2009 (amounting to a total of EUR 100 million in loans), was
completed. The first tranche, amounting to EUR 50 million, was disbursed in
February 2013 and the second one, also amounting to EUR 50 million, in
September 2013.
The
total outstanding amount for MFA is EUR 565 million in the end of 2013.
Table
4: EU private placement during 2013 (in EUR million)
 Country || Description || Issue date || Maturity Date || Size 
 Bosnia and Herzegovina || EMTN EU 2.000/2023 || 04/02/2013 || 10/02/2023 || 50 
     Bosnia and Herzegovina ||     SSD EU 1,991/2023 ||     19/09/2013 || 26/09/2019 (10M) 28/09/2020 (10M) 27/09/2021 (10M) 26/09/2022 (10M) 26/09/2023 (10M) ||     50 
 Total ||   ||   ||   || 100 
3.4.        Euratom
In
2013, there was no borrowing operation under Euratom.
4.           European Investment Bank 
4.1.        EIB lending activities
The
EIB provides financing either directly to individual investment projects
or through financial intermediaries to smaller-scale projects undertaken
by SMEs or by local authorities and municipalities. The EIB also provides loan
guarantees, technical assistance and venture capital.
In
2013, EIB signed a total financing volume of EUR 71.7 billion (compared to EUR
52.2 billion in 2012). 
Financing
in EU Member States represented EUR 64 billion. This amount is not covered by
EU guarantee. EUR 7.7 billion was signed outside the EU, of which EUR 4.4
billion is covered by EU guarantee (the so-called "external mandate").

2013
saw the first year of the implementation of the EIB capital increase. Following
the entry into force at the end of 2012 of the Member States' decision to increase
the EIB's paid-in capital by EUR 10 billion, the EIB is expected to increase
its volume of lending by EUR 60 billion over the years 2013-2015.
The
EU guarantee granted under Decision 1080/2011/EU for a period expiring on 31
December 2013 was automatically extended by 6 months since a new decision
granting EU guarantee for EIB operations outside the EU had not yet been
adopted. 
The
new Decision granting an EU guarantee for EIB operations outside the EU[23] has
been adopted on 16 April 2014 by the European Parliament and the Council. The
size of the overall mandate amounts to EUR 27 billion (plus an additional
optional amount of EUR 3 billion which may be activated following a mid-term
review).
EIB
financing activities have an impact on the EU budget when they are accompanied
by EU guarantees. This is the case for:
-       EIB financing
operations carried out under the external mandate (covering Pre-Accession
countries, Neighbourhood and Partnership countries, Asia and Latin America, South Africa as well as a Climate Change mandate). Such financing benefit from an EU budget
guarantee covering risks of sovereign or political nature. A separate report on
the 2013 EIB external lending activity will be issued by the Commission during
the second semester 2014.
-       risk
sharing financing facilities involving the use of the EU budget to support EU
policies (e.g. Risk Sharing Finance Facility for research and development
projects and the Project Bond Initiative).
4.2.        EIB borrowing activities
In a volatile market context, execution
risk remained high throughout the year, especially for large benchmark
transactions. The solid demand for EIB bonds first supported a tightening of
shorter dated spreads, especially in EUR. Rating agencies preserved the Bank's
AAA rating, supported by the plans on a capital increase.
In
2013, EIB borrowing activity [24]
amounts to EUR 72.4 billion with an average maturity of 8.2 years.
5.           Ensuring financial stability in the euro-area
In
response to the global economic and financial crisis, the euro-area Member
States have decided on measures to preserve financial stability in the euro-area
and Europe at large. These measures are outlined below and are not guaranteed
by the EU Budget. Additional
information on the three existing facilities can be found at: http://ec.europa.eu/economy_finance/assistance_eu_ms/index_en.htm
5.1.        Greek Loan Facility (GLF)
Following
the unanimous agreement of the euro-area Finance Ministers on 2 May 2010[25] to
support Greece, a three-year joint programme with the IMF involving
a financial package of up to EUR 110 billion to help Greece was set up,
accompanied by strong policy conditionality[26]
negotiated with the Greek authorities by the Commission and the IMF, in liaison
with the ECB. The loans disbursed by the euro-area Member States under this
first programme amount to EUR 52.9 billion and to EUR 20.1 billion
from the IMF. The financial terms of the
facility were re-adjusted in December 2012 (extension of the final maturity,
reduction of the margin). 
On
14 March 2012, a Second Economic Adjustment Programme was approved by the euro-area
finance ministers and the IMF, adding EUR 130 billion to the undisbursed
amounts of the first programme. This second programme foresees therefore a
total financial assistance of EUR 164.5 billion, the IMF contribution amounting
to EUR 19.8 billion. While the first programme was set up as an Inter-creditor
Agreement of pooled bilateral loans from the supporting euro-area Member States,
with the Commission providing coordination and management, the second one is
financed via the EFSF. 
5.2.        European Financial Stability
Facility (EFSF)
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, entering
into force on 7 June 2010.
It was designed as a temporary rescue
mechanism for on-lending to
euro-area Member States in difficulty by issuing bonds guaranteed by euro-area
Member States. In October 2010, it was decided to create a
permanent rescue mechanism, the European Stability Mechanism (ESM) which entered into force on 27 September 2012. As of 1 July 2013, the EFSF is no longer
engaged in the financing of new financing programmes or new loan facility
agreements. However; it remains active in the ongoing programmes for Greece, Portugal and  Ireland where it is a lender (together with the IMF and some Member States).
5.3.        European Stability Mechanism
(ESM) 
The
new permanent crisis mechanism, the ESM, was inaugurated on 8 October 2012. As of 1 July
2013, the ESM became the permanent mechanism for responding to new requests for
financial assistance by euro area Member States. 
It has an effective lending capacity of EUR 500 billion. Total subscribed
capital amounts to EUR 702 billion, with paid-in capital by
euro-area Member States of EUR 80 billion (to be completed by the first half of 2014) and committed callable capital of EUR 622 billion. 
The
ESM (together with the IMF) has provided financial assistance to address Cyprus' financial sector imbalances. It has also granted financial assistance to the
Spanish government for the recapitalisation of the country's banking sector.
[1]               Detailed presentation of the borrowing and lending
activities of the Commission is available at http://ec.europa.eu/economy_finance/eu_borrower/index_en.htm.
[2]              OJ L 53, 23.2.2002, p.1.
[3]               Council Regulation (EC) No 431/2009 of 18 May 2009
amending Regulation (EC) No 332/2002 establishing a facility providing
medium-term financial assistance to Member States’ balances of payments (OJ L
128, 27.5.2009, p.1).
[4]               Council Decision 2009/102/EC of 4 November 2008
providing Community medium-term financial assistance for Hungary (OJ L 37,
6.2.2009, p. 5). 
[5]               Council Decision 2009/290/EC of 20 January 2009
providing Community medium-term financial assistance for Latvia (OJ L 79,
25.3.2009, p. 39).
[6]               Council Decision 2009/459/EC of 6 May 2009 providing
Community medium-term financial assistance for Romania (OJ L 150, 13.6.2009, p.
8). 
[7]               Council Decision 2011/288/EU of 12 May 2011 providing precautionary EU medium-term financial assistance
for Romania (OJ L 132, 19.5.2011, p. 15).
[8]               Council Decision 2013/531/EU of 22 October 2013 providing
precautionary EU medium-term financial assistance to Romania (OJ L 286,
29.10.2013, p.1).
[9]               Article 122(2) of the TFEU foresees financial support
for Member States in difficulties caused by exceptional circumstances beyond their
control.
[10]             Council Implementing Decision No 2011/77/EU of 7 December
2010 on granting Union financial assistance to Ireland (OJ L 30, 4.2.2011, p.
34).
[11]             Council Implementing Decision No 2011/344/EU of 30 May
2011 on granting Union financial assistance to Portugal (OJ L 159, 17.6.2011,
p. 88).
[12]             See Council Regulation (EC, Euratom) No 480/2009
establishing a Guarantee Fund for external actions (Codified version) (OJ L
145, 10.6.2009, p. 10). No default has been registered so far for MFA loans.
[13]             Although the repayment of the borrowing is covered in
fine by the EU budget, the Guarantee Fund acts as liquidity buffer protecting
the EU budget against the risk of calls resulting from payment defaults. For a
comprehensive report on the functioning of the Fund, see COM(2014)214 and the
accompanying Staff Working Document SEC(2014)129.
[14]             Council Decision 2009/891/EC of 30 November 2009
providing macro-financial assistance to Bosnia and Herzegovina (OJ L 320,
5.12.2009, p. 6).
[15]             Decision No 778/2013/EU of the European Parliament and
of the Council of 12 August 2013 providing further macro-financial assistance
to Georgia (OJ L 218, 14.8.2013, p. 15).
[16]             Decision No 1025/2013/EU of the European Parliament and
of the Council of 22 October 2013 providing macro-financial assistance to the Kyrgyz Republic (OJ L 283, 25.10.2013, p. 1).
[17]          Decision
No 1351/2013/EU of the European Parliament and of the Council of 11 December
2013 on providing macro-financial assistance to the Hashemite Kingdom of Jordan
(OJ L 341, 11.12.2013, p. 4).
[18]          Council Decision No 2014/215/EU of 14 April 2014 providing macro-financial
assistance to Ukraine (OJ L 111, 15.4.2014, p. 85).
[19]             Decision No 388/2010/EU of the European Parliament and
of the Council of 7 July 2010 providing macro-financial assistance to Ukraine (OJ L 179, 14.7.2010, p. 1).
[20]             Council Decision 2002/639/EC of 12 July 2002 providing
supplementary macro-financial assistance to Ukraine (OJ L 209, 6.8.2002, p.
22).
[21]             COM (2013)426 and SWD(2013)211.
[22]             The EFSM Regulation allows
resorting to pre-funding as it authorises the Commission "to borrow on
the capital markets or from financial institutions at the most appropriate time
in between planned disbursements so as to optimise the cost of
funding and preserve its reputation as the Union's issuer in the markets."
However, any resultant cost of carry is borne by the borrower.
[23]             Decision No 466/2014/EU of the European Parliament and
of the Council of 16 April 2014 granting an EU guarantee to the European
Investment Bank against losses under financing operations supporting investment
projects outside the Union (OJ L 135, 8.5.2014, p. 1).
[24]             Sources: EIB 2013 Analytical report.
[25]             The support is provided via bilateral
loans from the other euro-area Member States, centrally pooled by the
Commission, under the conditions set out in their statement of 11 April 2010.
[26]             The main
elements of policy conditionality were enshrined in Council Decision 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 (2010/320/EU).
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.