REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON THE GUARANTEE FUND AND ITS MANAGEMENT IN 2014
Date: 2015-07-16
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Community loan, European Investment Bank, budgetary reserve (EU), closing of accounts, credit guarantee, financial control, financial transaction, fund (EU), general budget (EU), publication of accounts

EUROPEAN 
COMMISSION 

Brussels, 16.7.2015  
COM(2015) 343 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

ON THE GUARANTEE FUND AND ITS MANAGEMENT IN 2014 

EN 

   EN 

 
 
 
 
  
 
Table of Contents 

1. 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

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

Financial Position of the Fund at 31 December 2014 .................................................. 4 

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

Significant transactions ................................................................................................ 5 

Significant transaction after the reporting date ............................................................ 6 

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 2014.................. 6 

3. 

3.1. 

3.2. 

Payments to or from the Fund...................................................................................... 8 

Legal basis for payments to the Fund from the general budget ................................... 8 

Payments to or from the general budget in the course of the financial year................ 9 

3.2.1.  Provisioning of the Fund.............................................................................................. 9 

3.2.2. 

Interest from the investment of the Fund’s liquid assets ............................................. 9 

3.2.3.  Financial operations revenues .................................................................................... 10 

3.2.4.  Revenues and expenses from operating activities...................................................... 10 

4. 

4.1. 

4.2. 

The Fund’s liabilities ................................................................................................. 11 

Default payments ....................................................................................................... 11 

EIB remuneration ....................................................................................................... 11 

2 

 
 
1. 

INTRODUCTION 

Council  Regulation (EC, Euratom)  No 480/2009 of 25 May 20091 (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. 

1 

OJ L 145, 10.6.2009, p. 10  

3 

 
 
                                                 
2. 

FINANCIAL POSITION OF THE FUND AT 31 DECEMBER 2014 

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 2 137 753 047.57  (see  Annex  of  the  SWD:  Guarantee  Fund 
Financial  Statements  as  at  31  December  2014,  as  provided  by  the  EIB).  This  is  the 
sum of the flows since the Fund was established: 

Guarantee Fund 

budget contributions to the 
Fund 

Amount at 
31.12.2014 

Amount at 
31.12.2013 

Change 

 3 743 236 312.00 

 3 598 826 794.00  

 144 409 518.00 

successive yearly net results 

 908 051 618.54 

 878 284 248.11  

 29 767 370.43 

recoveries of payments 
made by the Fund for 
defaults 

other accounts payable 
(including called guarantees 
not yet paid and EIB 
management fees) 

fees received on late 
recovery (in 2002) 

calls on the Fund's 
resources (including called 
guarantees not yet paid) 

successive repayments to 
the budget (including 
exceptional repayment to 
the budget due to the 
accession of new Member 
States) 

adjustment of portfolio 
valuation according to IFRS 
valuation 

Accounting  value  of  the 
Fund 

 578 854 353.78 

 578 854 353.78  

 -  

 23 084 839.03 

 23 066 612.47  

 18 226.56 

 5 090 662.91 

 5 090 662.91  

 -  

 -644 939 881.42 

 -584 704 389.46  

 -60 235 491.96 

 -2 531 726 712.72 

 -2 531 726 712.72  

 -  

 56 101 855.45 

 36 665 073.82  

 19 436 781.63 

 2 137 753 047.57 

 2 004 356 642.91  

 133 396 404.66 

4 

 
 
The accounting value of the Fund increased by about EUR 133 million in 2014. This 
is explained by : 

Increasing 

• 

• 

• 

The  contribution  from  the  budget  (provisioning  amount)  of  EUR 144.4 
million to adjust the Fund to the 9% target amount  

The net revenues on financial operations amounted to EUR 30 million 

The  portfolio  valuation  increase  by  EUR  19  million  due  to  the  mark  to 
market adjustment  of its value. 

Decreasing 

• 

Intervention  of  the  Fund  to  cover  defaulted  payments  by  Syria  for  a  total 
amount  of    EUR  60  million  thereof  22  million  are  still  to  be  paid  as  at  31 
December 2014 (other accounts payable).  

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 21 calls on the EU Guarantee Fund up to 31 
December 2014 for a total amount of EUR 165 million (see point 4.1 Default 
payments). 

(2) 

In  February  2014,  the  contribution  from  the  budget  to  the  Fund  was 
calculated following Article 3 and Article 5 of the Regulation: 

Article 3 of the Regulation2 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  144.4  million  was  entered  in  the  2015  budget    for  the 
provisioning of the Fund. At 31.12.2013, the target amount was EUR 2 124.8 
million  corresponding  to  the  9%  of  the  total  outstanding  guaranteed 

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. 

5 

 
 
 
                                                 
operations (EUR 23 609 million). The difference between the target amount 
and  the  net  assets  of  the  Fund  of  EUR 1 980.4  million  at  31.12.2013  was 
equal to EUR 144.4 million. 

This amount was requested for the provisioning of the Fund in 2015 and was 
approved by the Council and the European Parliament as part of the approval 
of the 2015 budget in November 2014. It was subsequently recognised as a 
receivable of the Fund from the budget.  

(3) 

In February 2014 an amount of EUR 58.43 million was transfered from the 
budget to the Fund corresponding to the provisioning amount for 2014 (see 
details in paragraph 3.2.1 provisioning of the Fund). 

2.3. 

Significant transaction after the reporting date 

In February 2015 an amount of EUR 144.4 million was transfered from the 
budget to the Fund corresponding to the provisioning for 2015. 

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 2014 

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), which implies a difference in the total assets value of 
the Fund in the financial statements prepared by the EIB (EUR 2 137 753 047,57) and 
the  total  assets  value  of  the  Fund  in  the  pre-consolidated  financial  statements 
(EUR 2 016 490 714,57).  The  pre-consolidated  financial  statements  include  any 
arrears due plus the interest accrued on late payments and other accounting accruals3 
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 financial statements. The current assets in the pre-consolidated financial 
statements  include  a  temporary  receivable  with  the  EIB  of  EUR  22 086 899  for 
guarantee calls 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 22 846 081 for guarantee calls not yet paid plus related amounts.  

3 

Other accounting accruals include exchange rate differences and recovery fees due to the EIB. 

6 

 
 
                                                 
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  items  are 
explained in the notes to the balance sheet. 

Balance sheet – Assets 

31 December 2014 

31 December 2013 

NNOONN--CCUURRRREENNTT  AASSSSEETTSS  

11  449999  112288  990011  

11  443322  220066  995533  

Available for sale financial assets 

1 499 128 901

1 432 206 953

CURRENT ASSETS 

517 361 813

621 219 474

Available for sale financial assets 

346 281 423

361 614 283

Receivables 

23 147 185

107 502 078

Cash and cash equivalents 

147 933 205

152 103 112

TOTAL ASSETS 

2 016 490 714

2 053 426 427

Balance sheet - Liabilities 

31 December 2014 

31 December 2013 

CCOONNTTRRIIBBUUTTOORR''SS  RREESSOOUURRCCEESS  

11  999911  669999  997744  

22  002299  111133  884466  

European Commission contribution 

1 067 100 081

1 008 667 787

Fair value reserve 

Retained earnings 

56 101 855

36 665 074

868 498 038

983 780 985

NNOONN--CCUURRRREENNTT  LLIIAABBIILLIITTIIEESS 

-

-

CCUURRRREENNTT  LLIIAABBIILLIITTIIEESS 

24 790 740

24 312 581

Payables 

24 790 740

24 312 581

TTOOTTAALL  CCOONNTTRRIIBBUUTTOORR''SS  
RREESSOOUURRCCEESS  ++  LLIIAABBIILLIITTIIEESS 

2 016 490 714

2 053 426 427

7 

 
 
 
 
 
 
 
 
Notes to the balance sheet: 

•  ‘Current receivables’ includes amounts of loans that have been called but not yet 

paid (payment in January - March 2015), plus related amounts.  

•  The  difference  in  ‘Retained  earnings’  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. 

•  ‘Current payables’ 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. 

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.  

2014 

2013 

RReevveennuuee  ffrroomm  ooppeerraattiinngg  aaccttiivviittiieess  

226633  335555  

--  

EExxppeennsseess  ffrroomm  ooppeerraattiinngg  aaccttiivviittiieess 

(1 516 968)

(1 671 934)

RREESSUULLTT  FFRROOMM  OOPPEERRAATTIINNGG  AACCTTIIVVIITTIIEESS 

(1 253 614)

(1 671 934)  

Financial income 

Financial costs 

35 209 330

35 234 728

(149 238 663)

-

FINANCIAL RESULT 

(114 029 333)

35 234 728

ECONOMIC RESULT OF THE YEAR 

(115 282 947)

35 562 793

Notes to the economic outturn account: 

•  The ‘Financial costs’ consist in impairment losses on subrogated loans, related to 

defaulted payments (see section 4.1) 

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 

Council Regulation 480/2009 establishing the Guarantee Fund ensures an efficient use 
of budgetary resources by provisioning the Fund on the basis of the observed amounts 

8 

 
 
 
 
 
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.  

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.  

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 23 099  million  as  of 
31.12.2012,  an  amount  of  EUR 58.43  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  2014.  This  amount  was  paid  in  one  transaction 
from the budget to the Fund in February 2014. 

3.2.2. 

Interest from the investment of the Fund’s liquid assets 

Investment policy 

The Fund’s liquid assets are invested in accordance with the management principles 
laid  down  in  the  Annex  to  the  Agreement,  as  amended4.  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. 

Up  to  80%  of  the  Fund  can  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 

4 

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. 

9 

 
 
 
                                                 
good risk diversification, the total amount invested in the bonds per single issuer must 
not exceed 10% of the total nominal amount of the portfolio. 

Performance 

The  Fund  delivered  an  absolute  return  of  +2.55%  during  2014,  overperforming  its 
benchmark by an excess return of 0.19%.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.  

Initial  growth  and  inflation  expectations  were  lowered  in  the  course  of  2014, 
particularly in the euroarea. At the same time, ECB's accommodative monetary policy 
measures  and  communications  aimed  at  bringing  inflation  expectations  back  to  its 
target of below but close to 2 percentage points. In this environment, eurobenchmark 
rates  decreased  and  reached  negative  levels  until  around  the  5-year  maturity  point.   
The investment performance of the Fund in 2014 was supported by the decrease of the 
yields and the corresponding increase in the value of the fixed income securities held 
in the portfolio (see section 2.4.2 ‘Performance’ of the SWD for more details). 

3.2.3. Financial operations revenues 

In  2014,  interest  income  on  cash  and  cash  equivalents,  on  securities  and  accrued 
income on subrogated loans totalled EUR 35 209 330, broken down as follows: 

Description: 

2014 

2013 

Interest income on cash and cash equivalent 

267 136.21

208 412.77

Interests received on short-term deposits 

266 031.63

205 694.91

Change in accrued interest on short-term  deposits 

-2 802.56

-10 794.39 

Interest on current bank accounts 

3 907.14

13 512.25

Interest income on AFS assets 

29 274 967.00   31 299 159.53

Interest received - Available For Sale portfolio 

32 894 240.86

36 599 210.68

Change in accrued interest – Available For Sale 
portfolio 

-2 303 550.35

-2 642 922.24

Premium discount 

-1 315 723.51

 -2 657 128.91

Income from securities lending activities 

99 651.26

 83 827.76

Realized gain on sale of financial assets 

1 162 566.88

 1 364 029.81

Accrued interest on subrogated Loans 

4 405 009.00

2 279 297.84

Interest  from  financial 
Fund's liquid assets 

investment  of  the 

35 209 330.35   35 234 727.71

10 

 
 
 
 
 
3.2.4.  Revenues and expenses from operating activities 

The result from operating activities amounted to EUR  -1 253 614, which include the 
EIB management fees for EUR 844 873, other operating expenses for EUR 170 678, 
the  external  audit  fees  for  EUR  39 500,  unrealised  exchange  gain  on  subrogated 
Loans for EUR 263 355 and accrued EIB recovery fees for EUR 461 918. 

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 past 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 21 calls on the EU Guarantee Fund up to 31 December 2014 for a 
total amount of EUR 165 million. Payment for the last 3 calls (EUR 22 million) are 
due in the first quarter 2015. 

• 

Events after the reporting date 

Until  February  2015,  an  additional  call  for  defaulting  payments  in  Syria  has  been 
made for a total amount of EUR 7.9 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. 

11 

 
 
 
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  2014  was  set  at  EUR 844 873  and  was  entered  in  the 
economic outturn account and as accruals (liabilities) on the balance sheet.   

The recovery fees due to EIB are calculated on the basis of the Recovery Agreement 
signed between the Commission and the Bank in July 2014. At the end of 2014 the 
cumulated accrued amount of the recovery fees was EUR 1 060 285.  

12