REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON THE GUARANTEE FUND FOR EXTERNAL ACTION AND ITS MANAGEMENT IN 2015
Date: 2016-07-05
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, fund (EU), general budget (EU), publication of accounts

EUROPEAN 
COMMISSION 

Brussels, 5.7.2016  
COM(2016) 439 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

ON THE GUARANTEE FUND FOR EXTERNAL ACTION AND ITS 
MANAGEMENT IN 2015 

{SWD(2016) 220 final} 

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 2015 .................................................. 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 2015.................. 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...................................................... 11 

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 2009  (codified  version) 
(‘the Regulation‘)1 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  between  the  Community  and 
the EIB dated 25 November 1994, and subsequently amended on 23 September 1996, 
8 May 2002, 25 February 2008 and 9 November 2010 (‘the Agreement’).  

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;  the  Regulation  codified  and  repealed  Regulation  (EC,  Euratom) 
No 2728/94 of 31 October 1994 establishing a Guarantee Fund for external actions.  

3 

 
 
                                                 
2. 

FINANCIAL POSITION OF THE FUND AT 31 DECEMBER 2015 

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 2,343,091,110.14  (see  Annex  of  the  SWD:  Guarantee  Fund 
financial statements as at 31 December 2015, as provided by the EIB). This is the sum 
of the flows since the Fund was established: 

Guarantee Fund 

budget contributions to the Fund 

successive yearly net results 

 Amount at 
31.12.2015  

Amount at 
31.12.2014 

Change 2014-
2015 

4,000,358,104.00 

3,743,236,312.00  

257,121,792.00 

940,394,573.31 

908,051,618.54  

32,342,954.77 

recoveries of payments made by the Fund for 
defaults 

578,854,353.78 

578,854,353.78  

                               -   

variation in other accounts payable 

23,101,194.04 

23,084,839.03  

16,355.01 

fees received on late recovery (in 2002) 

5,090,662.91 

5,090,662.91  

                               -   

guarantee calls paid 

           -705,104,452.97 

        -644,939,881.42  

  -60,164,571.55 

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 

        -2,531,726,712.72 

-2,531,726,712.72  

                               -   

32,123,387.79 

56,101,855.45  

 -23,978,467.66 

Accounting value of the Fund (Total assets) 

         2,343,091,110.14 

        2,137,753,047.57  

      205,338,062.57 

The accounting value of the Fund increased by about EUR 205 million in 2015. This 
is explained by : 

Increasing 

• 

• 

The contribution from the budget (provisioning amount) of EUR 257 million 
to adjust the Fund to the 9% target amount  

The net revenues on financial operations amounted to EUR 32 million 

4 

 
 
  
   
  
  
   
  
  
   
  
   
  
  
   
  
   
 
 
 
Decreasing 

• 

• 

Intervention  of  the  Fund  to  cover  defaulted  payments  by  Syria  for  a  total 
amount of  EUR 60 million.  

The  portfolio  valuation  decrease  by  EUR  24  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 29 calls on the EU Guarantee Fund up to 31 
December  2015  for  a  total  amount  of  EUR  225.1  million  (see  point  4.1 
Default payments). 

(2) 

In  February  2015,  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  257.1  million  was  entered  in  the  2016  budget    for  the 
provisioning of the Fund. At 31.12.2014, the target amount was EUR 2,371.8 
million  corresponding  to  the  9%  of  the  total  outstanding  guaranteed 
operations  (EUR  26,353.2  million).  The  difference  between  the  target 
amount and the net assets of the Fund of EUR 2,114.7 million at 31.12.2014 
was equal to EUR 257.1 million. 

This amount was requested for the provisioning of the Fund in 2016 and was 
approved by the Council and the European Parliament as part of the approval 
of the 2016 budget in November 2015. It was subsequently recognised as a 
receivable of the Fund from the budget.  

In February 2015 an amount of EUR 144.4 million was transfered from the 
budget to the Fund corresponding to the provisioning amount for 2015 (see 
details in paragraph 3.2.1 provisioning of the Fund). 

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 

(3) 

2 

 
 
                                                 
2.3. 

Significant transaction after the reporting date 

In February 2016 an amount of EUR 257.1 million was transfered from the 
budget to the Fund corresponding to the provisioning for 2016. 

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 2015 

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 2,343,091,110.14) and 
the total assets value of the Fund in the pre-consolidated financial statements (EUR 2 
107 985 583). The pre-consolidated financial statements include any arrears due plus 
the  interest  accrued  on  late  payments  (fully  impaired  as  of  31.12.2015)  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 22,016,265 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 22,763,789 for guarantee calls not yet paid plus related 
amounts.  

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. 

3 

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

6 

 
 
 
                                                 
Balance sheet – Assets 

31 December 2015 

31 December 2014 

NNOONN--CCUURRRREENNTT  AASSSSEETTSS  

11,,661144,,223333,,448833  

1,499,128,901  

Financial assets 

1,614,233,483

1,499,128,901

CURRENT ASSETS 

493,752,100

517,361,813

Financial assets 

Receivables 

387,792,573

346,281,423

22,016,264

23,147,185

Cash and cash equivalents 

83,943,262

147,933,205

TOTAL ASSETS 

2,107,985,583

2,016,490,714

Balance sheet - Liabilities 

31 December 2015 

31 December 2014 

CCOONNTTRRIIBBUUTTOORR''SS  RREESSOOUURRCCEESS  

22,,008822,,776600,,778800  

1,991,699,974  

European Commission contribution 

1,211,509,598

1,067,100,081

Fair value reserve 

Retained earnings 

32,123,388

56,101,855

839,127,794

868,498,038

NNOONN--CCUURRRREENNTT  LLIIAABBIILLIITTIIEESS 

-

-

CCUURRRREENNTT  LLIIAABBIILLIITTIIEESS 

25,224,803

24,790,740

Payables 

25,224 803

24,790,740

TTOOTTAALL  CCOONNTTRRIIBBUUTTOORR''SS  
RREESSOOUURRCCEESS  ++  LLIIAABBIILLIITTIIEESS 

2,107,985,583

2,016,490,714

7 

 
 
 
 
 
 
 
 
Notes to the balance sheet: 

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

paid (payment in January - March 2016), 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.  

2015 

2014 

RReevveennuuee  ffrroomm  ooppeerraattiinngg  aaccttiivviittiieess  

477,789

263,355  

EExxppeennsseess  ffrroomm  ooppeerraattiinngg  aaccttiivviittiieess 

(1,591,683)

(1,516,968)

RREESSUULLTT  FFRROOMM  OOPPEERRAATTIINNGG  AACCTTIIVVIITTIIEESS 

(1,113,894)

(1,253,614)  

Financial income 

Financial costs 

40,109,123

35,209,330

(68,365,473)

(149,238,663)

FINANCIAL RESULT 

(28,256,350)

(114,029,333)

ECONOMIC RESULT OF THE YEAR 

(29,370,244)

(115,282,947)

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 

The  Regulation  ensures  an  efficient  use  of  budgetary  resources  by  provisioning  the 
Fund  on  the  basis  of  the  observed  amounts  of  guaranteed  loans  outstanding.  As  the 

8 

 
 
 
 
 
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  Communities  total  outstanding  capital  liabilities 
arising  from each operation,  increased by unpaid interest due, 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 23,609.2 million as of 
31.12.2013,  an  amount  of  EUR 144.4  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  2015.  This  amount  was  paid  in  one  transaction 
from the budget to the Fund in February 2015. 

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. 

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 
quality, 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% of the total nominal amount of the portfolio. 

4 

Amended  by  Supplementary  Agreement  No 1  of  23 September 1996,  Supplementary 
Agreement  No 2  of  8 May 2002,  Supplementary  Agreement  No  3  of  25  February  2008  and 
Supplementary Agreement No 4 of 9 November 2010. 

9 

 
 
 
                                                 
Performance 

During  the  year  2015,  the  macro  economic  conditions  and  the  very  accommodative 
monetary policy environment has resulted in decreasing, and often negative, interest 
rates  

The  Fund  delivered  an  absolute  return  of  +0.47%  during  2015,  overperforming  its 
benchmark by 0.9 bps. 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 positive performance of the Fund in 2015 was mainly explained by the decline of 
the  short  end  of  the  yield  curves  (see  section  1.4.2  ‘Performance’  of  the  SWD  for 
more details that occurred durint the year). 

3.2.3. Financial operations revenues 

In  2015,  interest  income  on  cash  and  cash  equivalents,  on  securities  and  accrued 
income on subrogated loans totalled EUR 40 109 123, broken down as follows: 

Description: 

2015 

2014 

Interest income on cash and cash equivalent 

Interest on short-term deposits 

Interest on current bank accounts 

17,621

6,496

11,125

267,136

263,229

3,907

Interest income on AFS assets 

24,226,548

29,274,967 

Interest - Available For Sale portfolio 

29,814,016

30,590,691

Premium discount 

(5,587,468)

(1,315,724)

Income from securities lending activities 

115,810

99,651

Realized gain on sale of financial assets 

9,176,574

1,162,567

Accrued interest on subrogated loans 

6,572,571

4,405,009

Interest  from  financial 
Fund's liquid assets 

investment  of  the 

40,109,123

35,209,330 

10 

 
 
 
 
 
3.2.4.  Revenues and expenses from operating activities 

The result from operating activities amounted to EUR  -1,113,894, which include the 
EIB  management  fees  for  EUR  861,228,  other  operating  expenses  (mainly  custody 
fees) for EUR 190,955, the external audit fees for EUR 39,500, unrealised exchange 
gain on subrogated Loans for EUR 477,789 and accrued EIB recovery fees for EUR 
500,000 (maximum agreed amount). 

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.  The  restrictive  measures  have  been  thereafter 
enshrined in Council Regulation (EU) N° 36/2012 of 18 January 2012, as amended. 

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 29 calls on the EU Guarantee Fund up to 31 December 2015 for a 
total amount of EUR 225.1 million. Payment for the last 3 calls (EUR 22.1 million) 
are due in the first quarter 2016. 

• 

Events after the reporting date 

Until  February  2016,  an  additional  call  for  defaulting  payments  in  Syria  has  been 
made for a total amount of EUR 7.8 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 second Supplementary Agreement to the Agreement dated 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  2015  was  set  at  EUR 861,228  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 2015 the 
cumulated accrued amount of the recovery fees was EUR 1,560,285.  

12