REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON THE GUARANTEE FUND FOR EXTERNAL ACTION AND ITS MANAGEMENT IN 2016
Date: 2017-09-14
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, 14.9.2017  
COM(2017) 488 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

ON THE GUARANTEE FUND FOR EXTERNAL ACTION AND ITS 
MANAGEMENT IN 2016 

{SWD(2017) 296 final} 

EN 

   EN 

 
 
 
 
  
 
Table of Contents 

1. 

2. 

2.1. 

2.2. 

2.3. 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

5. 

6. 

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

Financial Position and Significant Transactions of the Guarantee Fund ..................... 4 

Financial Position of the Guarantee Fund at 31 December 2016 ................................. 4 

Significant Transactions of the Fund in 2016 .............................................................. 4 

Significant transaction after the reporting date ............................................................ 5 

Pre-consolidated Financial Statements of the Fund ..................................................... 5 

Pre-consolidated Financial Position at 31 December 2016.......................................... 5 

Pre-consolidated Statement of Financial Performance ................................................ 7 

Guarantee Fund Treasury Management ....................................................................... 8 

Investment policy ......................................................................................................... 8 

Performance and market developments ....................................................................... 8 

Calls on the Guarantee Fund ........................................................................................ 9 

EIB remuneration ....................................................................................................... 10 

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  AND  SIGNIFICANT  TRANSACTIONS  OF  THE 
GUARANTEE FUND  

2.1. 

Financial Position of the Guarantee Fund at 31 December 2016 

The  Guarantee  Fund  totalled  EUR 2,506,053,053.14  as  of  31  December  2016  (EUR 
2,343,091,110.14 as of 31 December 2015) (see Annex of the SWD: Guarantee Fund 
financial statements, as provided by the EIB).  

The  total  balance  sheet  value  of  the  Fund  increased  by  about  EUR  162.9  million  in 
2016. This is mainly explained by the following: 

Increases: 

• 

• 

• 

The  contribution  from  the  EU  budget  (provisioning  amount)  of  EUR 240.5 
million to adjust the Fund to the 9% target amount;  

The economic result on financial operations amounted to EUR 29.8 million; 

The  portfolio  valuation  increased  by  EUR  3.4  million  due  to  the  mark-to-
market adjustment of its value. 

Decreases: 

• 

Interventions of the Fund to cover defaulted payments for a total amount of  
EUR 110.8 million.  

2.2. 

Significant Transactions of the Fund in 2016 

• 

• 

• 

• 

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 38 calls on the EU Guarantee Fund up to 
31 December 2016 for a total amount of EUR 309.07 million (see point 5).  

On 29 September 2016, the Commission paid EUR 4.7 million to the EIB for 
a call on a defaulted loan to Enfidha Airport (Tunisia). 

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

In  February  2016,  the  contribution  from  the  EU  budget  to  the  Fund  was 
calculated following Article 3 and Article 5 of the Regulation: 

Article 3 of the Regulation sets the target amount for the Fund at 9 % of the 
total  outstanding  capital  liabilities  arising  from  each  operation,  plus  any 
unpaid interest due.  

4 

 
 
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  9%  of  the  total  outstanding  capital  liabilities,  an 
amount of EUR 240.5 million was calculated based on guaranteed operations 
outstanding at 31 December 2015 and entered in the EU budget of 2017 for 
the provisioning of the Fund. The amount was approved by the Council and 
the European Parliament and recognised as an asset (receivable) of the Fund 
in the balance sheet of 31 December 2016.  

2.3. 

Significant transaction after the reporting date 

In  February  2017  the  abovementioned  provisioning  amount  of  EUR  240.5 
million was transferred from the EU budget to the Fund. 

3. 

PRE-CONSOLIDATED FINANCIAL STATEMENTS OF THE FUND 

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).  They  are  part  of  the  EU's  consolidated  financial 
statements. 

3.1. 

Pre-consolidated Financial Position at 31 December 2016 

Balance Sheet – Assets 

31 December 2016 

31 December 2015 

NNOONN--CCUURRRREENNTT  AASSSSEETTSS  

11,,994455,,996644,,005588  

1,614,233,483  

Financial assets 

1,945,964,058

1,614,233,483

CURRENT ASSETS 

324,202,070

493,752,100

Financial assets 

Receivables 

122,687,046

387,792,573

4,653,326

22,016,264

Cash and cash equivalents 

196,861,698

83,943,262

TOTAL ASSETS 

2,270,166,128

2,107,985,583

5 

 
 
 
Balance Sheet - Liabilities 

31 December 2016 

31 December 2015 

CCOONNTTRRIIBBUUTTOORR''SS  RREESSOOUURRCCEESS  

11,,995588,,000000,,332255  

2,082,760,780  

European Commission contribution 

1,468,631,390

1,211,509,598

Fair value reserve 

Retained earnings 

35,493,647

32,123,388

453,875,288

839,127,794

NNOONN--CCUURRRREENNTT  LLIIAABBIILLIITTIIEESS 

Financial provisions 

259,381,269

259,381,269

-

-

CCUURRRREENNTT  LLIIAABBIILLIITTIIEESS 

52,784,534

25,224,803

Financial provisions 

49,674,541

Payables 

3,109,993

25,224 803

TTOOTTAALL  CCOONNTTRRIIBBUUTTOORR''SS  
RREESSOOUURRCCEESS  ++  LLIIAABBIILLIITTIIEESS 

2,270,166,128

2,107,985,583

The difference of EUR 235.8 million between the total pre-consolidated balance sheet 
value  of  the  Fund  (EUR 2,270,166,128)  and  the  value  of  the  Fund  in  the  financial 
statements prepared by the EIB (EUR 2,506,053,053) can be mainly explained by the 
following items: 

• 

• 

• 

• 

The pre-consolidated financial statements include all amounts subrogated to 
the EU as a result of the guarantee payments for EIB calls on defaulted loan 
instalments  (arrears  due  plus  the  interest  accrued  on  late  payments). 
However, in view of the political situation of Syria and based on a decision 
of the Accounting Officer of the EC, these amounts have been fully impaired 
in the 2016 financial statements.  

The current assets (Receivables) in the pre-consolidated financial statements 
include  a  claim  from  the  EIB  of EUR  4.7  million  for  a  guarantee  call  on  a 
defaulted  loan  to  Enfidha  Airport  (Tunisia),  which  is  currently  being 
discussed with the EIB.   

Financial  provisions  of  EUR  309.1  million  relating  to  future  instalments  of 
the  remaining  outstanding  Syrian  loans  have  been  recognised  in  the  pre-
consolidated financial statements in 2016.  

The current liabilitites (Payables) in the pre-consolidated financial statements 
include an accrued payable of EUR 2.1 million for the EIB recovery fees.  

6 

 
 
 
•  The payments of calls from the Guarantee Fund to the EIB (and where applicable 
successive  recoveries  of  the  calls  and  late  interests)  are  recognised  as  decreases 
(increases)  of  the  Net  Assets  (EU  Contribution)  in  the  financial  statements 
prepared by the EIB. In the pre-consolidated financial statements, the amounts paid 
for  EIB  calls  are  not  deducted  from  the  Net  Assets  as  they  become  subrogated 
amounts.  Related  amounts  are  either  accounted  for  as  revenues  (accruing  late 
interest  and  penalties,  foreign  exchange  gains)  or  as  expenses  (accruing  EIB 
recovery fees, impairments, foreign exchange losses). This leads into a permanent 
difference between the Net Assets items (EU Contribution and Retained earnings) 
recognised  in  the  financial  statements  prepared  by  the  EIB  and  the  pre-
consolidated financial statements prepared by the EC. 

3.2. 

Pre-consolidated Statement of Financial Performance 

In  the  same  way  as  the  balance  sheet,  the  pre-consolidated  Statement  of  Financial 
Performance is prepared for inclusion in the consolidated Financial Statements of the 
EU.  

2016 

2015 

Revenue from operating activities 

-

477,789  

Expenses from operating activities 

(310,636,400)

(1,591,683)

RREESSUULLTT  FFRROOMM  OOPPEERRAATTIINNGG  AACCTTIIVVIITTIIEESS 

(310,636,400)

(1,113,894)  

Financial income 

Financial costs 

39,947,802

40,109,123

(114,563,908)

(68,365,473)

FINANCIAL RESULT 

(74,616,106)

(28,256,350)

ECONOMIC RESULT OF THE YEAR 

(385,252,506)

(29,370,244)

•  The Expenses from operating activities mainly include an unrealised loss from the 
newly  recognised  financial  provisions  for  future  Syrian  instalments  (EUR  309.1 
million),  EIB  management  fees  (EUR  0.9  million),  accrued  EIB  recovery  fees 
(EUR 0.5 million) and custody and audit fees (EUR 0.2 million)  

•  The  Financial  income  mainly  includes  the  interest  income  from  the  investment 
portfolio (EUR 14.4 million), realised gains on sale of financial assets (EUR 16.8 
million)  and  accrued  late  payment  interest  on  subrogated  amounts  (EUR  8.7 
million) 

•  The Financial costs mainly include impairment losses on Syrian loans, subrogated 

to the EU in 2016 (see point 5). 

7 

 
 
 
 
4. 

GUARANTEE FUND TREASURY MANAGEMENT  

4.1. 

Investment policy  

The Fund’s liquid assets are invested in accordance with the management principles 
laid  down  in  the  Annex  to  the  Agreement,  as  amended2.  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 specific criteria such as liquidity, credit quality, 
eligibility  of  the  counterparties  and  concentration  limits.  In  order  to  ensure  risk 
diversification,  the  total  amount  invested  in  the  bonds  per  single  issuer  must  not 
exceed 10% of the total nominal amount of the portfolio. 

4.2. 

Performance and market developments 

During  the  year  2016,  the  macro  economic  conditions  and  the  very  accommodative 
monetary policy environment has resulted in decreasing, and often negative, interest 
rates.  

During the first half of 2016, the European fixed income market was characterised by 
elevated  market  volatility,  the  market  sentiment  being  driven  by  the  economic 
slowdown in China, some weak spots in the US recovery and declining commodities' 
prices, fuelling recessionary concerns, as well by the changes in the modalities of the 
ECB Extended Asset Purchase Programme (EAPP). 

Sovereign  bond  yields  continued  to  decline  until  September,  as  a  result  of  the  low 
nominal growth and the accommodative monetary policy. The market reactions to the 
UK  referendum,  held  on  23  June  2016,  on  EU  membership  and  to  the  U.S. 
presidential elections in November 2016 were also significant market-relevant events 
in 2016.  

Bond  markets  were  calmer  during  the  third  quarter,  the  highlight  during  the  period 
being  the  Bank  of  Japan’s  monetary  policy  shift  in  September  (signalling  caps  on 
Japanese  Government  bond  yields),  which  accelerated  expectations  for  fiscal  policy 
support for global economies.  

In  the  last  quarter  of  2016,  the  bond  market  has  turned  due  to  heightened  political 
risks. There was a spike in volatility and an overall increase of medium to longer term 
benchmark  interest  rates.  Medium  to  long-dated  bonds  and  in  particular  the 
benchmark German 10-year yield turned positive again. In contrast, short-term rates 

2 

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. 

8 

 
 
 
                                                 
remained  anchored  at  deeply  negative  rates.  Besides  uncertainty  among  market 
participants concerning the monetary policy stance of major central banks, the main 
driver was the policy to be followed by the newly elected US president.  

The  result  of  the  US  presidential  election  sparked  a  significant  re-pricing  of  many 
asset classes as particular  attention was given to Trump's economic policy plans for 
fiscal stimulus, tax reform and deregulation. From his election to year-end, the market 
priced  higher  growth  and  inflation  expectations,  downplaying  potential  risks 
associated  with  certain  themes  of  his  election  campaign  concerning  his  trade  and 
foreign  policy  approach.  As  a  result,  there  was  a  big  shift  into  equities  and  out  of 
bonds in developed markets. 

The  performance  of  the  Fund  portfolio  was  monitored  on  a  marked-to-market  basis 
(MTM).  During  2016,  the  portfolio  delivered  a  1.5563%  MTM  yearly  return, 
outperforming  its  benchmark  by  +36.35  bps.  The  benchmark  of  the  Fund  is  a 
composite  index  mainly  built  from  iBoxx3  indices  (in  particular  EUR  Eurozone 
Sovereign  and  EUR  Collateralized  Covered  indices)  and  Euribid4  for  the  short-term 
exposure.  

The positive performance of the Fund in 2016 was mainly explained by the decline of 
the short end of the yield curves (see section 1.4.2 ‘Performance’ of the staff working 
document (SWD) for more details that occurred during the year). 

5. 

CALLS ON THE GUARANTEE FUND  

In  the  wake  of  the  deteriorating  situation  in  Syria,  the  Foreign  Affairs  Council,  the 
European  Parliament  and 
in  2011  prohibiting 
disbursements  by  the  EIB  in  connection  with  existing  loan  agreements  as  well  as 
supending  EIB  technical  assistance  contracts  for  sovereign  projects  in  Syria.  The 
restrictive  measures  were  thereafter  enshrined  in  Council  Regulation  (EU)  N° 
36/2012 of 18 January 2012, as amended. 

took  decisions 

the  Council 

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  Syria 
have been suspended since November 2011 until further notice. 

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 38 calls on the EU Guarantee Fund up to 31 December 2016 for a 
total amount of EUR 309.07  million (including penalties applied by EIB and amounts 
recovered). 

3 

4 

The  iBoxx  bond  market  indices  are  benchmarks  for  professional  use  and  comprise  liquid 
investment  grade  bond  issues.  They  enable  investors  to  analyse  and  select  benchmarks  that 
reflect their investment profile. They are used for fixed income research, asset allocation and 
performance evaluation. 

Euribid is the Euro interbank "bid" rate that the bank is willing to borrow money at ("bid"), 
while the more widely known Euribor is the Euro interbank offered rate at which the bank is 
willing to lend money. 

9 

 
                                                 
 
On 29 September 2016, the Commission paid EUR 4.7 million to the EIB for a call on 
a defaulted loan to Enfidha Airport (Tunisia).  

• 

Events after the reporting date (as of end of July 2017).   

Until  the  end  of  July  2017,  seven  additional  calls  for  defaulting  payments  in  Syria 
have been made for a total amount of EUR 31.57 million (including penalties applied 
by EIB).  

On  20  January  2017,  the  Commission  received  a  second  call  from  the  EIB  on  a 
defaulted  loan  to  Enfidha  Airport  (Tunisia)  for  a  total  amount  of  EUR  2.21  million 
(including penalties).  

6. 

EIB REMUNERATION  

The  EIB  remuneration  is  composed  of  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  second  Supplementary  Agreement  to  the  Agreement  dated  8 May 2002 
establishes  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  2016  was  set  at  EUR 891,975  and  was  entered  as 
expense in the Statement of Financial Performance and as accruals (liabilities) on the 
Balance Sheet.   

The  recovery  fees  payable  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 
2016 the cumulated accrued amount of recovery fees was EUR 2,060,285.  

10