REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON THE GUARANTEE FUND FOR EXTERNAL ACTION AND ITS MANAGEMENT IN 2017
Date: 2018-07-03
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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 3.7.2018  COM(2018) 513 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON THE GUARANTEE FUND FOR EXTERNAL ACTION AND ITS MANAGEMENT IN 2017 {SWD(2018) 369 final}  
 
 
Table of Contents 

1. 

2. 

2.1. 

2.2. 

2.3. 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

5. 

6. 

Introduction ................................................................................................................... 2 

Financial Position and Significant Transactions of the Guarantee Fund ...................... 3 

Financial Position of the Guarantee Fund at 31 December 2017 ................................. 3 

Significant Transactions of the Fund in 2017 ............................................................... 3 

Significant transaction after the reporting date ............................................................. 4 

Pre-consolidated Financial Statements of the Fund ...................................................... 4 

Pre-consolidated Financial Position at 31 December 2017 .......................................... 5 

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

Guarantee Fund Treasury Management ........................................................................ 7 

Investment policy .......................................................................................................... 7 

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

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

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

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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.  It  has  been 
amended on 14.3.2018 by Regulation (EU) 2018/409 of the EP and of the Council 

2 

 
 
 
                                                 
2. 

FINANCIAL  POSITION  AND  SIGNIFICANT  TRANSACTIONS  OF  THE 
GUARANTEE FUND  

2.1. 

Financial Position of the Guarantee Fund at 31 December 2017 

The  Guarantee  Fund  totalled  EUR 2,560,761,844.63  as  of  31  December  2017 
(EUR 2,506,053,053.14 as of 31 December 2016) (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  54.7  million  in 
2017. This is mainly explained by the following: 

Increases: 

 

 

The  contribution 
(provisioning  amount)  of 
EUR 137.8 million to adjust the Fund to its target amount of 9% of the total 
outstanding liabilities;  

the  EU  budget 

from 

The economic result on financial operations amounted to EUR 16.0 million; 

Decreases: 

 

 

Interventions of the Fund to cover defaulted payments for a total amount of 
EUR 86.4 million.  

The portfolio valuation decreased by EUR 12.8 million due to the  mark-to-
market adjustment of its value. 

2.2. 

Significant Transactions of the Fund in 2017 

Calls on the Guarantee Fund 2017 

2.2.1 

Syria 

In  2017,  the  EIB  has  continued  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  additional  calls  on  the  EU  Guarantee  Fund  up  to 
31 December 2017 for a total amount of EUR 56.3 million (see point 5).  

Enfidha Airport (Tunisia) 

In  2017,  the  Commission  paid  EUR  28.7  million  to  the  EIB  for  3  calls  on  a 
defaulted loan to Enfidha Airport (Tunisia) (see point 5). 

2.2.2 

Provisioning of the Guarantee Fund 2017 

In  February  2017  an  amount  of  EUR  240.5  million  was  transferred  from  the 
budget to the Fund corresponding to the provisioning amount for 2017. 

The  contribution  from  the  EU  budget  to  the  Fund    transferred  in  2018  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.  

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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 137.8 million was calculated based on guaranteed operations outstanding at 
31 December 2016 and entered in the EU budget of 2018 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 2017.  

2.3. 

Significant  transactions  after  the  reporting  date  (as  of  end  February 
2018) 

In  February  2018 
EUR 137.8 million was transferred from the EU budget to the Fund. 

the  abovementioned  provisioning  amount  of 

On 15 January 2018, EUR 0.14 million recovered from Enfidha Airport were 
credited  to  the  Guarantee  Fund.  This  amount  was  recognised  as  an  asset 
(receivable) in the balance sheet of 31 December 2017. 

In  February  and  March  2018,  EUR  10.6  million  in  total  were  paid  in  two 
calls for defaulted payments of Syria (EUR 3.2 million and EUR 7.4 million 
including penalties applied by EIB).  

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. 

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3.1. 

Pre-consolidated Financial Position at 31 December 2017 

Balance Sheet – Assets 

31 December 2017 

31 December 2016 

NON-CURRENT ASSETS 

2,077,970,486 

1,945,964,058

Financial assets 

2,077,970,486

1,945,964,058 

CURRENT ASSETS 

344,990,638 

324,202,070 

Financial assets 

Receivables 

120,771,792 

122,687,046 

136,093 

4,653,326 

Cash and cash equivalents 

224,082,753 

196,861,698 

TOTAL ASSETS 

2,422,961,124 

2,270,166,128 

Balance Sheet - Liabilities 

31 December 2017 

31 December 2016 

CONTRIBUTOR'S RESOURCES 

2,160,971,521 

1,958,000,325

European Commission contribution 

1,709,171,640 

1,468,631,390 

Fair value reserve 

Retained earnings 

22,700,055 

35,493,647 

429,099,826 

453,875,288 

NON-CURRENT LIABILITIES

208,033,976 

259,381,269 

Financial provisions 

208,033,976 

259,381,269 

CURRENT LIABILITIES

53,955,627 

52,784,534 

Financial provisions 

50,408,230 

49,674,541 

Payables 

3,547,397 

3,109,993 

TOTAL CONTRIBUTOR'S 
RESOURCES + LIABILITIES

2,422,961,124 

2,270,166,128 

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The difference of EUR 137.8 million between the total pre-consolidated balance sheet 
value  of  the  Fund  (EUR 2,422,961,124)  and  the  value  of  the  Fund  in  the  financial 
statements prepared by the EIB (EUR 2,560,761,845) 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 2017 financial 
statements.  

  The  pre-consolidated  financial  statements  do  not  include  EUR  137.8  million  of 
contribution from the EU budget to the Fund transferred in 2018 as this receivable 
is offset by the corresponding payable in the consolidated accounts of the EU.  

  Financial  provisions  of  EUR  258.4  million  relating  to  future  instalments  of  the 
remaining outstanding Syrian loans have been recognised in the pre-consolidated 
balance sheet in 2017.  

  The current liabilitites (Payables) in the pre-consolidated balance sheet include an 

accrued payable of EUR 2.6 million for the EIB recovery fees.  

  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. 

6 

 
 
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.  

2017 

2016 

Revenue from operating activities 

939,062 

- 

Expenses from operating activities 

(3,834,219) 

(310,636,400) 

RESULT FROM OPERATING ACTIVITIES

(2,895,157) 

(310,636,400) 

Financial income 

Financial costs 

29,913,694 

39,947,802 

(51,793,999) 

(114,563,908) 

FINANCIAL RESULT 

(21,880,305) 

(74,616,106) 

ECONOMIC RESULT OF THE YEAR 

(24,775,462) 

(385,252,506) 

  Revenues from operating activities include reversed financial provisions resulting 
from a decrease in the present value of the outstanding future Syrian instalments.  

  Expenses  from  operating  activities  mainly  include  paid  EIB  management  fees 
(EUR 0.9 million) and the one-off EIB recovery fee (EUR 1.5 million; see point 
2.2),  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  8.8  million),  realised  gains  on  sale  of  financial  assets 
(EUR 9.2 million)  and  accrued  late  payment  interest  on  subrogated  amounts 
(EUR 11.7 million) 

  The  Financial  costs  mainly  include  impairment  losses  on  amounts  subrogated  to 
the EU in 2017 (see point 5) and interest expenses on cash and cash equivalents 
(EUR 1.0 million).  

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 

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. 

7 

 
 
 
 
 
 
 
 
                                                 
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 

The year 2017 was reflected by rising yields on the European fixed income markets, 
but this move was compensated by narrowing credit spreads to historically low levels.  

Rates volatility was affected by political events, including Dutch, French and German 
elections,  expectations  for  lower  central  bank  asset  purchases  and  the  improving 
global  economic  environment.  The  German  sovereign  curve  rose  by  14,  33  and  22 
basis points in 2, 5 and 10 years tenors, respectively (the curve "bear steepened"). The 
year  2017  was  characterized  by  the  lowest  market  volatility  in  history,  but  it  is 
underpinned by low macro volatility.  

Although political uncertainty is expected to remain high in 2018 with a.o. the Italian 
elections,  the  global  economy  should  continue  to  expand  at  an  above  average  pace. 
According  to  the  market  consensus,  the  Eurozone  is  expected  to  grow  by  2.2%  in 
2018  after  2.4%  in  2017.  In  the same  time,  inflation  should  remain  subdued  around 
1.5%,  below  the  2%  ECB  target.  Despite  the  declining  unemployment,  as  Phillips 
curves became flatter, price pressure is building up very slowly. The oil price rising to 
a 4 year high could counterbalance that effect. 

Major  global  central  banks  are  still  conducting  accommodative  monetary  policies 
with  ongoing  asset  purchases,  but  normalization  has  already  started.  The  FED  is 
expected to hike rates 3 times in 2018, and ECB will continue with asset purchases of 
EUR 30bn a month until September 2018. ECB cut its monthly purchases from EUR 
60bn  to  30bn  from  January  2018,  but  reinvestments  of  redemptions  add  EUR  15bn 
monthly,  making  the  drop  less  significant.  Hawkish  December  ECB  minutes  and 
subsequent comments raise the likelihood of QE ending in September 2018 or at the 
end of the year the latest. 

In 2018, European sovereign yields can rise further if strong economic fundamentals 
and  rising  inflation  expectations  due  to  higher  oil  prices  are  confirmed.  Curves  can 
bear steepen as short end is more anchored by forward guidance. The continuation of 
central bank asset purchases are still supporting credit spreads in the first half of 2018, 
but the current historical low levels can start to normalize and drift wider approaching 
September, when most probably ECB will end QE. 

8 

 
 
 
 
Evolution of Money Market rates during 2017 (source Bloomberg) 

The performance of the Fund portfolio was monitored on a marked-to-market basis. 
During 2017, the portfolio delivered a 0.1624% MTM yearly return, outperforming its 
benchmark  by  +6.58  bps  (see  section  2.4.2  ‘Performance’  of  the  staff  working 
document  (SWD)  for  more  details  that  occurred  during  the  year).The  benchmark  of 
the  Fund  is  a  composite  index  mainly  built  from  iBoxxindices  (in  particular  EUR 
Eurozone  Sovereign  and  EUR  Collateralized  Covered  indices)  and  Euribid  for  the 
short-term exposure.   

5. 

CALLS ON THE GUARANTEE FUND  

Syria 

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

thereafter  enshrined 

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 51 calls on the EU Guarantee Fund up to 31 December 2017 for a 
total amount of EUR 365.3  million (including penalties applied by EIB and amounts 
recovered).  

Enfidha Airport (Tunisia). 

From September 2016 until December 2017, the Commission paid EUR 33.4 million 
to  the  EIB  for  4  calls  on  a  defaulted  loan  to  Enfidha  Airport  (Tunisia).  The  last 
payment took place on 15 December 2017. 

9 

 
 
 
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  management  fees  shall  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 management fees for 2017 were set at EUR 915,279 and were 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 
2017  the  accumulated  accrued  amount  of  recovery  fees  for  Syria  was  of  EUR 
2,560,285. On 15 December 2017, one-off recovery fee of EUR 1,467,504 was paid 
as part of the final call of the defaulted loan to Enfidha Airport (Tunisia).  

10