REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON THE GUARANTEE FUND FOR EXTERNAL ACTION AND ITS MANAGEMENT IN 2018
Date: 2019-08-05
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

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.8.2019  COM(2019) 363 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON THE GUARANTEE FUND FOR EXTERNAL ACTION AND ITS MANAGEMENT IN 2018 {SWD(2019) 314 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 2018 ................................. 3 

Significant Transactions of the Fund in 2018 ............................................................... 3 

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

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

Pre-consolidated Financial Position at 31 December 2018 .......................................... 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 .......................................................................................................... 9

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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  European  Union 
and 
subsequently  amended  on 
23 September 1996,  8 May 2002,  25 February 2008  and  9 November 2010  and  28 
September 20182 (‘the Agreement’). 

the  EIB  dated  25 November 1994,  and 

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  of  the  Fund  at  the  end  of  the  previous  calendar  year  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 
Supplementary  Agreement  no  5  to  the  Agreement  relating  to  the  Management  of  the  Guarantee 
Fund between the European Union and the European Investment Fund - Ref. Ares(2018)5207374 - 
10/10/2018. 

2 

2 

 
 
 
                                                 
2. 

FINANCIAL  POSITION  AND  SIGNIFICANT  TRANSACTIONS  OF  THE 
GUARANTEE FUND  

2.1. 

Financial Position of the Guarantee Fund at 31 December 2018 

The  Guarantee  Fund  totalled  EUR 2,609,881,747.51  as  of  31  December  2018 
(EUR 2,560,761,844.63 as of 31 December 2017) (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  49.1  million  in 
2018. This is mainly explained by the following: 

Increases: 

 

 

The  contribution 
(provisioning  amount)  of 
EUR 103.2 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 12.0 million. 

Decreases: 

 

 

Interventions of the Fund to cover defaulted payments for a total amount of 
EUR 55.7 million.  

The portfolio valuation decreased by EUR 10.5 million due to the mark-to-
market adjustment of its value. 

2.2. 

Significant Transactions of the Fund in 2018 

Calls on the Guarantee Fund 2018 

2.2.1 

Syria 

In  2018,  the  EIB  has  continued  facing  arrears  on  Syrian  sovereign  loans.  As  a 
consequence, and in line with the Guarantee Agreements between the EU and the 
EIB,  the  EIB  has  made  9  additional  calls  on  the  EU  Guarantee  Fund  up  to 
31 December 2018 for a total amount of EUR 55.73 million (see point 5). 

Enfidha Airport (Tunisia) 

In  2018,  the  EIB  recovered  EUR  136,092.88  from  the  loan  to  Enfidha  Airport 
(Tunisia) which were credited to the Guarantee Fund bank account with the value 
date 15 January 2018 (see point 5). 

2.2.2 

Provisioning of the Guarantee Fund 2018 

In  February  2018  an  amount  of  EUR  137.8  million  was  transferred  from  the 
budget to the Fund corresponding to the provisioning amount for 2018. 

The calculation of the contribution from the EU budget to the Fund for 2019 was 
also calculated in February 2018 resulting in EUR 103.2 million to be transferred 
in  February  2019. 
following  Article 3 and 
Article 5 of the Regulation: 

It  was  was 

calculated 

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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  accrued 
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 9% of the total outstanding capital liabilities, an amount of 
EUR 103.22 million was calculated based on guaranteed operations outstanding 
at 31 December 2017 and entered in the EU budget of 2019 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 at 31 December 2018.   

2.3. 

Significant transactions after the reporting date (as of end March 2019) 

In  February  2019 
EUR 103.2 million was transferred from the EU budget to the Fund. 

the  above  mentioned  provisioning  amount  of 

In January and March 2019, 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 2018 

Balance Sheet – Assets 

31 December 2018 

31 December 2017 

NON-CURRENT ASSETS 

2,275,342,664 

2,077,970,486 

Financial assets 

2,275,342,664

2,077,970,486

CURRENT ASSETS 

231,316,149 

344,990,638 

Financial assets 

Receivables 

189,758,096 

120,771,792 

- 

136,093 

Cash and cash equivalents 

41,558,053 

224,082,753 

TOTAL ASSETS 

2,506,658,813 

2,422,961,124 

Balance Sheet - Liabilities 

31 December 2018 

31 December 2017 

CONTRIBUTOR'S RESOURCES 

2,295,687,144 

2,160,971,521 

European Commission contribution 

1,846,972,362 

1,709,171,640 

Fair value reserve 

Retained earnings 

12,227,192 

22,700,055 

436,487,590 

429,099,826 

NON-CURRENT LIABILITIES

159,153,609 

208,033,976 

Financial provisions 

159,153,609 

208,033,976 

CURRENT LIABILITIES

51,818,060 

53,955,627 

Financial provisions 

50,777,871 

50,408,230 

Payables 

1,040,189 

3,547,397 

TOTAL CONTRIBUTOR'S 
RESOURCES + LIABILITIES

2,506,658,813 

2,422,961,124 

5 

 
 
 
 
 
 
 
 
 
 
 
The difference of EUR 103.2 million between the total pre-consolidated balance sheet 
value  of  the  Fund  (EUR 2,506,658,813)  and  the  value  of  the  Fund  in  the  financial 
statements prepared by the EIB (EUR 2,609,881,748) 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 2018 financial 
statements.  

  The  pre-consolidated  financial  statements  do  not  include  EUR  103.2  million  of 
contribution from the EU budget to the Fund transferred in 2019 as this receivable 
is offset by the corresponding payable in the consolidated accounts of the EU.  

  Financial  provisions  of  EUR  209.9  million  relating  to  future  instalments  of  the 
remaining outstanding Syrian loans have been recognised in the pre-consolidated 
balance sheet in 2018.  

  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.  

2018 

2017 

Revenue from operating activities 

2,928,446 

939,062 

Expenses from operating activities 

(4,876,241) 

(3,834,219) 

RESULT FROM OPERATING ACTIVITIES

(1,947,795) 

(2,895,157) 

Financial income 

Financial costs 

30,241,834 

29,913,694 

(20,906,275) 

(51,793,999) 

FINANCIAL RESULT 

9,335,559 

(21,880,305) 

ECONOMIC RESULT OF THE YEAR 

7,387,764 

(24,775,462) 

  Revenues  from  operating  activities  include  foreign  exchange  gains  and  reversed 
2017  balance  of  accrued  EIB  recovery  fees,  resulting  from    the  requirements  of 
the  new  Recovery  Agreement,  signed  in  2018.  The  new  Agreement  no  longer 
envisages payment for fees for EIB internal recovery costs.  

  Expenses  from  operating  activities  mainly  include  EIB  asset  management  fees 
(EUR 0.9 million), external EIB recovery fees (EUR 1.9 million) and an addition 
to  financial  provisions  on  the  outstanding  future  Syrian  instalments  (EUR  1.9 
million)  

  The  Financial  income  mainly  includes  the  interest  income  from  the  investment 
portfolio  (EUR  6.3  million),  realised  gains  on  sale  of  financial  assets 
(EUR 10.0 million)  and  accrued  late  payment  interest  on  subrogated  amounts 
(EUR 13.9 million) 

 

The Financial costs mainly include impairment losses (EUR 19.6 million) on 
amounts  subrogated  to  the  EU  in  2018  (see  point  5),  interest  expenses  on 
cash  and  cash  equivalents  (EUR  0.9  million)  and  realised  losses  on  sale  of 
financial assets (EUR 0.5 million).  

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  Management  Agreement,  as  amended3.  Accordingly, 
sufficient assets shall be placed in monetary assets to cover the short term (less than 
one year) outflows, at a proportion to be set out in the annual investment strategy. The 
remaining  assets  may  be  allocated  to  medium  and  long  term  instruments,  with  a 
maximum  maturity  of  10  years  and  6  months  from  the  payment  date  (medium  and 
long-term portfolio).  

4.2. 

 Performance and market developments in 2018 

The  year  was  characterized  by  volatile  yield  movements  on  European  fixed  income 
markets with rates moving higher in Q1 due to expectations relating to the end of the 
ECB’s quantitative easing policy (QE). Rates then moved to annual lows at the end of 
the  year  due  to  softening  economic  growth.  Credit  spreads  edged  higher  during  the 
year and the move accelerated in December on falling equity markets and expectation 
of tighter monetary policies. 

Throughout  the  year,  financial  markets  were  affected  by  the  following  risk  factors. 
The  imposition  of  trade  tariffs  by  president  Trump  slowed  economic  growth,  and 
inflation  remained  below  the  central  bank  targets  due  to  low  commodity  prices  and 
globalization  factors.  The  uncertain  outlook  of  Brexit  negotiations  weighed  on  UK 
financials and corporates. The ramifications of the March Italian elections were felt in 
May, as Italian spreads widened out to more than 250 basis points vs Germany.  

Monetary policy of major global central banks became tighter in 2018. The US FED 
continued its rate hike cycle every quarter by 25 basis points raising the FED funds 
target  rate  to  2.50-2.75%  by  year-end.  The  ECB  has  reduced  the  monthly  net  asset 
purchases  as  part  of  its  QE  policy  from  EUR  30  billion  to  EUR  15  billion  in 
September and terminated the net purchases at the end of 2018. The reinvestments of 
the  maturing  bonds  on  the  ECB  balance  sheet  will  continue  to  support  the  markets. 
However, more recently, the monetary policy on both sides of the Atlantic has turned 
more dovish with increasing uncertainties. The market no longer expects further FED 
hikes  and  the  first  interest  rate  increase  of  the  ECB  has  been  postponed  to  2020. 
Economic growth is expected to slow down from 2.9% in 2018 to 2.5% in 2019 for 
US, and from 1.9% to 1.4% for the Euro area. 

Going forward, in 2019 it is expected that market volatility will remain, as uncertainty 
around Brexit and growth slowdown will affect market rates being currently close to 
historical lows. At the same time credit spreads tend to move wider as the economic 
cycle matures in the US and central bank asset purchases have been terminated in the 
EU. 

3  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,  Supplementary 
Agreement No 4 of 9 November 2010 and Supplementary Agreement No 5 of September 2018. 

8 

 
 
                                                 
The  performance  of  the  Fund  portfolio  was  monitored  on  a  mark-to-market  (MTM) 
basis (fair value). During 2018, the portfolio delivered a 0.1005% MTM yearly return, 
outperforming its benchmark by +13.5 basis points.   

5. 

CALLS ON THE GUARANTEE FUND  

Syria 

Since  November  2011,  the  EIB  is  facing  arrears  on  Syrian  sovereign  loans.  As  a 
consequence, and in line with the guarantee agreements between the EU and the EIB, 
the EIB has made 63 calls on the EU Guarantee Fund up to 31 December 2018 for a 
total amount of EUR 421.05  million (including penalties applied by EIB and amounts 
recovered).  

Enfidha Airport (Tunisia). 

In January 2018, the EIB recovered EUR 136,092.88 from the loan to Enfidha Airport 
(Tunisia) which was credited to the bank account of the Guarantee Fund for external 
Actions. 

6. 

EIB REMUNERATION  

The  EIB  remuneration  is  composed  of  the  management  fees  and  the  recovery  fees. 
The  management  fees  cover  the  asset  management  of  the  Fund.  The  recovery  fees 
cover  the  EIB's  external  recovery  expensesregarding  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 2018 were set at EUR 894,626 and were entered as 
expense in the Statement of Financial Performance and as accruals (liabilities) on the 
Balance Sheet.   

The Recovery Agreement signed between the Commission and the Bank in December 
2018  only  envisages  payment  for  EIB’  external  (and  no  longer  internal)  recovery 
expenses.  

9