REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS ON THE GUARANTEE FUND FOR EXTERNAL ACTIONS AND ITS MANAGEMENT IN 2019
Date: 2020-07-17
Institutions: Directorate-General for Budget, 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, 17.7.2020  COM(2020) 327 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS   ON THE GUARANTEE FUND FOR EXTERNAL ACTIONS AND ITS MANAGEMENT IN 2019 {SWD(2020) 136 final}  
 
 
Table of Contents 

1. 

2. 

2.1. 

2.2. 

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

Financial Position and Significant Transactions of the Guarantee Fund ...................... 2 

Financial Position of the Guarantee Fund at 31 December 2019 ................................. 2 

Significant Transactions of the Fund in 2019 ............................................................... 3 

2.2.1  Calls on the Guarantee Fund 2019 ................................................................................ 3 

2.2.2 

Provisioning of the Guarantee Fund 2019 .................................................................... 3 

2.3. 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

5. 

6. 

Significant transactions after the reporting date (as of end March 2020) ..................... 3 

Pre-consolidated Financial Statements of the Fund ...................................................... 3 

Pre-consolidated Financial Position at 31 December 2019 .......................................... 4 

Pre-consolidated Statement of Financial Performance ................................................. 5 

Guarantee Fund Treasury Management ........................................................................ 6 

Investment policy .......................................................................................................... 6 

 Performance and market developments in 2019 .......................................................... 7 

Calls on the Guarantee Fund ......................................................................................... 7 

EIB remuneration .......................................................................................................... 7 

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INTRODUCTION 

1. 
Council Regulation (EC, Euratom) No 480/2009  of 25 May 2009 (‘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 the EIB 
dated  25 November 1994,  and  subsequently  amended  on  23 September 1996, 
8 May 2002, 25 February 2008  and 9 November 2010 and 28 September  20182 (‘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  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. 

2. 
GUARANTEE FUND 

FINANCIAL  POSITION  AND  SIGNIFICANT  TRANSACTIONS  OF  THE 

2.1. 

Financial Position of the Guarantee Fund at 31 December 2019 

The  Guarantee  Fund  totalled  EUR 2,828,738,292.88  as  of  31  December  2019 
(EUR 2,609,881,747.51 as of 31 December 2018) (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 218.86 million in 
2019. This is mainly explained by the following: 

Increases: 

 

 

 

The  contribution 
(provisioning  amount)  of 
EUR 240.15 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 25.13 million; 

The  portfolio  valuation  increased  by  EUR  8.6  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 54.9 million. 

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 

 
 
                                                 
2.2. 

Significant Transactions of the Fund in 2019 

Calls on the Guarantee Fund 2019 

2.2.1 

Syria 

In  2019,  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  14  additional  calls  on  the  EU  Guarantee  Fund  up  to 
31 December 2019 for a total amount of EUR 54.91million (see point 5). 

2.2.2 

Provisioning of the Guarantee Fund 2019 

In  February  2019  an  amount  of  EUR  103.2  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 2020 was 
also  calculated  in  February  2019  resulting  in  EUR  240.15  million  to  be 
transferred  in  February  2020.  It  was  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  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 240.15 million was calculated based on guaranteed operations outstanding 
at 31 December 2018 and entered in the EU budget of 2020 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 2019. 

2.3. 

Significant transactions after the reporting date (as of end March 2020) 

In  February  2020 
EUR 240.15 million was transferred from the EU budget to the Fund. 

the  above  mentioned  provisioning  amount  of 

In January and March 2020, 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. 

3 

 
 
3.1. 

Pre-consolidated Financial Position at 31 December 2019 

Balance Sheet – Assets 

31 December 2019  31 December 2018 

NON-CURRENT ASSETS 

2,312,151,734 

2,275,342,664 

Financial assets 

2,312,151,734

2,275,342,664 

CURRENT ASSETS 

277,139,064 

231,316,149 

Financial assets 

Receivables 

233,048,865 

189,758,096 

1,290,863 

- 

Cash and cash equivalents 

42,799,336 

41,558,053 

TOTAL ASSETS 

2,589,290,798 

2,506,658,813 

Balance Sheet - Liabilities 

31 December 2019  31 December 2018 

CONTRIBUTOR'S RESOURCES 

2,407,419,308 

2,295,687,144 

European Commission contribution 

1,950,195,297 

1,846,972,362 

Fair value reserve 

Retained earnings 

20,859,023 

12,227,192 

436,364,988 

436,487,590 

NON-CURRENT LIABILITIES

111,685,549 

159,153,609 

Financial provisions 

111,685,549 

159,153,609 

CURRENT LIABILITIES

70,185,941 

51,818,060 

Financial provisions 

49,709,547 

50,777,871 

Financial guarantee liability 

19,590,000 

Payables 

886,394 

1,040,189 

TOTAL CONTRIBUTOR'S 
RESOURCES + LIABILITIES

2,589,290,798 

2,506,658,813 

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The difference of EUR 239.4 million between the total pre-consolidated balance sheet 
value  of  the  Fund  (EUR 2,589,290,798)  and  the  value  of  the  Fund  in  the  financial 
statements prepared by the EIB (EUR 2,828,738,292.88) can be mainly explained by 
the following items: 

  The pre-consolidated balance sheet (assets) includes: 

  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 2019 financial statements. 

  receivable  of  EUR  0.7  million  from  EIB  for  a  partial  recovery  of  loan  to 
Enfidha  Airport  (Tunisia)  which  was  collected  by  EIB  in  December  2019 
and credited to the Guarantee Fund bank account in January 2020. 

  The  pre-consolidated  balance  sheet  does  not  include  EUR  240.2  million  of 
contribution from the EU budget to the Fund transferred in 2020 as this receivable 
is offset by the corresponding payable in the consolidated accounts of the EU. 

  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 
(provisions,  impairments,  financial  guarantee  liability,  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.  

2019 

2018 

Revenue from operating activities 

266,252 

2,928,446 

Expenses from operating activities 

(3,494,876) 

(4,876,241) 

RESULT FROM OPERATING ACTIVITIES

(3,228,615) 

(1,947,795) 

Financial income 

42,681,966 

30,241,834 

5 

 
 
 
 
 
Financial costs 

(39,575,953) 

(20,906,275) 

FINANCIAL RESULT 

3,106,013 

9,335,559 

ECONOMIC RESULT OF THE YEAR 

(122,602) 

7,387,764 

  Revenues  from  operating  activities  include  foreign  exchange  gains  of  EUR  0.3 

million. 

  Expenses  from  operating  activities  mainly  include  EIB  asset  management  fees 
(EUR 0.8 million), external EIB recovery fees (EUR 0.2 million) and an addition 
to  financial  provisions  on  the  outstanding  future  Syrian  instalments  (EUR  2.2 
million). 

  The  Financial  income  mainly  includes  the  interest  income  from  the  investment 
portfolio  (EUR  7.7  million),  realised  gains  on  sale  of  financial  assets 
(EUR 16.8 million),  risk  related  remuneration  from  ERI  private  mandate 
opeartions  (EUR  2.2  million)  and  accrued  late  payment  interest  on  subrogated 
amounts (EUR 15.9 million). 

 

The Financial costs mainly include impairment losses (EUR 19.6 million) on 
amounts subrogated to the EU in 2019 (see point 5), realised losses on sale of 
financial  assets  (EUR  0.3  million)  and  recognised  financial  guarantee 
liability on ERI Private mandate operations (EUR 19.6 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  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).  As  of  end  of  2019,  the  overall  modified  duration  of  the  Fund 
portfolio was ca. 3 years. 

4.2. 

 Performance and market developments in 2019 

The  performance  of  the  Fund  portfolio  was  monitored  on  a  mark-to-market  basis. 
During  2019,  the  Fund  portfolio  delivered  a  healthy  1.3%  return,  supported  by  the 
continuation  of  lower  yield  environment  and  positive  risk  sentiment.  The  Fund 

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. 

6 

 
 
 
 
 
 
                                                 
portfolio  underperformed  its  benchmark  by  -9.03  bps.  The  positive  return  translated 
into a positive contribution of EUR 33 million. As of end 2019, the market value of 
the Fund portfolio amounted to ca. EUR 2,580 million. 

In the context of a weakening economy, subdued inflation and geopolitical downside 
risks,  monetary  policy  turned  accommodative.  With  three  cuts  of  the  Federal  Funds 
rate throughout H2 2019, the Fed reversed the monetary tightening cycle initiated in 
2015. In addition, the ECB delivered a stimulus package in September consisting of a 
10 basis point deposit cut, an extended TLTRO, a tiering system for the banks and an 
open-ended quantitative easing programme. 

The  manufacturing  sector  in  the  US  and  Europe  contracted  because  of  global  trade 
weakness. Services sector growth also slowed down, albeit remaining in expansionary 
territory.  Eurozone  inflation  was  below  central  banks’  target  whilst  US  inflation 
moved  closer  to  target  but  the  increase  has  not  been  considered  satisfactory  by  the 
FED. 

Geopolitical risks escalated in the course of August, with trade tensions intensifying 
between US and China while uncertainty over Brexit weighed on European investor 
sentiment. European and US rates moved to lower levels until September on the back 
of accommodative central banks policy, low expectations on growth and uncertainty 
regarding geopolitical risks.  

Rates  increased  somewhat  in  Q4  in  the  context  of  easing  geopolitical  tensions  and 
stabilization  of  economic  data.  Credit  spreads,  supported  by  accommodative  central 
banks, trended downwards, with episodic reversals. 

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 77 calls on the EU Guarantee Fund up to 31 December 2019 for a 
total amount of EUR 475.96  million (including penalties applied by EIB and amounts 
recovered). 

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  expenses  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 2019 were set at EUR 817,747 and were entered as 
expense in the Statement of Financial Performance and as accruals (liabilities) on the 
Balance Sheet. 

7 

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

8