REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on financial instruments, budgetary guarantees, financial assistance and contingent liabilities Situation at 31 December 2020
Date: 2021-11-05
Institutions: Directorate-General for Budget, European Commission
Subjects: EU Member State, EU budget, EU expenditure, EU financial instrument, financial management, guarantee, own resources, risk management, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.11.2021  COM(2021) 676 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL     on financial instruments, budgetary guarantees, financial assistance and contingent liabilities   Situation at 31 December 2020                
 
 
Table of Contents 

1. 

2. 

3. 

3.1. 

3.2. 

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

What are contingent liabilities? .................................................................................... 3 

Contingent liabilities arising from provisioned instruments: budgetary guarantees and 
financial assistance to third countries .......................................................................... 6 

Overview of the total EU risk exposure at the end of 2020 ......................................... 6 

The EU risk management system for provisioned contingent liabilities ..................... 7 

3.2.1.  Budgetary guarantees ................................................................................................... 8 

3.2.2.  Financial assistance to third countries........................................................................ 10 

3.3. 

4. 

4.1. 

4.2. 

5.  

5.1.  

5.2.  

5.3.  

European Commission common framework for managing and monitoring 
provisioned contingent liabilities ............................................................................... 10 

Contingent liabilities arising from financial assistance to Member States ................ 11 

Overview of total EU risk exposure at the end of 2020 ............................................. 11 

The EU risk management system for contingent liabilities arising from financial 
assistance to Member States ....................................................................................... 12 

Assessing the sustainability of EU contingent liabilities ........................................... 13 

Assessment Framework ............................................................................................. 13 

Assessment of the sustainability of the provisioned contingent liabilities ................ 14 

Assessment of the sustainability of the contingent liabilities in respect of the limits of 
the Own Resources ceiling ......................................................................................... 15 

6. 

Conclusions ................................................................................................................ 16 

Annex: Sustainability and headroom in respect of the permanent Own Resources ceiling ..... 18 

1 

 
 
 
  
1. 

Introduction 

This is the first report in accordance with the requirements of Article 250 of the Financial 
Regulation1. It has been prepared in conjunction with: 

-  Working  Documents  X  and  XI,  accompanying  the  Draft  Budget  2022,  which  provide 

detailed information on the EU financial instruments and budgetary guarantees2; and 

-  The  Long-term  forecast  report  on  future  inflows  and  outflows  of  the  EU  budget,  which 
gives  projections  for  the  available  financial  capacity  of  the  EU  over  2021-2027  after 
planned budget expenditures are considered3.  

The objective of this document is to provide an overview of the contingent liabilities borne 
by the EU budget as of 31 December 2020 and of the panoply of measures and safeguards 
which the Commission has at its disposal to fully protect the EU budget from potential losses 
originating from those liabilities. 

After a general introduction on the definition and sources of contingent liabilities, the report 
depicts  the key  features  of the  two categories of  contingent  liabilities (provisioned and un-
provisioned) with particular regard to the analysis of the EU framework for the monitoring 
and management of the risks arising from contingent liabilities.  

Finally,  the  report  provides  an  assessment  of  the  sustainability  of  the  Union  contingent 
liabilities  in  the long-term, based on qualitative and quantitative factors. The assessment is 
performed: 

-  Against  the  amount  of  existing  provisions  held  in  the  guarantee  funds  set  by  the 

Commission for budgetary guarantees and financial assistance to third countries; 

-  Against  the  limits  of  the  Own  Resources  ceiling  and  the  available  headroom  for  un-
provisioned contingent liabilities stemming from financial assistance to Member States. 

The  main  conclusion  of  the  sustainability  analysis  is  that  the  EU  budget  has  in  principle 
adequate  resources  to  cope  with  the  potential  materialisation  of  contingent  liabilities.  In 
particular: 

-  No  under-provisioning  issues  are  identified  for  contingent  liabilities  arising  from 

budgetary guarantees and financial assistance to third countries; 

-  The EU financial capacity  under  the existing legal framework (i.e. Own Resources 
Decision4  and  Multiannual  Financial  Framework  (MFF)  2021-2027  Regulation5)  is 
sufficient to cover the existing obligations of the Union in relation to both spending 
programmes  and  financial  markets  (for  debt  issued  under  financial  assistance 
programmes to Member States), even under extreme adverse circumstances. 

1   Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the 
financial rules applicable to the  general budget of the Union, amending Regulations  (EU) No 1296/2013, 
(EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, 
(EU)  No  223/2014,  (EU)  No  283/2014,  and  Decision  No  541/2014/EU  and  repealing  Regulation  (EU, 
Euratom) No 966/2012, OJ L 193, 30.7.2018, p. 1. 

2   Working  Document  X  on  the  use  made  of  financial  instruments,  pursuant  to  Article  41(4)  of  Financial 
Regulation;  Working  Document  XI  on  the  implementation  of  Budgetary  Guarantees,  the  Common 
Provisioning  Fund  and  the  assessment  of  the  sustainability  of  the  contingent  liabilities  arising  from 
budgetary  guarantees  and  financial  assistance  pursuant  to  Article  41(5)  of  the  Financial  Regulation 
(COM(2021)300-June 2021). 

3   COM(2021) 343 final of 30.6.2021. 
4   Council Decision (EU, Euratom) 2020/2053 of 14  December 2020 on the system of own resources of the 

European Union and repealing Decision 2014/335/EU, Euratom, OJ L 424, 15.12.2020, p. 1. 

5   Council  Regulation  (EU,  Euratom)  2020/2093  laying  down  the  multiannual  financial  framework  for  the 

years 2021 to 2027, OJ L 433I, 22.12.2020, p. 11-22. 

2 

 
                                                 
This report covers contingent liabilities incurred prior to the end of 2020, and assesses how 
they  are  catered  for  under  the  MFF  2021-2027.  It  therefore  does  not  cover  contingent 
liabilities arising from NextGenerationEU (NGEU)6 which have only started to materialise 
during  the  course  of  2021,  and  for  which  an  additional  financial  capacity  has  been 
established through a temporary increase of the Own Resources ceiling.  

2.  What are contingent liabilities? 

Contingent liabilities are potential financial liabilities of the EU, which stem from existing 
binding commitments or past events. Whether or not these contingent liabilities will lead to 
actual losses, will depend on future events not wholly under the control of the EU. 
For the EU, there are three main sources of contingent liabilities7: 

-  Budgetary guarantees, which are guarantees provided to the European Investment Bank 
(EIB)  Group  or  other  implementing  partners  under  the  European  Fund  for  Strategic 
Investments (EFSI)8 mandate, the European Fund for Sustainable Development (EFSD)9 
mandate and the External Lending Mandate (ELM)10. Under all these instruments, the EU 
(partially)  guarantees  implementing  partners  for  the  losses  emanating  from  their 
guaranteed financing and investment operations (i.e. debt or equity operations). Under the 
MFF  2021-2027,  the  InvestEU  programme  pools  under  the  umbrella  of  a  single  EU 
guarantee  the  activities  previously  deployed  under  EFSI  and  several  other  financial 
instruments  and  has  opened  up  access  to  a  portion  of  the  EU  guarantee  to  pillar-
assessed11  implementing  partners other than the EIB Group12.   In a similar  manner, the 
EFSD  has  been  succeeded  by  the  EFSD+,  established  by  the  Neighbourhood, 
Development  and  International  Cooperation  Instrument  (NDICI)  –  Global  Europe 
Regulation13  and  which  now  acts  as  the  financing  arm  of  a  reinforced  External 
Investment Plan. 

-  Loans  and  related  borrowings  to  provide  financial  assistance  to  third  countries  (i.e. 
Macro Financial Assistance (MFA)14 loans and Euratom loans to third countries15) that is 

6   Council  Regulation (EU) 2020/2094 establishing a European Union  Recovery Instrument to support the 
recovery in the aftermath of the COVID-19 crisis, OJ L 433I , 22.12.2020, p. 23 (‘NextGenerationEU’) 
7  A separate source of contingent liabilities are ‘legal risks’. These are not covered by the present report. 
8   Regulation  (EU)  2015/1017  of  the  European  Parliament  and  of  the  Council  of  25  June  2015  on  the 
European  Fund  for  Strategic  Investments,  the  European  Investment  Advisory  Hub  and  the  European 
Investment  Project Portal  and  amending  Regulations  (EU)  No  1291/2013  and  (EU)  No 1316/2013,  OJ  L 
169, 1.7.2015, p. 1.  

9   Regulation  (EU)  2017/1601  of  the  European  Parliament  and  of  the  Council  of  26  September  2017 
establishing the European Fund for Sustainable Development (EFSD), the EFSD Guarantee and the EFSD 
Guarantee Fund, OJ L 249, 27.9.2017, p. 1. 

10   An  overview  of  the  relevant  legislative  acts  and  corresponding  guarantee  agreements  between  the 
Commission  and  the  European  Investment  Bank  is  available  in  the  Definitive  Adoption  (EU,  Euratom) 
2021/417 of the European Union’s general budget for the financial year 2021  - Section III – Commission, 
Remarks  for  Item  14  20  03  02  of  the  statement  of  expenditure  “External  Action  Guarantee  for  NDICI, 
EINS, IPA III and MFA”, OJ L 93, 17.3.2021, pp. 959–965. 

11   See section 3.2.1 below for details on the Pillar Assessment process. 
12   Regulation  (EU)  2021/523  of  the  European  Parliament  and  of  the  Council  establishing  the  InvestEU 

Programme and amending Regulation (EU) 2015/1017, OJ L 107, 26.3.2021, p. 30–89. 

13   Regulation (EU) 2021/947 of the European Parliament and of the Council of 9 June 2021 establishing the 
Neighbourhood,  Development  and  International  Cooperation  Instrument  –  Global  Europe,  amending  and 
repealing  Decision  No  466/2014/EU  and  repealing  Regulation  (EU)  2017/1601  and  Council  Regulation 
(EC, Euratom) No 480/2009, OJ L 209, 14.6.2021, p. 1–78. 

14   The  legal  basis  for  macro-financial  assistance  to  non-EU  countries  other  than  developing  countries  is 
Article  212  of  the Treaty  on  the  Functioning  of  the  European  Union  (TFEU).  Article  213 TFEU  may  be 
used as a legal basis when the third country requires urgent financial assistance. 

3 

 
                                                 
in principle financed through ‘back-to-back’ borrowing operations. Concretely this means 
that each loan is funded through a corresponding EU bond, which fully matches the EU 
loan in terms of maturity, interest rate and repayment schedule. As a result, investors in 
EU bonds are only exposed to the EU credit risk and not to the credit risk of each single 
beneficiary  country.  For  the  EU,  the  liability  is  contingent  since  no  outflow  of  EU 
resources is in principle required for settling the EU debt, the beneficiary country being 
contractually obliged to supply the revenue flow.  

-  Loans and related borrowings to provide financial assistance to EU Member States, i.e. 
Balance  of  Payments  (BoP)  loans16,  European  Financial  Stabilisation  Mechanism 
(EFSM) loans17, Euratom loans18 and loans under the European instrument for temporary 
support  to  mitigate  unemployment  risks  in  an  emergency  (SURE)19.  These  loans  are 
granted  to  EU  Member  States  under  the  same  back-to  back  technique  as  the  financial 
assistance  to  third  countries20.  The  revenue  from  repayments  from  the  beneficiary 
Member States is channelled to service the EU debt. It does not count as own resources 
under the respective Own Resources ceiling. 

Contingent liabilities arising from budgetary guarantees and from financial assistance to 
third  countries  are  partially  provisioned  and  the  provision  calculations  are  based  on 
conservative  assessments  of  the  expected  losses  for  each  instrument  plus  an  additional 
margin to cover a portion of the unexpected losses.  

By  contrast,  contingent  liabilities  stemming  from  financial  assistance  to  EU  Member 
States  are  not  provisioned.  Borrowings  of  the  EU  constitute  direct  and  unconditional 
obligations of the EU. Therefore, in case a beneficiary Member State  would fail to honour 
its obligations towards the EU, the EU is entitled, as a last resort having exhausted all other 
possibilities  to  find  solutions  within  the  existing  budgetary  framework,  to  draw  the 
necessary  liquidity  from  the  other  Member  States.  Such  calls  for  revenue  would  be  made 
over and above the MFF ceilings, while respecting the Own Resources ceiling21.  

At  the  end  of  2020,  the  EU  budget  included  contingent  liabilities  amounting  to  over 
EUR 93 billion  in  relation  to  loans  granted  to  Member  States  and  third  countries  and 
approximately  EUR  63  billion  for  the  guarantees  provided  in  the  context  of  EFSI,  EFSD, 

15   Council Decision 94/179/Euratom of 21 March 1994 amending Decision 77/270/Euratom to authorize the 
Commission to contract Euratom borrowings in order to contribute to the financing required for improving 
the degree of safety and efficiency of nuclear power stations in certain non-member countries, OJ L 84 of 
29.3.1994, p. 41–43. 

16   Council Regulation (EC) No 332/2002 of 18 February 2002 establishing a facility providing medium-term 

financial assistance for Member States' balances of payments, OJ L 53, 23.2.2002, p. 1–3. 

17   Council  Regulation  (EU)  No  407/2010  of  11  May  2010  establishing  a  European  financial  stabilisation 
mechanism,  OJ  L  118,  12.5.2010,  p.1;  Council  Regulation  (EU)  2015/1360  of  4  August  2015  amending 
Regulation  (EU)  No  407/2010  establishing  a  European  financial  stabilisation  mechanism,  OJ  L  210, 
7.8.2015, p. 1–2. 

18   Council Decision 77/270/Euratom of 29 March 1977 empowering the Commission to issue Euratom loans 
for  the  purpose  of  contributing  to  the  financing  of  nuclear  power  stations  (OJ  L  88  of  6.4.1977, p.  9)  as 
amended and supplemented. 

19   Council Regulation (EU) No 2020/672 of 19 May 2020 on the establishment of a European instrument for 
temporary  support  to  mitigate  unemployment  risks  in  an  emergency  (SURE)  following  the  COVID-19 
outbreak, OJ L 159, 20.5.2020, p. 1–7.  

20   In  the  future,  the  Commission  will  also  borrow  on  the  markets  to  finance  the  non-repayable  support 
provided  under  NGEU.  The  repayment  of  these  borrowing  operations  will  be  covered  through  the 
appropriations  of  the  annual  budgets,  within  the  ceilings  of  the  Multiannual  Financial  Frameworks,  and 
therefore in principle will not represent a contingent liability for the EU. The borrowing-to-lend activities 
of NGEU will however give rise to new contingent liabilities. 

21   See  Articles 2(3) and 3(1) of  Council Regulation (EU, Euratom)  2020/2093 of 17 December 2020 laying 

down the multiannual financial framework for the years 2021 to 2027.  

4 

 
                                                                                                                                                      
and  ELM.  The  largest  exposure  for  the  EU  budget  originates  from  financial  assistance 
programmes targeting Member States (See Figure 1 below).  

Under the MFF 2021-2027 the use of budgetary  guarantees is  expected to further increase 
through, inter alia, the InvestEU programme which includes a EUR 26.2 billion guarantee to 
support investment  operations in  four policy windows (sustainable infrastructure, research, 
innovation and digitalisation, SMEs, and social investment and skills). By the end of 2021, 
the Union is expected to significantly increase its contingent liabilities also in relation to the 
borrowing  undertaken  to  finance  NGEU’s  Recovery  and  Resilience  Facility  loans  to 
Member  States.  The  results  of  those  operations  will  be  included  in  the  next  edition  of  the 
present report. 

Figure 1: Breakdown of contingent liabilities by source at 31 December 2020 

Financial 
assistance to 
MS
56%

Budgetary 
guarantees
40%(*)

Financial assistance 
to Third Countries
4%

(*) Based on the total amount of “available guarantee signed with counterparts” (See table 1 below). 

In  accordance  with  EU  accounting  rules,  financial  instruments  in  the  form  of  guarantees 
are  classified  as  contingent  liabilities22,  however,  they  are  not  a  source  of  contingent 
liabilities  from  a  budgetary  perspective  since  they  are  always  fully  provisioned  by  the 
budget, i.e. the budget has foreseen commitments to meet the full amount of the contingent 
liability arising from the financial instrument. There is full assurance that the entirety of the 
commitment  can  be  honoured  in  the  extreme  scenario  that  this  would  be  warranted  as  it 
already forms part of the outstanding commitments of the Union.  

The EU budget funds a large variety of financial instruments (equity, debt, loan guarantees, 
venture  capital,  capacity  building  and  risk  sharing  facilities).  These  are  classified  in  two 
main categories: those related to internal policy actions and those related to external policy 
actions  (depending  on  whether  the  recipients  are  predominantly  located  in  or  outside  the 
EU). Examples of financial instruments are the instruments established under Horizon 2020 
to  enhance  access  to  finance  to  entities  engaged  in  research  and  innovation23,  the  

22   See par. 4.1.3 of the Communication from the Commission to the European Parliament, the Council and the 

Court of Auditors -Annual Accounts of the European Union 2020, COM(2021) 381 final. 

23   Regulation  (EU)  No  1291/2013  of  the  European  Parliament  and  of  the  Council  of  11  December  2013 
establishing  Horizon  2020  -  the  Framework  Programme  for  Research  and  Innovation  (2014-2020),  OJ  L 
347/104, 20.12.2013. The instruments are:  
-  The  InnovFin  Loan  and  Guarantee  Service  for  R&I under  which  the  Commission  shares  the 

financial risk related to a portfolio of new financing operations entered into by the EIB; 

-  The  InnovFin  SME  Guarantee  and  the  SME  Initiative  Uncapped  Guarantee  Instrument  (SIUGI), 
managed by the EIF and providing guarantees and counter-guarantees to financial intermediaries for 
new portfolios of loans;  

-  The  InnovFin  Equity  Facility for  R&I providing  for  investments  in  venture  capital  funds  which  

is managed by the EIF; and 

-  The  EIC  Fund  (European  Innovation  Council  Fund)  which  provides  equity  financing  to  accelerate 

innovation and market deployment actions.  

5 

 
 
 
                                                 
Connecting  Europe  Facility24  debt  instrument,  which  has  been  established  to  facilitate 
infrastructure projects (in the sectors of transport, telecommunications and energy), and the 
EU SME equity facilities that support the creation and financing of EU SMEs in their early 
and growth stages25. 

Working Document X accompanying the Draft 2022 budget provides a detailed description 
of all the thirty-six existing financial instruments. 

3.  Contingent 

from  provisioned 
guarantees and financial assistance to third countries 

liabilities  arising 

instruments:  budgetary 

3.1.  Overview of the total EU risk exposure at the end of 2020 

In  2020 the EU has  extended budgetary  support  in  the form  of  guarantees provided  to  the 
EIB  Group  on  debt  and  equity  operations  covered  by  the  EFSI  and  to  the  EIB  Group  and 
other  nine  financial  institutions  (including  the  European  Bank  for  Reconstruction  and 
Development and several national promotional banks) on operations covered by the EFSD. 
The EU has also guaranteed loans granted by the EIB to beneficiaries outside the EU under 
the ELM.  

The  EFSI  was  launched  in  2015  to  remedy  the  problem  of  prolonged  subdued  private 
investment  following  the  financial  crisis.  It  takes  the  form  of  a  EUR  26  billion  budgetary 
guarantee from the EU budget to the EIB Group. It is complemented by an allocation of the 
EIB’s own resources of EUR 7.5 billion.  

The guarantee under the EFSD was put in place to support investments and improve access 
to finance primarily in Africa and the Neighbourhood countries and to help those countries 
to meet the UN Sustainable Development Goals. 

The basic rationale of the EU budgetary guarantee  provided under the ELM is to enhance 
the  ability  of  the  EIB  to  undertake  financing  operations  in  riskier  environments  based 
outside the EU in areas such as local private sector development and development of socio-
economic infrastructure. 

Table 1 provides information on the total risk exposure for the EU budget originating from 
the three guarantees26.  

24   Regulation  (EU)  No  1316/2013  of  the  European  Parliament  and  of  the  Council  of  11  December  2013 
establishing  the  Connecting  Europe  Facility,  amending  Regulation  (EU)  No  913/2010  and  repealing 
Regulations (EC) No 680/2007 and (EC) No 67/2010, OJ L 348, 20.12.2013, p. 129–171. 

25   These  are  equity  instruments  financed  by  different  programmes,  including  COSME.  For  COSME  see 
Regulation  (EU)  No  1287/2013  of  the  European  Parliament  and  of  the  Council  of  11  December  2013 
establishing a Programme for the Competitiveness  of Enterprises and small and medium-sized enterprises 
(COSME) (2014 - 2020) and repealing Decision No 1639/2006/EC, OJ L 347, 20.12.2013, p. 33-49. 

26   Disbursed  amounts  represent  the  amounts  already  given  to  final  beneficiaries,  while  amounts  related  to 
operations  signed  by  counterparts  include  the  disbursed  amounts  plus  agreements  already  signed  with 
beneficiaries or financial intermediaries but not yet disbursed. Finally, the available guarantee signed with 
counterparts  represents  the  total  guarantee  that  is  covered  by  the  EU  budget  and  therefore  the  maximum 
exposure  potentially  faced  by  the  EU,  including  operations  authorised  for  signature  but  not  yet  signed. 
Figures  include  amounts  classified  as  “provisions/financial  liabilities”  in  accordance  with  the  applicable 
European Accounting Rules. 

6 

 
 
 
                                                 
Table  1:  Contingent  liabilities  arising  from  budgetary  guarantees.  Situation  at 
31 December 2020 (EUR million) 

Available guarantee 
signed with 
counterparts 

Available 
guarantee related 
to operations 
signed by 
counterparts 

Available guarantee 
related to operations 
signed by 
counterparts and 
disbursed 

25 833.27 

24 121.52 

1 370.7 

35 574.71 

62 778.68 

438. 56 

32 732.34 

57 292.42 

18 880.06 

34.52 

20 252.21 

39 166.78 

EFSI 

EFSD 

ELM 

Total 

Financial support to  third countries in  the  form  of bilateral  loans  from  the EU and  funded 
back-to-back  from  the  capital  markets  has  been  granted  essentially  in  the  context  of  the 
Macro-Financial  Assistance  programme,  which  targets  countries  outside  the  EU 
experiencing a balance of payment crisis. In 2020, a total of EUR 1 675 million in loans was 
disbursed27.  

The outstanding amounts at the end of 2020 are presented in table 2. 

Table  2:  Outstanding  amounts  in  respect  of  loans  to  third  countries  as  at 
31 December 2020 (EUR million) 

Outstanding loans   Accrued interests 

Total 

MFA  

Euratom 

Total  

5 786.80 

200 

5 986.80 

26.17 

0.5 

26.67 

5 812.97 

200.5 

6 013.47 

3.2.  The EU risk management system for provisioned contingent liabilities 

Title  X  of  the  Financial  Regulation  provides  the  foundation  of  the  EU  framework  for  the 
management of contingent liabilities, as it includes a number of key provisions to ensure that 
the  EU  budget  is  adequately  protected  from  the  risks  associated  with  those  liabilities.  To 
make sure that the EU is at any time able to honour fully, and in a timely manner, calls on 
the  budgetary  guarantees  by  implementing  partners  or  to  repay  bonds  where  the  loan 
beneficiary  has  defaulted,  a  number  of  risk  management  mechanisms  and  tools  have  been 
put in place. Some of those are horizontal and apply to all categories of contingent liabilities, 
others are more specific and relate either to budgetary guarantees or to financial assistance 
programmes.  

27   For  details,  see  the  Report  from  the  Commission  to  the  European  Parliament  and  the  Council  on  the 

implementation of macro-financial assistance to third countries in 2020, COM/2021/375 final. 

7 

 
 
 
  
  
 
                                                 
3.2.1.  Budgetary guarantees 

The  safeguards  put  in  place  to  ensure  that  contingent  liabilities  arising  from  budgetary 
guarantees do not exceed the budgetary capacity to absorb them are described in the present 
section. 

Measures to limit the amount of the contingent liabilities 

First,  the  size  of  the  EU  guarantee  is  always  capped  in  a  clearly  defined  manner.  The 
Financial Regulation states that the financial liability and the aggregate net payments from 
the  budget  cannot  exceed  the  size  of  the  budgetary  guarantee,  authorised  by  its  basic  act. 
The  contingent  liability  generated  by  a  budgetary  guarantee  can  only  exceed  the  financial 
assets provided to cover  the EU financial liability if this is provided for in the underlying 
basic act and under the specific conditions it sets. 

Secondly,  the  risk  profile  of  the  operations/financial  products  guaranteed  by  the  EU  is 
determined ex ante, i.e. at the time of the signature of the guarantee agreements. It shall be 
fully  compatible  with  the  provisioning  rate  as  determined  in  the  regulation  governing  the 
relevant  guarantee  and  the  risk  appetite28  that  has  been  set  for  the  programme.  Where 
appropriate, the operations will strive for diversity (geographic scope, sectors, etc.) in order 
to avoid excessive risk concentrations. 

Measures concerning the selection of implementing partners  

Prior  to  becoming  an  implementing  partner  in  the  context  of  an  existing  guarantee 
programme, candidate institutions are subject to a ‘Pillar Assessment’, i.e. a thorough review 
of  their  internal  processes  and  applicable  procedures  in  order  to  assess  their  capacity  to 
guarantee a level of protection of the EU financial interests equivalent to that required under 
the Financial Regulation29.  

Moreover, existing guarantee agreements include provisions to make sure that: 

(i) 

Implementing partners contribute with  their own resources to  the operations covered 
by the budgetary guarantee, and; 

(ii)  Adequate mechanisms are in place to ensure that a portion of the risk of losses is borne 
by  the  implementing  partners  (risk  sharing)  or  alternatively  that  other  financial 
incentives30 are introduced to secure sufficient alignment of interests.  

Implementing partners are also requested to put in place adequate measures to prevent any 
potential  conflict  of  interests  with  other  activities  they  might  carry  out  as  part  of  their 
ordinary business.  

Measures to ensure adequate ex-ante budgetary capacity to absorb guarantee calls 

For budgetary guarantees, the Financial Regulation requires upfront provisioning based on a 
provisioning rate, which is determined in such a manner that it covers guarantee calls to the 
level of expected losses plus a ‘safety’ buffer to cope with a portion of unexpected losses31. 

28   The risk appetite is the maximum level of financial risk that the Commission is willing and able to incur in 
pursuing its activities in the context of its public mission and objectives and in compliance with the relevant 
legislation in place. 

29   See  Commission  Decision  of  17.4.2019  on  establishing  new  terms  of  reference  for  the  pillar  assessment 
methodology to be used under Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the 
Council, COM(2019)2882 Final, OJ C 191, 6.6.2019, p. 2–136. 

30   These can include, inter alia, a remuneration of the EU guarantee by the beneficiary implementing partner. 
This shall be consistent with the sharing of risk among financial participants and the policy objectives of 
the budgetary guarantee.   

31   The portion of unexpected losses is determined on the basis of the risk appetite of the specific programme.  

8 

 
                                                 
The  provisioning  rate  is  set  in  the  basic  act  and  is  expressed  as  a  percentage  of  the  total 
amount  of  the  EU  guarantee.  The  rate  is  subject  to  regular  monitoring  during  the 
implementation  of  the  programmes  and  is,  if  appropriate,  reviewed  to  ensure  continued 
alignment with the evolution of the risk profile of the outstanding liabilities.  

The Commission has specific measures at its disposal to ensure a continued adequate level 
of provisioning. These are based on an early warning system that helps to avoid a potential 
exhaustion  of  the  provisioning  and  that,  if  needed,  can  trigger  a  replenishment  of  the 
provisioning and/or an increase of the provisioning rate as provided for in the legal basis32. 

Replenishments,  when  and  if  required,  are  implemented  through  the  normal  annual 
budgetary  procedure.  Unlike  the  potential  repayments  in  relation  to  financial  assistance  to 
Member States, the replenishments for budgetary guarantees count within the limits of the 
MFF ceilings for commitments and payments appropriations. 

In order to mitigate the risk of the impact that  guarantee calls from implementing partners 
could  have  on  the  EU  budget,  the  EU  has  historically  created  dedicated  guarantee  funds 
funded by the EU budget. At 31 December 2020, the total amount of financial assets held in 
these three funds stood at: 

-  EUR 8.0 billion for the EFSI Guarantee Fund; 

-  EUR 2.8 billion for the Guarantee Fund for External Action (GFEA) which holds the 

provisions for the ELM, MFA and Euratom programmes; 

-  EUR 0.8 billion for the EFSD Guarantee Fund. 

Since  January  2021,  the  assets  held  in  the  three  provisioning  funds  have  been  brought 
together  in  one  Common  Provisioning  Fund  (CPF)33,  which  now  holds  the  provisions  to 
cover  the  potential  financial  liabilities  arising  from  budgetary  guarantees  and  financial 
assistance  programmes  to  third  countries  in  one  investment  portfolio  (comprising  separate 
compartments to respond to guarantee calls from the respective guarantee programmes).  

Upon  entry  into  force  of  the  2021-2027  MFF,  the  CPF  received  the  assets  of  the  EFSI 
Guarantee Fund, which was followed by the transfer of the net assets of the GFEA and of 
the  EFSD  Guarantee  Fund  in  the  summer  of  2021,  as  established  by  the  Regulation 
establishing  the  Neighbourhood,  Development  and  International  Cooperation  Instrument 
(NDICI)  –  Global  Europe  programme.  Going  forward,  also  the  provisions  of  the  new 
instruments  under  the  2021-2027  MFF  (i.e.  the  InvestEU  and  NDICI-Global  Europe 
programmes) will be managed via the CPF.  

Measures to deal with realised losses exceeding the available provisioning  

If  at  any  moment  during  the  implementation  of  the  programme,  the  provisioning  should 
prove insufficient to cover the actual losses, the following measures can be activated:  

32  The triggering events are detailed by Article 211 of the Financial Regulation as follows:  

-  Where, as a result of calls on a budgetary guarantee, the level of provisioning for that budgetary guarantee 
falls below 50 % of the provisioning rate and  again where it falls  below 30 % of  that provisioning  rate, 
or where it could fall below any of those percentages within a year according to a risk assessment by the 
Commission; 

-  A country benefitting from financial assistance by the Union fails to pay on a maturity. 

33   Communication  from  the  Commission  to  the  European  Parliament  and  the  Council  on  the  entry  into 
operation of the Common Provisioning Fund, COM(2021) 88 final. See also Commission Decision of 25 
March 2020 on the asset management guidelines of the common provisioning fund, 2020/C 131/03, OJ C 
131,  22.4.2020,  p.  3–11,  and Communication  from  the  Commission  to  the  European  Parliament  and  The 
Council on identity of the asset manager for the common provisioning fund in accordance with Article 212 
of Financial Regulation 2018/1046, COM(2020) 130 final. 

9 

 
                                                 
-  Exceptional  temporary  transfers  between  provisioning  compartments  underpinning 
different  budgetary  guarantees  in  the  CPF,  i.e.  to  deal  with  a  shortage  of  funds  to  pay 
guarantee  calls  under  a  budgetary  guarantee,  the  assets  provisioned  under  another 
budgetary guarantee can be temporarily made available; 

-  Exceptional additional expenditures to be approved through:  

  Redeployment of expenditure (commitment and payment appropriations) from other 

items within the EU budget; and/or 

  Amendment of the EU budget to allow for additional expenditure (within  the limits 

of the MFF ceilings and flexibility mechanisms); 

-   Use  of  central  treasury:  in  exceptional  cases  liquidity  of  the  central  treasury  may  be 
temporarily used to pay guarantee calls of a budgetary guarantee awaiting the approval of 
additional budgetary resources. 

3.2.2.  Financial assistance to third countries 

Measures to limit the amount of the contingent liabilities 

In  a  similar  manner  as  for  budgetary  guarantees,  the  Financial  Regulation  limits  the  total 
exposure  of  the  EU  budget  in  relation  to  financial  assistance  programmes.  The  contingent 
liability shall only exceed the financial assets provided to cover the financial liability of the 
Union if provided for in  the underlying basic  act and under the conditions set  out  therein. 
Moreover  the  financial  liability  and  aggregate  net  payments  from  the  budget  shall  never 
exceed  the  maximum  amount  of  funds  that  the  Commission  is  empowered  to  borrow  for 
funding the financial assistance and the relevant interest. 

For  each  programme,  the  corresponding  legislative  act  determines  the  overall  granted 
amount, the number of instalments to be disbursed, and the maximum maturity of the loan 
package.  Instalments  usually  depend  on  compliance  with  a  number  of  policy  conditions 
including,  in  some  cases  (e.g.  MFA  loans),  a  satisfactory  track  record  of  implementing 
International Monetary Fund (IMF) programme reforms. 

Measures to ensure repayment of borrowings in case of loan default  

Borrowings  of  the  EU  to  grant  financial  assistance  loans  to  third  countries  are  direct  and 
unconditional obligations of the EU. Borrowings to fund  MFA and Euratom loans to third 
countries are covered by the GFEA  which is provisioned by the EU budget so as to cover 
9% of the guaranteed loans outstanding at year-end. The procedures to deal with insufficient 
provisioning  to  allow  honouring  EU  obligations  are  similar  to  those  detailed  at  the  end  of 
section  3.2.1  for  budgetary  guarantees  as  applied  to  the  provisions  set  aside  in  the  GFEA 
compartment for MFA, ELM and Euratom loans.   

3.3.  European  Commission  common  framework  for  managing  and  monitoring 

provisioned contingent liabilities 

Because  of  the  increasing  importance  of  budgetary  guarantees  and  financial  assistance 
programmes  for the implementation  of EU  policies, the Commission  has enhanced  its  risk 
management  tools  to  deal  with  contingent  liabilities  with  the establishment  of a horizontal 
cross-Commission framework for the implementation and monitoring of these programmes. 
The objective of this  framework is  to  develop, to  the extent possible given the differences 
between  programmes,  common  methodologies 
the  design,  negotiation  and 
implementation  of  budgetary  guarantees  and  financial  assistance  and  to  allow  close 
monitoring of the evolution of contingent liabilities. The ultimate objective is to fully protect 
the EU budget from the unforeseen materialisation of losses originating from the budgetary 
guarantees or provisioned loan programmes.   

for 

10 

 
 
The Steering Committee on contingent liabilities 
At the heart of this framework is the Steering Committee on contingent liabilities34, which 
focusses  on  cross-cutting  issues,  e.g.  developing  common  tools  for  an  effective  risk 
management  and  reporting  on  the  overall  sustainability  of  contingent  liabilities  and 
coordinating a common approach to relevant horizontal provisions in guarantee agreements 
with implementing partners. 

Monitoring 

In  order  to  allow  the  Commission  to  constantly  monitor  potential  losses  stemming  from 
contingent liabilities, implementing partners and beneficiary countries are obliged to provide 
the Commission with regular reports with regard to the operational and financial situation of 
the  guarantee  programme  or  to  the  progress  made  with  respect  to  the  conditionality 
underlying the EU financial assistance. Financial information provided by the implementing 
partners shall be externally audited.  

Reporting 

Detailed  reporting  to  the  European  Parliament,  the  Council  and  other  stakeholders  on  the 
build-up  and  time-profile  of  contingent  liabilities  is  an  essential  component  of  the  EU 
approach to the management of contingent liabilities. The Financial Regulation foresees an 
integrated  system  of  reporting  on  contingent  liabilities  with  the  objective  of  providing 
comprehensive and timely information on the different sources of contingent liabilities, both 
at  individual  and  at  consolidated  level.  The  present  report  and  the  reports  under  Articles 
41(4)  and  41(5)  of  the  Financial  Regulation  are  the  main  building  blocks  of  the  reporting 
framework on contingent liabilities. 

4.  Contingent liabilities arising from financial assistance to Member States 

4.1.  Overview of total EU risk exposure at the end of 2020 

In  2020  the  Commission,  acting  on  behalf  of  the  EU,  operated  four  programmes  under 
which it may grant loans to Member States: 

-  The BoP assistance to help EU countries outside the euro area that experience or run the 

risk of experiencing balance of payments difficulties; 

-  The EFSM that was established in response to the financial crisis to provide financial 
support to EU Member States experiencing or threatened by severe financial difficulties 
caused by exceptional occurrences beyond their control; 

-  The SURE programme that was agreed in June 2020 to help finance sudden and severe 
increases of national public expenditure related to national short-time work schemes and 
similar measures in response to the COVID-19 crisis; 

-  The Euratom loan facility to help Member States finance investments in nuclear power 

stations and in industrial installations in the nuclear fuel cycle. 

Outstanding  amounts  of  loans under the four different  programmes  at  the end of 2020 are 
presented in table 3. 

34   Commission  decision  of  24.7.2020  on  establishing  the  Steering  Committee  on  Contingent  Liabilities 

arising from Budgetary Guarantees, C(2020) 5154 final. 

11 

 
 
 
                                                 
Table  3:  Outstanding  amounts  in  respect  of  loans  to  EU  Member  States  as  at 
31 December 2020 (EUR million) 

Outstanding loans 

Accrued interests 

Total 

BoP 

Euratom 

EFSM 

SURE 

Total 

200 

78.26 

46 800 

39 500 

86 578.26 

1.15 

0.16 

596.02 

3.48 

600.81 

201.15 

78.43 

47 396.02 

39 503.48 

87 179.08 

An  adequate  measure  for  the  total  annual  risk  to  the  EU  budget  emanating  from  the 
contingent  liabilities  arising  from  financial  assistance  to  Member  States  is  the  annually 
maturing  debt,  i.e.  the  total  amount  of  annual  payments  falling  due  for  repayment  by 
beneficiary  Member  States  in  a  given  year  (capital  and  interest)  under  the  different 
programmes (Table 4). 

Table 4: Yearly repayment schedule of outstanding loans (capital + interest) under the 
existing programmes for the years 2021-2027 at 31 December 2020 (EUR million) 

Year 

Euratom 

BoP 

EFSM 

SURE 

All 
 programmes 

2021 
2022 
2023 
2024 
2025 
2026 
2027 
Total 

29.05 
23.24 
13.22 
13.11 
0 
0 
0 
78.61 

5.75 
5.75 
5.75 
5.75 
205.75 
0 
0 
228.75 

10 849.88 
3 496.13 
4 221.88 
3 300 
3 051.25 
4 639.25 
3 519.25 
33 077.63 

23.92 
25 
25 
25 
8 025 
25 
25 
8 173.92 

10 908.59 
3 550.11 
4 265.84 
3 343.86 
11 282 
4 664.25 
3 544.25 
41 558.90 

4.2.  The EU risk management system for contingent liabilities arising from financial 

assistance to Member States 

Measures to limit the amount of the contingent liabilities 

As  for  financial  assistance  to  third  countries,  the  Financial  Regulation  limits  the  total  EU 
exposure in relation to loans granted to Member States. The financial liability and aggregate 
net  payments  from  the  budget  are  capped  at  the  maximum  amount  of  funds  that  the 
Commission is empowered to borrow for funding the financial assistance  (as authorised by 
the relevant basic act) plus the related interest. 

Measures to ensure repayment of borrowings in case of loan default  

In  contrast  to  financial  assistance  to  third  countries,  no  provisioning  is  earmarked  in  the 
budget  to  cater for the unprecedented situation where an EU  Member  State defaults on its 
loans to the EU. In such an extreme eventuality where  a beneficiary Member State fails to 
honour its obligations towards the Union, the Commission will, in line with the applicable 
Own Resources legislation, apply  active  cash management  (i.e. drawing  liquidity from the 
available  treasury  balance),  and  if  necessary,  activate  other  measures  provided  for  by  the 
financial arrangements applying to the loan. As a last resort, the Commission may call on all 
the Member States to provide provisionally the difference between the available assets and 

12 

 
 
 
the cash requirements. If a Member State does not honour such a call on time, provisionally 
the  Commission  has  the  right  to  make  additional  calls  to  the  other  Member  States.  The 
provision  of such cash  resources  will be compensated, without delay, in  the framework of 
the EU budget. 

The  SURE  instrument  is  a  specific  case  since  all  Member  States  have  agreed  to  provide 
irrevocable, unconditional and on-demand guarantees for 25% of the maximum  amount of 
financial assistance35. Each Member State contributes to the overall amount of the guarantee 
proportionate to its relative share in the total gross national income of the EU (based on the 
2020 EU Budget).  

5.   Assessing the sustainability of EU contingent liabilities  

5.1.   Assessment Framework 

According  to  Article  210(3)  Financial  Regulation  “contingent  liabilities  arising  from 
budgetary  guarantees  or  financial  assistance  borne  by  the  budget  shall  be  deemed 
sustainable  if  their  forecast  multiannual  evolution  is  compatible  with  the  limits  set  by  the 
regulation laying down the multiannual financial framework provided for in Article 312(2) 
TFEU and the ceiling on annual payment appropriations set out in Article 3(1) of Decision 
2014/335/EU, Euratom” (i.e. the MFF ceilings and the Own Resources ceiling). 

In other words, the own resources that the EU is able to draw upon in a single year should 
suffice  to  finance  the  expenditures  arising  from  the  MFF  as  well  as  any  materialising 
contingent  liabilities.  Each  year,  the  Commission  issues  a  long-term  forecast  for  those 
expenditures and the own resources needed for their financing. The difference between the 
Own Resources ceiling and the own resources necessary to finance the EU budget, referred 
to as ‘headroom’, represents the EU financial capacity to cover additional outflows relating 
to  the  materialisation  of  contingent  liabilities.  To  consider  the  contingent  liabilities  as 
sustainable, the following equation should be met. 

𝑂𝑤𝑛 𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 𝑐𝑒𝑖𝑙𝑖𝑛𝑔𝑁 ≥  

𝑂𝑤𝑛 𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 
𝑡𝑜 𝑓𝑖𝑛𝑎𝑛𝑐𝑒 𝑡ℎ𝑒 𝐸𝑈  𝑏𝑢𝑑𝑔𝑒𝑡𝑁

+ 𝐸𝑈 𝑀𝑎𝑡𝑢𝑟𝑖𝑛𝑔 𝑑𝑒𝑏𝑡 𝑁 

Where: 

𝑂𝑤𝑛 𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠 
𝑡𝑜 𝑓𝑖𝑛𝑎𝑛𝑐𝑒 𝑡ℎ𝑒 𝐸𝑈  𝑏𝑢𝑑𝑔𝑒𝑡𝑁

=

𝐵𝑢𝑑𝑔𝑒𝑡 𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒 
(𝑖𝑛𝑐𝑙. 𝑝𝑟𝑜𝑣𝑖𝑠𝑖𝑜𝑛𝑖𝑛𝑔 𝑔𝑢𝑎𝑟𝑎𝑛𝑡𝑒𝑒𝑠)𝑁

−

𝑂𝑡ℎ𝑒𝑟 
𝑟𝑒𝑣𝑒𝑛𝑢𝑒𝑁

Against  this  background,  a  distinction  should  be  made  between  provisioned  and  un-
provisioned contingent liabilities: 

1)  For partly provisioned contingent liabilities, annual losses have to be covered in the first 
place  by  the  resources  available  in  the  respective  compartment  of  the  CPF.  Only  if 
losses  would  be  higher  than  provided  for,  additional  resources  would  be  needed  to 
replenish the respective CPF compartment in subsequent years, which could then have 
implications in terms of additional EU annual budget expenditure (subject to the  MFF 
ceilings – see paragraph 3.2 above). Therefore, for provisioned instruments the  annual 
assessment  of  the  sustainability  of  their  contingent  liabilities  shall,  first  and  foremost, 
consist  in  verifying  whether  the  provisioning  is  sufficient  to  cover  the  estimated  life-
time losses net of revenues with a sufficiently high confidence level.  

35   In addition to the guarantee provided by all Member States, there are a number of safeguards  foreseen in 
the  SURE  Regulation  to  mitigate  the  risk  sourced  by  SURE  contingent  liabilities.  These  include  a 
concentration  limit  on  the  three  largest  loans  of  60%  of  the  maximum  amount  granted  under  SURE,  a 
maximum annual exposure of 10% (i.e. payments due each year shall not exceed EUR 10 billion), and the 
possibility for the Commission to roll over its borrowings if necessary. 

13 

 
 
                                                 
2)  For the contingent  liabilities arising from  borrowing and lending activities  to  Member 
States,  no  provisioning  is  set  aside.  If  these  contingent  liabilities  were  to  materialise, 
they  may  give  rise  to  additional  revenue  calls  from  Member  States.  The  related 
expenditure  remains  outside  the  limits  of  the  MFF  ceilings.  However,  on  the  revenue 
side compliance with the overall Own Resources ceiling for the year must be ensured. 

5.2.   Assessment of the sustainability of the provisioned contingent liabilities 

As  a  preliminary  remark,  EU  budgetary  guarantees  might  differ  substantially  in  terms  of 
policy  objectives  and  consequently  the  risk  profile  of  the  underlying  operations,  which  in 
turn  might  lead  to  a  different  risk  appetite  applied  to  each  of  them.  The  risk  appetite  is 
usually  expressed  in  terms  of  a  lifetime  Value  at  Risk  (VaR)36  at  a  certain  (pre-defined) 
percentage of confidence level. 

On  the  basis  of  the  available  data  on  life-time  net  estimated  losses  on  31  December  2020 
concerning the budgetary guarantees in place at that date, it is possible to draw the following 
conclusions: 

-  The applicable provisioning rate of 35% of the total EFSI guarantee is sufficient to cover 
estimated losses from the operations guaranteed under the different EFSI windows with a 
confidence level of 95%, in line with the ex-ante risk appetite of the programme; 

-  With regard to  the EFSD,  the  provisioning rate of 50% is  consistent with the estimated 
losses with a target confidence level of 90%, in line with the ex-ante risk appetite of the 
programme; 

-  The  provisions  for  the  ELM  held  in  the  GFEA  are  sufficient  to  cover  estimated  losses 

with a confidence level of 86%37. 

With regard to the existing exposures arising from financial assistance to third countries, the 
adequacy of the 9% target provisioning rate is confirmed by the following factors38: 

-  The absence of payment defaults until the end of 2020;  

-  The  2020  impairment  assessment  carried  out  by  the  Commission  which  concluded  that 

there is no need to book any accounting impairment for these loans39;  

-  For  MFA  loans,  their  link  to  and  contingency  on  an  existing  IMF  programme,  which 
underpins the financial viability of the third country and, thus, the eventual repayment of 
the Union funds. 

36   The Value-at-Risk (VAR) can be defined as the portfolio loss level which, statistically, over a certain time 

horizon, will not be exceeded with a certain confidence level. 

37   Since the GFEA acts as a liquidity buffer, an ex-ante risk appetite in the form of a confidence level of the 

provisioning for the lifetime of the operations was not defined. 

38   The Commission is currently enhancing the credit risk modelling capacities to monitor its exposures in the 
context  of  financial  assistance  to  third  countries.  The  analysis  of  the  sustainability  of  this  category  of 
contingent  liabilities  included  in  the  present  document  has  been  carried  out  essentially  through  expert 
judgment based on a number of qualitative and quantitative factors. 

39   See  note  2.4.3.1.”Loans  for  financial  assistance”  to  the  2020  Consolidated    annual    accounts    of    the 

European Union available at: 
https://ec.europa.eu/info/sites/default/files/about_the_european_commission/eu_budget/2020_eu_annual_a
ccounts_web.pdf 

14 

 
                                                 
 
5.3.   Assessment of the sustainability of the contingent liabilities in respect of the limits 

of the Own Resources ceiling 

In  order  to  assess  the  robustness  of  the  capacity  of  the  EU  budget  to  cater  for  a  situation 
where  the  exposure  in  respect  of  un-provisioned  contingent  liabilities  also  materialises,  a 
stringent sensitivity analysis has been carried out.  

In  a  first  step  a  central  scenario  (baseline)  is  established,  corresponding  to  the  expected 
evolution of EU spending and financial capacity for the years up until 2027, in line with the 
long-term forecast report on budget expenditure and revenue need (Figure 2 below).  

Excluding the current budgetary year, over the period 2022-2027 the headroom available for 
covering  contingent  liabilities  (existing  and  new)  is  around  EUR 64  billion  per  year  with 
respect only to the permanent portion of the Own Resources ceiling of 1.40% gross national 
income (GNI). 

The headroom for the remaining portion of the Own Resources ceiling of 0.6% GNI, which 
is temporary and exclusively available for NGEU liabilities, is not yet specifically analysed 
in this year’s report as contingent liabilities linked to NGEU started to materialize after the 
end of 2020.  

Once  the  central  scenario  is  established,  as  a  further  step,  an  additional  analysis 
corresponding  to  sensitivity  tests  to  assess  the  existing  contingent  liabilities’  sustainability 
under extreme scenarios for the years 2022-2027 was performed. These cover the following: 

1)  Sensitivity  test  on  the  economy:  In  the  central  scenario,  the  GNI  follows  the  gross 
domestic  product  (GDP)  projections  for  real  growth  and  inflation  as  per  the 
Commission’s  Spring  2021  economic  forecast40.  For  the  sensitivity  test,  the  projected 
nominal growth rates are lower than the baseline by -0.5 percentage points for each year 
of the reported period41. With respect to the permanent Own Resources ceiling of 1.40% 
GNI,  this  reduces  its  nominal  value  and  hence  the  headroom  available  by  on  average 
EUR 2.9 billion per year. 

2)  Sensitivity  test  on  the  revenue  side  of  the  budget:  This  extreme  scenario  assesses 
whether the available headroom is sufficiently large to legally allow for additional own 
resources  to  be  collected  should  all  the  Member  States  benefitting  from  financial 
assistance  simultaneously  fail  to  honour  their  repayments  falling  due.  The  amounts  at 
stake reflect the repayment schedules at end-2020 (See Table 4 above). The simulation 
is  run  excluding  the  option  to  redeploy  resources  within  the  budget  and  to  temporary 
postpone  other  expenditure,  which  reinforces  its  remoteness.  This  would  reduce  the 
available headroom on average by EUR 3.8 billion. 

3)  Shock on the expenditure side of the budget: Under this scenario, the expenditure is 
projected  at  its  theoretical  maximum.  It  is  important  to  underline  that  this  does  not 
reflect a bottom-up forecast and is unrelated to any actual expectations for the evolution 
of  EU  payments.  Moreover,  unlike  a  revenue  shock,  on  the  expenditure  side  the 
decision to initiate additional spending is subject to a proposal by the Commission and 
the  approval  of  the  European  Parliament  and  the  Council.  Should  such  a  decision  be 
incompatible with the financial capacity of the Union in a given year, it is unrealistic to 
consider that it would be proposed. The average reduction of the headroom  under this 
simulation would be around EUR 12.6 billion corresponding to the maximum possible 
ceilings for the MFF payments and individual special instruments. 

40  https://ec.europa.eu/info/sites/default/files/economy-finance/ip149_en.pdf 
41  Based on the approach of the Commission’s Debt Sustainability: 

https://ec.europa.eu/info/sites/default/files/economy-finance/ip143_en.pdf 

15 

 
                                                 
4)  A  combined  shock  on  the  economic  conditions,  revenue  and  expenditure:  This 
should  be  seen  as  an  extreme  negative  scenario  as  it  cumulates  several  very  remote 
scenarios,  such  as  the  simultaneous  default  of  all  the  beneficiary  Member  States  to 
honour  their  loans  repayments  at  the  same  time.  It  would  reduce  the  headroom  by  an 
annual average of EUR 19 billion down to a level of around EUR 45 billion per year 
over 2022-2027. This amount would remain as a safety buffer for the robustness of the 
EU  financial  capacity  to  cover  its  liabilities  even  in  cases  of  more  extreme  and  deep 
economic shocks, a potential legislative change triggering higher spending  and for the 
possible issuance of new contingent liabilities. 

The detailed results for the baseline and sensitivity test scenarios are provided in the Annex. 

Figure  2:  Own  Resources  ceiling  and  own  resources’  needs  under  a  baseline  and 
combined sensitivity test 

s
n
o

i
l
l
i

b
R
U
E

250

200

150

100

50

0

2021

2022

2023

2024

2025

2026

2027

Own resources 

Permanent Own Resources ceiling  

Additional own resources: expenditure 
sensitivity test 
Extraordinary own resources: revenue 
sensitivity test 

Permanent Own Resources ceiling 
under GNI sensitivity test  

6.  Conclusions 

At  the  end  of  2020,  the  EU  budget  included  contingent  liabilities  amounting  to  over 
EUR 93 billion  in  relation  to  loans  granted  to  Member  States  and  third  countries  and 
approximately  EUR  63  billion  for  the  guarantees  provided  in  the  context  of  EFSI,  EFSD, 
and ELM.  

The  risks  that  these  loans  are  not  repaid  by  beneficiary  countries  or  that  guarantees  are 
called  upon  are  carefully  managed  through  a  comprehensive  risk  management  framework 
including,  for  certain  categories  of  contingent  liabilities,  the  earmarking  of  budgetary 
resources  as  provisions  to  cover  potential  losses  with  a  sufficiently  conservative  level  of 
confidence.  

Taking  into  account  the  multiple  safeguards  provided  in  the  EU  framework  for  the 
monitoring  and  management  of  the  risks  linked  to  the  two  main  categories  of  contingent 
liabilities  (provisioned  and  un-provisioned)  and  the  sustainability  assessment  presented  in 
this report, it is possible to draw the following conclusions:  

16 

 
 
 
 
-  Risks  arising  from  provisioned  instruments,  i.e.  budgetary  guarantees  and  financial 
assistance  to  third  countries,  are  carefully  managed  and  adequately  provisioned.  This 
assessment takes into account the build-up of the risk positions in the past period, data 
on past  defaults  and on  estimated losses as well as  the measures in  place  to  avoid  that 
losses exceed predefined tolerance levels and the budgetary provisions available to cover 
expected losses. 

-  The  EU  financial  capacity  under  the  existing  legal  framework  (i.e.  Own  Resources 
Decision and MFF Regulation) is sufficient to cater for the materialisation of losses that 
may arise in respect of un-provisioned loans over the period until end-2027. On average 
EUR 64 billion, or 0.40% of the EU GNI, over the period 2022-2027 is available for 
meeting extraordinary revenue calls to finance unforeseen expenditure of the MFF or to 
honour contingent liabilities (existing and potential new ones), should they materialise. 

-  The  headroom  is  adequate  even  in  an  extreme  negative  scenario  consisting  of 
simultaneous  adverse  impacts  on  budget  revenues,  expenditures  and  on  the  economic 
growth. An average amount of EUR 45 billion or around 0.28% of the EU GNI would 
remain  available  to  substantiate  the  robustness  of  the  EU  financial  system  and  credit 
rating,  acting  as  a  safety  buffer  in  case  of  further  negative  economic  shocks,  new 
spending initiatives and contingent liabilities. 

17 

 
 
 
 
Annex: Sustainability and headroom in respect of the permanent Own Resources ceiling* 
(in EUR billion, current prices) 

MFF 
Baseline 
Own Resources ceiling 1.4% GNI 
Own resources to finance the budget less 
NGEU 
Headroom 
Sensitivity tests 
1) Sensitivity test on the economy 
Own Resources ceiling 1.4% GNI 
Own resources to finance the budget less 
NGEU 
Headroom 
2) Sensitivity test on the revenue 
Own Resources ceiling 1.4% GNI 
Own resources to finance the budget (excl. 
NGEU) 
Extraordinary own resources to cover CLs** 
Headroom 
3) Sensitivity test on expenditure 
Own Resources ceiling 1.4% GNI 
Own resources to finance the budget less 
NGEU 
Additional own resources (up to MFF ceiling 
maximum, and special instruments' maximum)*** 
Headroom 
4) Combined adverse/unfavourable shock 
Own Resources ceiling 1.4% GNI 
Own resources to finance the budget 
(baseline) 
Additional own resources (up to MFF ceiling 
maximum, and special instruments' maximum) 
Extraordinary own resources to cover CLs 

Headroom 

2022 

2023 

2024 

2025 

2026 

2027 

a 

b 

208,91  215,63  222,59  229,85  237,04  244,45 

156,24  151,67  152,41  159,82  169,86  183,76 

a-b 

52,67 

63,96 

70,18 

70,03 

67,18 

60,69 

a 

b 

208,91  214,57  220,41  226,48  232,42  238,50 

156,24  151,67  152,41  159,82  169,86  183,76 

a-b 

52,67 

62,90 

67,99 

66,66 

62,55 

54,74 

a 

b 

c 

a-b-c 

a 

b 

b* 

208,91  215,63  222,59  229,85  237,04  244,45 

156,24  151,67  152,41  159,82  169,86  183,76 

3,53 
49,14 

4,24 
59,72 

3,32 
66,86 

3,26 
66,77 

4,64 
62,54 

3,57 
57,12 

208,91  215,63  222,59  229,85  237,04  244,45 

156,24  151,67  152,41  159,82  169,86  183,76 

2,65 

8,40 

11,76 

20,78 

19,47 

12,69 

a-(b+b*) 

50,01 

55,56 

58,42 

49,25 

47,71 

48,00 

a 

b 

b* 

c 
a-
(b+b*)-c 

208,91  214,57  220,41  226,48  232,42  238,50 

156,24  151,67  152,41  159,82  169,86  183,76 

2,65 

3,53 

8,40 

11,76 

20,78 

19,47 

12,69 

4,24 

3,32 

3,26 

4,64 

3,57 

46,48 

50,26 

52,91 

42,62 

38,45 

38,48 

* The sustainability in respect of the 0.6% GNI portion of the Own Resources ceiling will be covered 
in the next edition of this report, once NextGenerationEU liabilities start phasing in. 

**  The  risk-assessment  linked  to  the  SURE  instrument  takes  into  account  the  specific  counter-
guarantee  provided  by  all  the  Member  States  for  25%  of  the  maximum  amount  of  the  financial 
assistance. In practice, all the annual payments in relation to the SURE loans can be excluded from 
the annual risk for the years covered in the period under examination, since the amounts falling due 
are fully covered by the Member States’ guarantees.  

*** The expenditure is projected at the theoretical maximum for: 1) the MFF payment ceiling over 
2022-202742,  2)  future  adjustments  up  to their  potential  maximum  in  any  single  year43,  and  3)  the 
annual  ceilings  of  the  thematic  special  instruments  (European  Globalisation  Adjustment  Fund, 
Solidarity and Emergency Aid Reserve, Brexit Adjustment Reserve), and the Flexibility Instrument. 

42  As established in the most recent technical adjustment of the MFF: COM(2021) 365 final of 7.6.2021 
43  In relation to the mechanism of Article 5 and Article 11(1)(b) of the MFF Regulation (up to the ceilings set 

in Article 11(3) of the same Regulation and only considering the possible upwards adjustments). 

18