Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU, Euratom) 2018/1046 as regards the establishment of a diversified funding strategy as a general borrowing method
Date: 2022-11-09
Institutions: Directorate-General for Budget, European Commission
Subjects: EU aid, EU borrowing, EU financing arrangements, EU strategy, Ukraine, financial aid, financial management, general budget (EU)

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   EUROPEAN COMMISSION  Brussels, 9.11.2022  COM(2022) 596 final 2022/0370 (COD)  Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulation (EU, Euratom) 2018/1046 as regards the establishment of a diversified funding strategy as a general borrowing method  
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The Commission has been conducting borrowing and lending operations to provide financial 
assistance  in  the  form  of  loans  to  a  beneficiary  country  for  several  decades.  The  borrowing 
and  lending  operations  are  guaranteed  under  the  Union’s  budget  and  come  under  the  wider 
scope of budgetary implementation. General rules for such operations are laid down in Article 
220 of Regulation  (EU,  Euratom) 2018/10461 (“Financial Regulation”),  which provides that 
the  Commission  can  be  empowered  in  a  basic  act  to  borrow  on  behalf  of  the  Union  or 
Euratom  to  on-lend  the  corresponding  amounts  to  the  beneficiary  Member  States  or  third 
countries  under  the  conditions  applicable  to  the  borrowings.  The  cash  flows  between  the 
borrowed funds and the loans are matched one-to-one. This means that market operations are 
based  on  disbursement  needs,  which  limits  the  possibility  to  plan  various  borrowing 
operations  coherently  with  the  best  market  opportunities  and  structure  maturities  to  achieve 
the best costs. 

The  funding  needs  for  Ukraine  require  mobilisation  and  disbursement  in  a  cost-effective 
flexible  and  financially  sound  manner,  integrating  all  funding  needs  including  for 
NextGenerationEU (“NGEU”).  It is of paramount importance that this funding be  organised 
under a single funding method in order to allow different policy needs to be met concurrently. 
To  that  end,  it  is  necessary  to  amend  Regulation  (EU,  Euratom)  2018/1046  to  establish  the 
diversified  funding  strategy,  currently  implemented  for  borrowings  under  Decision  (EU, 
Euratom) 2020/20532 as the baseline method for the implementation of borrowing operations. 
This strategy has allowed the successful mobilisation of funds for non-repayable support and 
loans under Regulation (EU) 2021/2413 and a range of other EU policies in 2022.  

This  will  allow  the  Commission  to  finance  the  assistance  to  Ukraine  under  the  proposed 
Regulation  establishing  an  instrument  to  provide  support  to  Ukraine4  in  a  cost-efficient, 
flexible and financially sound manner to  ensure  parallel  financing  of all Union programmes 
relying  on  borrowing.  The  extension  of  the  scope  of  application  of  the  diversified  funding 
strategy  goes  beyond  the  funding  needs  for  Ukraine  and  would  be  available  to  any  future 
programmes.  It  will  enable  the  Commission  to  use  the  infrastructure,  which  allows  an 
integrated funding planning and communication to markets.  

In  the  absence  of  such  a  single  funding  method,  the  Commission  would  be  required  to 
continue financing different programmes of financial assistance separately. This would create 
cost and complexity as the different programmes of financial assistance would compete for a 
limited  number  of  funding  opportunities.  It  would  fragment  the  supply  of  Union’s  debt  and 

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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( 1) OJ-L 193/30.07.2018, p.1. 
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. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility, OJ L 57, 18.2.2021, p. 17. 
Proposal for a Regulation of the European Parliament and of the Council establishing an instrument to 
provide support to Ukraine (macro-financial assistance +), COM(2022)597. 

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reduce  liquidity  and  investor  interest  in  the  separate  programmes.  Financing  all  financial 
assistance  through  a  single  funding  method  would  therefore  enhance  the  liquidity  of  the 
Union’s bonds their attractiveness and cost-effectiveness. 

The diversified funding strategy is a financing method through which funding transactions are 
organised in a manner consistent with the limits of financial liability authorised in the basic 
acts  in  order  to  achieve  the  policy  objectives.  The  implementation  of  a  diversified  funding 
strategy  does  not  change  the  financial  liabilities  arising  from  the  borrowing.  It  provides  the 
Commission  with  more  flexibility  in  how  the  Union  mobilises  resources  through  bond 
issuance.  

Recourse  to  a  diversified  funding  strategy  as  a  single  funding  method  will  allow  the 
Commission to decouple the timing and the maturity of single funding transactions from the 
disbursements  to  beneficiaries.  A  common  liquidity  pool  financed  by  the  issuance  of  short-
term funding (EU-bills) enables the Commission to organise payments in accordance with a 
regular  and  agreed  schedule,  independently  of  the  exact  timing  of  the  long-term  bond 
issuance.  This  then  allows  payments  to  be  made  to  beneficiaries  independently  of  market 
conditions  prevailing  at  the  time  of  the  disbursement,  and  avoids  having  to  raise  fixed 
amounts  in  volatile  or  adverse  conditions.  Over  the  lifetime  of  the  programme  of  financial 
assistance,  the  net  liabilities  generated  are  fully  matched  by  countervailing  assets  (amounts 
outstanding,  still  to  be  repaid  under  loans  as  they  mature5).  On  this  basis,  the  principles  of 
budgetary neutrality and budgetary balance as set out in Article 310(1) TFEU are respected. 
The costs are fully borne by the beneficiaries based on a single cost allocation methodology 
that  ensures  transparent  and  proportional  allocation  of  costs.  The  repayment  obligations 
should  remain  with  the  beneficiaries  of  the  financial  assistance,  in  compliance  with  Article 
220(5)(e) of the Financial Regulation. 

The common liquidity pool should be maintained at levels that would allow the Commission 
to  meet  all  expected  outflows  over  the  short-term,  based  on  a  robust  liquidity  forecasting 
capacity.  The  existence  of  a  large,  well-stocked  liquidity  buffer,  capable  of  managing 
disbursements over long periods, allows the diversified funding strategy to function without 
the need for other solutions to address temporary cash shortfalls.  

To  support  the  most  successful  implementation  of  the  diversified  funding  strategy,  the 
Commission should, as far as possible, ensure a continuous market presence and to this end 
implement all necessary transactions aiming at achieving the best possible funding costs and 
at facilitating of transactions in debt securities of the Union and Euratom. The latter is crucial 
in supporting the active involvement of the widest range of investors to markets for Union’s 
debt instruments.  

The conduct of the diversified funding strategy requires that a single set of rules is followed in 
respect of all borrowing and lending programmes which rely on it. The Financial Regulation 
in  its role of a single rulebook for the implementation of the  EU budget  should provide  the 
basis for those rules.  

Following  the  entry  into  force  of  this  amendment  of  the  Financial  Regulation,  the 
Commission  will  adopt  and  implement  a  wider  governance  framework,  risk  management 
procedures, and cost allocation methodology.   

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Or by repayments from the Union’s budget for external assigned revenue under NGEU. 

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These new rules of the Financial Regulation should only apply to new financial assistance to 
third countries for which the basic acts enter into force on or after the date of entry into force 
of these amendments  of the Financial Regulation  and the parallel  amendment  of  Regulation 
(EU, Euratom) 2020/2093.  

The Commission proposed a recast of the Financial Regulation6 that is being examined by the 
European Parliament and the Council. The present stand-alone proposal should be adopted as 
a matter of urgency and the changes incorporated in the pending recast during the legislative 
process. 

• 

Consistency with existing policy provisions in the policy area 

The  diversified  funding  strategy  has  been  introduced  for  NGEU  borrowing  and  has  proven 
successful so far in that context.  

• 

Consistency with other Union policies 

The  diversified  funding  strategy  will  allow  efficient  use  of  borrowing  capacity  for  Union 
policies which may make use of borrowing and lending operations.  

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The  proposal  is  based  on  Article  322(1)  of  the  Treaty  on  the  Functioning  of  the  European 
Union (TFEU).  

• 

Subsidiarity (for non-exclusive competence)  

The adoption of EU general financial rules falls under the exclusive competence of the EU.  

• 

Proportionality 

This  proposal  introduces  changes  necessary  to  conduct  the  diversified  funding  strategy  as  a 
single borrowing method and does not go beyond that objective. This single funding method 
is indispensable for the Union to be able to place on the market issuances which  can satisfy 
increasing  funding  needs  of  all  respective  programmes.  Conversely,  continuing  with 
disbursement-based  funding  would  lead  to  higher  costs  and  complexity  and  put  at  risk  the 
successful funding of different Union programmes on cost-advantageous terms.  The proposal 
does not contain rules that would not be necessary to achieve the objectives of the Treaty. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

No stakeholder consultation has been conducted for this limited amendment.  

The  investors  and  capital  markets  appreciate  the  regularity  and  predictability  of  Union’s 
borrowing operations. This was made possible thanks to the diversified funding strategy.  

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COM/2022/223 final of 16 May 2022. 

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Experience  has  shown  that  diversified  funding  strategy  allows  the  EU  to  engage  more 
effectively with investors and issue debt more efficiently than a continuation of a piecemeal 
borrowing  and  lending  approach,  whereby  cash  flows  between  the  borrowed  funds  and  the 
loans are matched one-to-one, which is what is currently required for financial assistance in 
line  with  Article  220(7)  of  the  Financial  Regulation.  The  members  of  the  primary  dealers 
network also emphasized the importance of regular market presence. 

Impact assessment 

• 
In line with the Commission’s statement on future revisions of the Financial Regulation7, no 
impact  assessment  is  required.  The  Financial  Regulation  provides  the  general  rules  and  the 
toolbox  for  the  implementation  of  the  Union’s  spending  programmes.  To  accommodate  the 
new instrument for financial support to Ukraine, technical targeted amendments are required 
in  the  Financial  Regulation.  These  targeted  amendments  do  not  imply  viable  policy  options 
for  the  Commission  and  therefore  no  impact  assessment  is  required.  There  are  no  direct 
economic, environmental or social impacts that result from revisions of the legislation, which 
could effectively be analysed in an impact assessment. 

Regulatory fitness and simplification  

While this amendment of the Financial Regulation does not fall under the Regulatory Fitness 
and  Performance  Programme  (REFIT),  it  contributes  to  the  Better  Regulation  agenda.  This 
proposal  responds  to  the  need  to  improve  the  provisions  on  funding  for  financial  assistance 
and generalise the possibility of using a diversified funding strategy. The proposed approach 
is fully in line with the better regulation framework and simplification efforts. 

Fundamental rights  

The proposal complies with the Charter of Fundamental Rights of the Union. 

4. 

BUDGETARY IMPLICATIONS 

The proposal  has no direct  implications for the level  of appropriations in  the Union budget. 
The  repayment  obligations  will  remain  with  the  beneficiaries  of  the  financial  assistance,  in 
compliance with Article 220(5)(e) of the Financial Regulation and in line with the budgetary 
principles of sound financial management and equilibrium. The borrowing costs are borne by 
the beneficiaries based on a single cost  allocation methodology that ensures transparent  and 
equitable allocation of costs.  

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The monitoring and reporting obligations under the Financial Regulation apply.  

• 

Detailed explanation of the specific provisions of the proposal 

Paragraph 1 of Article 1 deletes Article 220(2) and (7) of the Financial Regulation to adjust to 
the borrowing methods of the diversified funding strategy.  

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2018/C 267 I/01. 

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Paragraph 2 of Article 1 inserts a new Article 220a in the Financial Regulation to establish the 
diversified funding strategy as a single funding method.  

Article 2 provides for the entry into force and for the transitional rule according to which the 
amendments  will  only  apply  to  the  financial  assistance  for  which  the  basic  acts  enter  into 
force after 9 November 2022.  

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2022/0370 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Regulation (EU, Euratom) 2018/1046 as regards the establishment of a 
diversified funding strategy as a general borrowing method 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 322(1) thereof, 

Having  regard  to  the  Treaty  establishing  the  European  Atomic  Energy  Community,  and  in 
particular Article 106a thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the Court of Auditors8,  

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

Article 220 of Regulation (EU, Euratom) 2018/1046 of the European Parliament and 
of  the  Council  (the  “Financial  Regulation”)  currently  provides  that  the  Commission 
borrows on behalf of the Union or Euratom to on-lend the corresponding amounts to 
beneficiary  Member  States  or  third  countries  under  the  conditions  applicable  to  the 
borrowings.  In this regard, the cash flows between the borrowed funds and the loans 
are matched one-to-one. This means that the Union must carry out market operations 
based  on  disbursement  needs  for  each  specific  case  of  lending,  which  limits  the 
possibility to plan coherently various borrowing operations and structure maturities to 
achieve the best costs. 

Financing  individual  programmes  of  financial  assistance  through  separate  funding 
methods  creates  cost  and  complexity  as  the  different  programmes  of  financial 
assistance  compete  for  a  limited  number  of  funding  opportunities.  It  fragments  the 
supply  of  Union’s  debt  securities  and  reduces  liquidity  and  investor  interest  in  the 
separate programmes, even though all Union debt securities have the same high credit 
standing. Financial assistance should be organised under a single funding method that 
enhances the liquidity of Union’s bonds and the attractiveness  and cost-effectiveness 
of Union’s issuance.  

(3) 

This is emphasised in particular in the current context of financial support to Ukraine 
given its urgent financial needs. Recent experience with the funding needs for Ukraine 
has highlighted the disadvantages of a fragmented approach to the organisation of the 
Union’s debt. In order to assert the Union’s position as an issuer of euro-denominated 

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OJ C […], […], p. […]. 

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debt,  it  would  be  of  paramount  importance  to  organise  all  new  issuance  through  a 
single funding method. 

The diversified funding strategy has allowed the successful mobilisation of funds for 
grants and loans under Regulation (EU) 2021/241 of the European Parliament and of 
the  Council9  and  a  range  of  other  Union  programmes  referred  to  in  Article  2(2)  of 
Regulation  (EU)  2020/209410.  In  view  of  the  expected  complexity  of  operations 
needed  to  satisfy  the  urgent  financial  needs  of  Ukraine,  and  to  anticipate  possible 
future  borrowing  and  lending  operations,  it  is  appropriate  to  establish  a  diversified 
funding  strategy  as  the  single  funding  method  for  implementation  of  borrowing 
operations. 

The  model  for  such  single  funding  method,  and  most  elements  of  the  infrastructure 
needed  for  its  implementation,  have  already  been  established  in  the  form  of  the 
diversified  funding  strategy  under  Decision  (EU,  Euratom)  2020/205311  to  finance 
measures  under  Regulation  (EU)  2020/2094.  The  use  of  this  strategy  should  allow  a 
flexible  implementation  of  the  funding  programme,  while  fully  respecting  the 
principles of budgetary neutrality and budgetary balance as set out in Article 310(1) of 
the Treaty on the Functioning of the European Union (“TFEU”). The costs should be 
fully  borne  by  the  beneficiaries  based  on  a  single  cost  allocation  methodology  that 
ensures  transparent  and  proportional  allocation  of  costs.  The  repayment  obligations 
should  remain  with  the  beneficiaries  of  the  financial  assistance,  in  compliance  with 
Article 220(5), point (e) of the Financial Regulation. 

The  implementation  of  the  diversified  funding  strategy  would  require  a  single  set  of 
rules to be followed in respect of all borrowing and lending programmes relying on it. 
These  rules  should  therefore  be  added  to  horizontal  financial  rules  in  the  Financial 
Regulation,  adopted  by  the  European  Parliament  and  the  Council  on  the  basis  of 
Article 322 TFEU.   

A  diversified  funding  strategy  should  provide  the  Commission  with  more  flexibility 
concerning  the  timing  and  the  maturity  of  single  funding  transactions  and  allow 
regular  and  steady  disbursements  to  different  beneficiary  countries.  The  strategy 
should  be  based  on  the  pooling  of  funding  instruments.  This  would  give  the 
Commission  flexibility  to  organise  payments  to  the  beneficiaries  independently  of 
market conditions at the time of disbursement, and avoid as much as possible that the 
Commission would have to raise fixed amounts in volatile or adverse conditions.  

This  would  require  putting  into  place  a  common  liquidity  pool.  Such  a  centralised 
liquidity function would render the Union’s funding capacity more resilient, and able 
to  withstand  temporary  mismatches  between  all  inflows  and  outflows,  based  on  a 
robust liquidity forecasting capacity. 

The Commission should implement all necessary transactions aiming  at a continuous 
market  presence,  at  achieving  the  best  possible  funding  costs  and  at  facilitating  of 
transactions in debt securities of the Union and Euratom.   

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 
Council  Regulation  (EU)  2020/2094  of  14  December  2020  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). 
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. 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

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(10) 

(11) 

(12) 

In  extending  the  diversified  funding  strategy  to  a  wider  range  of  programmes,  it  is 
therefore appropriate that the Commission establishes the necessary arrangements for 
its implementation. They should comprise a governance framework, risk management 
procedures,  and  a  cost  allocation  methodology,  which  should  respect  Article  220(5), 
point  (e)  of  Regulation  (EU,  Euratom)  2018/1046.  To  ensure  transparency,  the 
Commission  should  regularly  and  comprehensively  inform  the  European  Parliament 
and the Council about all aspects of its issuance and debt management strategy. 

In  the  interest  of  legal  certainty  and  clarity  in  respect  of  already  granted  financial 
assistance  and  in  respect  of  financial  assistance  under  Regulation  establishing  an 
instrument  to  provide  support  to  Ukraine12  proposed  simultaneously,  this  Regulation 
should only apply to new financial assistance the basic acts of which enter into force 
on or after 9 November 2022. 

In view of the urgency entailed by the exceptional circumstances caused by Russia’s 
unprovoked  and  unjustified  war  of  aggression,  it  is  considered  to  be  appropriate  to 
invoke the exception to the eight-week period provided for in Article 4 of Protocol No 
1 on the role of national Parliaments in the European Union, annexed to the Treaty on 
European Union, to the Treaty on the Functioning of the European Union and to the 
Treaty establishing the European Atomic Energy Community. 

(13) 

In light of the current situation in Ukraine, this Regulation should enter into force as a 
matter of urgency on the day following that of its publication in the Official Journal of 
the European Union. 

(14)  The respective provisions of the Financial Regulation should therefore be amended, 

HAVE ADOPTED THIS REGULATION: 

Article 1 

Regulation (EU, Euratom) 2018/1046 is amended as follows:  

(1) 

(2) 

1.  

2. 

12 

In Article 220, paragraphs 2 and 7 are deleted. 

The following Article 220a is inserted after Article 220: 

‘Article 220a 

Diversified funding strategy 

Except in duly justified cases, the Commission shall implement a diversified funding 
strategy comprising borrowing and debt management operations to fund programmes 
of financial assistance and the borrowings authorised under Article 5(1) of Decision 
(EU,  Euratom)  2020/2053.  The  diversified  funding  strategy  shall  be  implemented 
through all necessary transactions aiming at a regular capital market presence, shall 
be  based  on  pooling  of  funding  instruments  and  shall  make  use  of  a  common 
liquidity pool. 

The Commission shall establish the necessary arrangements for the implementation 
of 
the  diversified  funding  strategy.  The  Commission  shall  regularly  and 
comprehensively inform  the European Parliament and the Council about all aspects 
of its issuance and debt management strategy.’ 

Proposal for a Regulation of the European Parliament and of the Council establishing an instrument to 
provide support to Ukraine (macro-financial assistance +), COM(2022)597. 

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Article 2 

This  Regulation  shall  enter  into  force  on  the  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

It shall apply to programmes of financial assistance for which the basic acts  enter into force 
on or after 9 November 2022. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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