Commission report to the budgetary authority on guarantees covered by the general budget - situation at 30 June 2009.

Abstract

This report is submitted pursuant to Article 130 of the Financial Regulation which requires the Commission to report to the European Parliament and to the Council twice a year on budgetary guarantees and the corresponding risks1. It is completed by a Commission Staff Working Document with a set of detailed tables and explanatory notes (the "SWD")2. The risks covered by the budget of the European Union (the "Budget") derive from a variety of lending and guarantee operations which can be divided into two categories: –loans granted by the European Union with macroeconomic objectives, i.e. macro-financial assistance3 ("MFA") loans to third countries and in conjunction with the Bretton Woods institutions and balance-of-payments ("BoP") loans granting support to non-euro Member States experiencing balance-of-payments difficulties; and –loans with microeconomic objectives, i.e. Euratom loans and most importantly European Investment Bank ("EIB") financing of operations in non-Member States ("EIB external financing")4. The latter are covered by EU guarantee5. The EIB external financing, the Euratom loans and the MFA loans have since 1994 been covered by the Guarantee Fund for external actions ("the Fund"),6 while BoP loans are directly covered by the budget. The Fund covers defaults on loans and loan guarantees granted to non-Member States or for projects in non-Member States and was established: to provide a 'liquidity cushion' in order to avoid calling on the Budget every time a default or late payment on a guaranteed loan arises; and to create an instrument of budgetary discipline by laying down a financial framework for the development of EU policy on guarantees for Commission and EIB loans to non-member countries7. –Following an amendment8 of the Guarantee Fund Regulation in 2004, the Fund's coverage is withdrawn if third countries become Member States and the risk is transferred from the Fund to be directly born by the Budget. The Fund is provisioned from the Budget and has to be maintained at a certain percentage of the outstanding amount of the loans and loan guarantees covered by the Fund. This percentage, known as the target rate, is currently 9%. If there are insufficient resources in the Fund, recourse will be made to the Budget.