Guarantee Fund for external actions

SUMMARY OF:

Regulation (EC, Euratom) No 480/2009 establishing a Guarantee Fund for external actions

WHAT IS THE AIM OF THE REGULATION?

It lays down the rules for the EU Guarantee Fund for external actions.
The fund aims to protect the EU budget from the budgetary risks related to loans, and guarantees covering loans, granted to non-EU countries or for projects implemented in those countries.

KEY POINTS

As a result of its loans to non-EU countries and guarantees covering loans to finance investment operations in these countries, the EU is exposed to considerable financial risks.
This regulation describes how the EU’s Guarantee Fund operates and lays down the procedure for endowing it and the rules for its management.

Mission

The mission of the fund for external actions is to pay the EU’s creditors in the event of default by the beneficiary in respect of:

a loan granted or guaranteed by the EU;
a guaranteed loan granted by the European Investment Bank (EIB) for which the EU acts as guarantor.

Moreover, the fund can cover only loans and guarantees provided for the benefit of a non-EU country or for the purpose of financing projects in a non-EU country.

Management and financial endowment

The European Commission entrusts the financial management of the fund to the EIB under a mandate from the EU. The fund is endowed with:

the possibility of an annual payment from the budget of the EU (if needed);
interest on fund resources invested;
amounts recovered from defaulting debtors.

The regulation was amended by Regulation (EU) 2018/409 which added a fourth source of funds: risk-premium revenues* generated under the financing operations of the EIB for which the EU provides a guarantee which is remunerated.

Target amount and annual transfer

The target amount refers to the amount of resources required by the fund in order to fulfil its mission. The fund’s target amount is set at 9% of the EU’s total outstanding capital liabilities* arising from each loan or guarantee operation, increased by unpaid interest due.
Regulation (EU) 2018/409 introduced an amendment whereby if the amount of the fund exceeds 10% of the EU’s total outstanding capital liabilities, the surplus must be paid back into the EU’s general budget. This is to better protect the EU’s general budget frompotential additional risk of default of the EIB financing operations addressing long-term migration issues.
The annual transfer from the EU budget to the fund is calculated by applying the target amount to the outstanding amount of loans granted and guaranteed. The difference between the target amount and the actual value of the fund’s assets is paid either from the general budget of the EU into the fund, or from the fund to the EU budget in the event of a resulting surplus in the fund.
The provisioning amount* is calculated at the beginning of financial year ‘n’ on the basis of loans granted and guaranteed during the previous financial year (‘n – 1’). The amount thus calculated is entered in the budget of year n + 1. There is therefore a delay of approximately 2 years between the time when the amounts become outstanding and the actual provisioning of the fund.

Reporting

Commission obligations:

by 30 June 2019 present an independent external evaluation of the advantages and disadvantages of entrusting the financial management of the assets of the fund and of the European Fund for Sustainable Development to the Commission, the EIB or a combination of these;
each year, present a report on the presentation of the financial position and information on the functioning of the fund at the end of the previous calendar year, including detailed information on the outstanding capital of guaranteed loans or the fund’s assets during the previous calendar year, as well as conclusions and lessons learned. This should include information about the financial management and performance and the risk of the fund at the end of the previous calendar year. From 2019 and then every 3 years, the report must include an assessment of the adequacy of the 9% target and the 10% threshold for the fund.

FROM WHEN DOES THE REGULATION APPLY?

Regulation (EC, Euratom) No 480/2009 has applied since 30 June 2009.

Amending Regulation (EU) 2018/409 has applied since 8 April 2018.

BACKGROUND

For more information, see:

Questions and answers: the EU budget for external action — fact sheet (European Commission).

KEY TERMS

Risk-premium revenues: risk premium is any return received by an investor that is above the estimated risk-free rate (i.e. the rate of return on a theoretically riskless investment such as a government bond). For example, if the estimated return on an investment is 12% and the risk-free rate is 2%, the risk premium is 10%.

Outstanding capital liabilities: capital that has been lent but has not been repaid.

Provisioning amount: an amount set aside to cover future liabilities.

MAIN DOCUMENT

Council Regulation (EC, Euratom) No 480/2009 of 25 May 2009 establishing a Guarantee Fund for external actions (Codified version) (OJ L 145, 10.6.2009, pp. 10-14)

Successive amendments to Regulation (EC, Euratom) No 480/2009 have been incorporated into the original document. This consolidated version is of documentary value only.