6 Loan guarantees
| (26480)
7872/05
COM(05)130
| Draft Regulation amending Regulation (EC, Euratom) No. 2728/94 establishing a guarantee fund for external actions
|
| Legal base | Article 308 EC and Article 203 Euratom; consultation; unanimity
|
| Department | HM Treasury |
| Basis of consideration | Minister's letter of 1 December 2006
|
| Previous Committee Report | HC 34-v (2005-06), para 20 (12 October 2005)
|
| To be discussed in Council | Not known
|
| Committee's assessment | Legally important
|
| Committee's decision | Not cleared
|
Background
6.1 The Loan Guarantee Fund (LGF) guarantees EU loans—that
is, macro-financial assistance (MFA) and European Investment Bank
and EURATOM loans—to third countries. The fund is financed
up to 9% of the total outstanding debt guaranteed from the Loan
Guarantee Reserve under the annual General Budget reserves heading.
Currently provisioning is estimated in advance of the anticipated
level of lending activity, which often leads to over-provisioning
of the fund and consequent year-end refunds to Member States.
6.2 This draft Regulation would alter the funding procedure so
as to make provision after a given year's lending activity was
known. The Commission also takes the opportunity to propose revision
of the method of topping up the fund in consequence of a significant
default, so as to spread the impact on the Loan Guarantee Fund
over a period of time.
6.3 When we considered this document in October 2005 we thought
this seemed a sensible technical proposal, of the sort we would
not normally draw specifically to the attention of the House.
However, we noted that we and our predecessors had long been concerned
about the misuse of Article 308 EC. So we were pleased that the
Government was raising the question of the use of this article
in this case and was looking at Article 181a EC as an alternative.
We kept the document under scrutiny whilst awaiting the outcome
on this issue.
The Minister's letter
6.4 The Economic Secretary to the Treasury (Ed Balls) writes
to report where matters now stand on this. First, the Minister
tells us that on the one hand one component of the lending supported
by the LGF is MFA, for which use of Article 181a EC as a legal
base is expressly ruled out by the Nice Treaty. But on the other
hand he says he has received legal advice that suggested that
it might prove possible to change the legal base for the LGF to
Article 181a EC, as MFA constitutes only a small part of the overall
volume of lending supported by it.
6.5 But the Minister then comments that a change in the legal
basis from Article 308 EC to Article 181a EC would result in the
draft Regulation being subject to qualified majority voting in
the Council rather than unanimity. He continues that during discussion
of the draft Regulation it has become clear that it is in the
UK's best interest to maintain a unanimity legal base for the
LGF. This is because, for example, discussions on the LGF have
moved forward alongside Commission plans to increase the European
Investment Bank's External Lending Mandate by an unacceptably
high amount. Agreement on such an increase in the mandate only
required a qualified majority, but it cannot be financed without
agreement of the provisioning mechanism in the draft LGF Regulation.
The Minister says that the negotiating weight provided by the
present requirement of unanimity on the Regulation gave the Government
an additional lever in arguing for a smaller and acceptable increase
in the mandate.
6.6 The Minister goes on to say that, "sharing [our] concern
that Community Competence should not be extended through the misuse
of Article 308", the Government "will look again at
the issue of legal basis" and is currently working to try
and ensure the adoption of a Council declaration calling on the
Commission, in the context of the next comprehensive report on
the functioning of the LGF, to thoroughly assess the legal framework.
6.7 Finally, he comments that a decision on the proposed Regulation
needs to be taken by the end of 2006 for sufficient funds to be
available to provision the new external lending mandate adequately.
Conclusion
6.8 It is implicit in the Minister's comments that the Government
is not prepared to stand by its earlier view that a proper legal
base for this draft Regulation other than Article 308 EC might
be found. We note the Government's concerns on the question of
procedure, and the use of Article 181a in relation to macro-financial
assistance, and we consider that it may be right for the Regulation
to be adopted under both Article 181a and Article 308, provided
the use of each Article is justified in relation to the particular
provisions of the Regulation. We consider that if the Government
is prepared to accept the use of Article 308 EC in this case its
use still has to be justified in terms of attaining "in the
course of the operation of the common market, one of the objectives
of the Community". Before we consider this matter further
we should like the Government to clarify how these conditions
are fulfilled and to provide its comments on the question of using
Article 181a as an additional legal base.
6.9 We should also like to know when the Government expects
a comprehensive report on the functioning of the LGF, which might
thoroughly assess the legal framework, to be undertaken. We note
that the Commission published its last such report on 16 November
2006.[13]
6.10 Meanwhile the document remains under scrutiny.
13 (28063) 15515/06 on which we currently await an
Explanatory Memorandum. Back
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