15 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
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| Department | HM Treasury |
| Basis of consideration | Minister's letter of 12 December 2006
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| Previous Committee Report | HC 34-v (2005-06), para 20 (12 October 2005) and HC 41-iii (2006-07), para 6 (6 December 2006)
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| To be discussed in Council | Not known
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| Committee's assessment | Legally important
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| Committee's decision | Cleared
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Background
15.1 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.
15.2 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.
15.3 When we first considered this document, in October 2005,
we thought this seemed a sensible technical proposal. 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.
However when we considered the matter again earlier this month
we heard that the Government had now decided to accept the use
of Article 308 EC, for reasons we found unconvincing. We asked
the Government to consider suggesting both Articles 181a and 308
EC as bases for the proposal and to justify the use of Article
308 EC in terms of attaining "in the course of the operation
of the common market, one of the objectives of the Community".
We also asked when the Government expects a comprehensive report
on the functioning of the LGF, which might thoroughly assess the
legal framework, to be undertaken. We kept the document under
scrutiny.[41]
The Minister's letter
15.4 The Economic Secretary to the Treasury (Ed Balls) writes
now in response to our requests. In relation to using both Articles
181a and 308 EC as bases for the measure the Minister tells us
that his legal advice is that the European Court of Justice "frowns"
on the use of two legal bases, that it accepts such use only in
certain limited circumstances and that it has ruled that legislation
must be based on a single legal base relevant to the main or predominant
purpose of the legislation.
15.5 On the justification for use of Article 308 EC, in terms
of attaining "in the course of the operation of the common
market, one of the objectives of the Community", the Minister
says that loans to third countries assist the operation of the
common market by contributing to the economic development of countries
covered by the European Neighbourhood Policy (ENP) and countries
with trading links to the Community, so leading to deeper economic
integration with the Community. Similarly MFA for countries covered
by the ENP assists the operation of the common market by contributing
to the economic stability and development of near neighbours,
so also leading to deeper economic integration with the Community.
The Minister also suggests that the draft Decision would address
financial risks for the General Budget and matters of prudent
budgetary management and financial discipline — matters
the Community should take into account in the operation of the
General Budget in relation to the operation of the common market.
15.6 Finally, the Minister tells us that the comprehensive review
of the LGF, which will address the issue of the proper legal base
for the future, is due in 2010 at the latest.
Conclusion
15.7 We are grateful to the Minister for his further comments.
We are not wholly convinced by his view about the possible use
of two bases for a legislative proposal. But we recognise that
the issue is debatable and, given that he has illustrated how
the proposal would attain "in the course of the operation
of the common market, one of the objectives of the Community",
we now clear the document.
41 See headnote. Back
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