Documents considered by the Committee on 18th November 2016 Contents

10EU General Budget guarantees

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested

Document details

Commission Report for 2015 on guarantees covered by the EU General Budget

Legal base

Department

HM Treasury

Document Numbers

(38131), 12873/16 + ADD 1, COM(16) 576

Summary and Committee’s conclusions

10.1Loan guarantee exposure borne by the EU General Budget arises from two main sources—loans, to both Member States and third countries, with macroeconomic objectives or with microeconomic objectives.

10.2This present Commission annual report shows that in 2015, the maximum amount which the EU would have to pay out, assuming that all guaranteed loans would be in default, is €11 billion (£9.2 billion)—this represents the total value of loans maturing in 2016, inclusive of accrued interest. Approximately 76%, of the annual exposure in 2015 relates to guaranteed loans provided to Member States and 24% relates to third countries.

10.3The Government takes note of the information in the report and supports the stringency of existing conditionality and monitoring on EU lending operations, in order to ensure value for money. It says that it will continue to carefully scrutinise future proposals and monitor the evolution of exposure borne by the EU General Budget.

10.4We would normally clear from scrutiny without comment the annual report on the loan guarantee exposure of the EU General Budget. However, on this occasion we wish to hear from the Government:

10.5Meanwhile the document remains under scrutiny.

Full details of the documents

Commission Report on guarantees covered by the general budget: Situation at 31 December 2015: (38131), 12873/16 + ADD 1, COM(16) 576.

Background

10.6Loan guarantee exposure borne by the EU General Budget arises from two main sources:

10.7MFA loans are provided to countries outside the EU. Since 1994, MFA, and Euratom and EIB loans that are provided to third countries, have been covered by the Guarantee Fund for External Actions, which acts as a liquidity cushion in order to avoid unexpected calls on the EU General Budget. In addition, EUBoP and EFSM loans, which are provided to Member States only, are directly guaranteed by the EU General Budget.

The document

10.8This report shows the loan guarantee situation at 31 December 2015 and is summarised as follows.

Total exposure from guaranteed operations

European Financial Stabilisation Mechanism

10.9Disbursements of EFSM loans reached €23 billion (£19 billion) to Ireland and €24 billion (£21 billion) to Portugal—these are now fully disbursed. In July 2015 Ireland requested a lengthening of the first EFSM loan of €5 billion (£4.3 billion), disbursed in 2011—the loan was refinanced in three transactions with maturities in 2023, 2029 and 2035. A bridge loan of €7.2 billion (£6.2 billion) was made to Greece for a period of one month between 20 July and 20 August 2015, which was fully repaid. In January 2016 the Portuguese government requested a lengthening of the second EFSM loan of €4.8 billion (£4.1 billion) disbursed in 2011 and due June 2016—refinancing will take place in three transactions maturing in 2023, 2031 and 2036.

10.10Therefore, the total exposure borne by the EU General Budget as a result of EFSM loans at 31 December 2015, including accrued interest, was €48 billion (£41 billion)—this represents 56% of the total exposure borne by the EU Budget.

EU Balance of Payments Facility

10.11As of 31 December 2014, disbursements of EUBoP loans totalled €8.4 billion (£7.2 billion). During 2015 Romania repaid €1.5 billion (£1.3 billion) and Latvia repaid €1.2 billion (£1 billion)—no further disbursements were made.

10.12The total exposure borne by the EU Budget as a result of EUBoP loans at 31 December 2015, including accrued interest was €5.8 billion (£5 billion)—this represents 6.9% of the total exposure borne by the EU General Budget.

Macro-Financial Assistance

10.13As of 31 December 2014, disbursements of MFA loans and accrued interest totalled €1.8 billion (£1.6 billion). During 2015, the EU agreed a further €1.8 billion (£1.6 billion) of MFA to Ukraine—in April, the remaining amount of €250 million (£215 million) of the first programme approved in 2010 was disbursed. Other MFA loan disbursements in 2015 included €180 million (£155 million) for Jordan, the full amount of the relevant Council Decision, €10 million (£8.6 million) for Georgia, of a €23 million (£20 million) Decision and €200 million (£172 million) for Tunisia, of a €300 million (£258 million) Decision. €67 million (£58 million) of repayments were made in 2015 from various beneficiary countries.

10.14The outstanding amount of MFA loans at 31 December 2015, including accrued interest, increased to €3 billion (£2.6 billion)—loans to Ukraine represent 73.5% of the total exposure. There were no calls on the Fund as a result of MFA loans in 2015.

10.15In April 2016, €10 million (£8.6 million) of the €15 million (£13 million) Decision granted to the Kyrgyz Republic was disbursed.

Euratom

10.16As of 31 December 2014, the level of outstanding Euratom loans, including accrued interest, totalled €350 million (£301 million). No loan disbursements took place during 2015 and a total of €23 million (£20 million) was repaid.

10.17The outstanding amount of guaranteed Euratom loans totalled €284 million (£245 million) as of 31 December 2015, including accrued interest, and represented less than 1% of the total exposure borne by the EU General Budget.

European Investment Bank

10.18The previous EU guarantee for EIB operations outside the EU covered the period 2007–2013 (the 2007–2013 external mandate). A new Decision granting an EU Guarantee for EIB operations outside the EU for the period 2014–2020 (the 2014–2020 external mandate) was adopted in April 2014 with a fixed ceiling of €27 billion (£23 billion) and an optional additional amount of €3 billion (£2.6 billion) which could be activated in accordance with the ordinary legislative procedure. Under the 2014–2020 external mandate, loan signatures amounted to €6.9 billion (£5.9 billion) at 31 December 2015—of that amount, €525 million (£452 million) had been disbursed. Under the 2007–2013 external mandate the cumulative amount of signed loans remained at €29 billion (£25 billion).

10.19EIB loans under the external mandate are provided to third countries and are therefore covered by the Guarantee Fund for External Actions—during 2015, the Syrian Government defaulted on €60 million (£52 million) of loans and the EIB called upon the Fund to cover these defaults. Since 2011, the Syrian Government has defaulted on a total of €203 million (£175 million) of loans, of which €2 million (£1.7 million) has been recovered. At 31 December 2015, the total capital outstanding of guaranteed loans related to Syria amounts to €389 million (£335 million), with the last loan maturity in 2050.

10.20The total outstanding amount of EIB loans guaranteed by the EU General Budget at 31 December 2015, including accrued interest, totalled €27 billion (£24 billion) representing 32% of the total exposure borne by the Budget. Of this amount, €2 billion (£1.7 billion) is guaranteed directly by the EU General Budget and €26 billion (£22 billion) is guaranteed indirectly via the Fund.

Annual exposure from guaranteed operations

10.21In 2015, the maximum amount which the EU would have to pay out (directly and via the Fund), assuming that all guaranteed loans would be in default, is €11 billion (£9.2 billion)—this represents the total value of loans maturing in 2016, inclusive of accrued interest. Approximately €8.2 billion (£7.1 billion), equal to 76%, of the annual exposure borne by the EU General Budget in 2015 relates to guaranteed loans provided to Member States. €2.3 billion (£2 billion), equal to 24%, of the annual exposure borne by the EU General Budget in 2016 relates to guaranteed loans provided to third countries and are therefore primarily guaranteed by the Guarantee Fund for External Actions.

The Government’s views

10.22In his Explanatory Memorandum of 18 October 2016 the Chief Secretary to the Treasury (Mr David Gauke), first recites the Government’s standard Brexit comment, that until the UK exits the EU the Government will continue to negotiate, implement and apply EU legislation. He then tells the Committee that this report has no new policy implications. However he comments further that:

Previous Committee Reports

None.





21 November 2016