17EU General Budget guarantees
Summary and Committee’s conclusions
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Committee’s assessment |
Politically important |
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Cleared from scrutiny |
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Document details |
Commission Report for 2015 on guarantees covered by the EU General Budget |
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Legal base |
— |
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Department |
HM Treasury |
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Document Number |
(38131), 12873/16 + ADD 1, COM(16) 576 |
17.1The Commission reports annually on loan guarantee exposure borne by the EU General Budget. Last month we asked the Government, in relation to the 2015 report, whether liabilities are joint or several, whether the UK is party to any liability in relation to the European Financial Stabilisation Mechanism and what it expects the UK’s liability, in relation to the loan guarantee, to be post-Brexit.
17.2The Government now explains the contingent liability of the EU Budget and the UK’s contingent liability to the EU Budget, says that the UK bears a contingent liability in relation to loans to Ireland and Portugal made under the European Financial Stabilisation Mechanism and says that it will not be giving a running commentary on the Brexit negotiating process, including in relation to the EU Budget.
17.3We note the Government’s response and now clear the document from scrutiny.
Full details of the document
Commission Report on guarantees covered by the general budget: Situation at 31 December 2015: (38131), 12873/16 + ADD 1, COM(16) 576.
Background
17.4Loan 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. This 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.
17.5The Government has taken 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.
17.6We would normally clear from scrutiny without comment the annual report on the loan guarantee exposure of the EU General Budget. However, when we considered the 2015 report last month we asked to hear from the Government:
- whether liabilities are joint or several;
- whether the UK is party to any liability in relation to the European Financial Stabilisation Mechanism; and
- what it expects the UK’s liability, in relation to the loan guarantee, to be post-Brexit.
The Minister’s letter of 28 November 2016
17.7On whether liabilities are joint or several the Chief Secretary to the Treasury (Mr David Gauke) says:
“The EU budget bears a contingent liability in respect of its loan guarantees. In the event of a default the EU will be required to meet this liability in accordance with the terms of the guarantee and that amount will be paid from the EU Budget. Member States are obliged to make payments towards the EU budget according to the provisions set out in the Own Resources Decision. The UK bears a contingent liability for its obligations to make payments to the EU Budget as a Member State.
“Loan guarantees constitute contingent liabilities only. The European Commission funds its lending by borrowing on the markets. No EU budget funds are required upfront to make loans to Member States.”
17.8As for the European Financial Stabilisation Mechanism the Minister says that:
- the mechanism is guaranteed by the EU General Budget, thus the UK bears a liability in the way as for other loan guarantees;
- outstanding liabilities through this instrument include loans made to Ireland and Portugal;
- the UK has no contingent liability through the EU Budget or otherwise to the financial assistance programmes provided by eurozone Member States and institutions to Greece or Cyprus; and
- these programmes were provided by eurozone-only financial assistance mechanisms which are not backed by the EU Budget and therefore involve no liability for the UK.
17.9Finally, the Minister says, in relation to our question as to the UK’s post-Brexit loan guarantee liability, that:
- the arrangements for withdrawal from the EU, including from the Budget, will be a matter for the withdrawal agreement as part of the Article 50 TEU process;
- these issues affect both sides—the UK and the EU; and
- the Government will not be giving a running commentary on the details.
Previous Committee Reports
Eighteenth Report HC 71-xvi (2016–17), chapter 10 (18 November 2016).
9 December 2016