Brussels, 30/01/2002 (Agence Europe) - On account of pressures to increase the volume of lending by the European Investment Bank (EIB), Euratom and the European Community (EC), the European Commission presented a Communication to Parliament and the Council on 21 January in which it considers changing the Guarantee Fund. If the MEPs and the Council endorse the guidelines set out in the Communication, the Commission will publish legislative proposals.
The Guarantee Fund covers lending in third countries by the EIB, Euratom and the European Commission. It is designed to both protect the Community budget from the direct impact of default on loans made through any of the institutions, and to act as a constraint on the amount of lending and guaranteeing. This annual amount is constrained by the reserve for provisioning the Guarantee Fund, whose ceiling is fixed at around EUR 3 billion per year. In principle, whenever a new loan or loan guarantee is decided, a certain fraction of the capital amount of the loan has to be provisioned for out of the reserve. The provisioning rate together with the amount of the reserve therefore determines the overall amount of possible lending or guaranteeing. In practice, the situation is less simple. First for guaranteed EIB external lending, the EC guarantees a portfolio of loans rather than individual loans. Since the EC is providing such a blanket guarantee, only 65% of most of the EIB lending envelopes for third countries are guaranteed by the EC and are therefore provisioned for in the Guarantee Fund. Second, as the Community's lending operations can take place over a number of years with each part of the loan subject to considerably uncertainty, the rules on the timing of provisioning are complicated.
In 2001, the reserves for guarantees was totally exhausted and the situation in the years 2002 to 2004 "looks to be untenable" as there are "strong pressures to increase lending" through the EIB, Euratom and EC. The Commission therefore suggests considering changing the system and notes in the Communication that if it were to be decided to increase the lending and guarantee capacity, this would require either an increase in the current ceiling of the reserve for guarantees or an amendment to the rules related to the guarantee mechanisms. As a raiding of the ceiling would require a revision of the existing Financial Perspective (2000-2006), the Commission believes the second option would be preferable, which would allow for a larger loan and guarantee capacity by some combination of decreasing the provisional rate of the Guarantee Fund and the percentage of guarantee for EIB envelopes. The first adjustment would consist of lowing the provisioning rate applying to any new lending or guarantee initiative for third countries, from the current level of 9% to 8%. The Commission says such a change would be sufficient to keep the Fund amount at the targeted level, notably because of the interest income earned on the Fund's assets. A second adjustment would consist in the lowering of the "blanket" guarantee provided by the EC to the EIB. Lowering this guarantee from 65% to 60% or even 50% would not make a significant difference and would not affect the EIB's access to the financial market at the most favourable terms. The commission notes that the risk of the EIB losing more than 50% of the guaranteed portfolio remains low.