Abstract
Borrowing and debt by the EU as such have been approached with uncertainty, reflecting policy choices of the Member States,—who hold the key to Union’s resources—as to the desired degree of financial autonomy of the Union. Initially recognised as a resource, and integrated in ECSC operations as investment, loans are met with silence in the EEC treaty, while successive financial regulations established the principle that ‘the Community/Union does not raise loans’. Yet, by exception to such principle, a number of acts of secondary legislation enabled the European Commission to borrow, in the name of the Union, in order to subsequently serve various ad hoc policy objectives—save for allowing the Union to run an operating deficit. The handling of loans as a Union resource mirrors such uncertainty, and their full budgeting was never reached; however, other mechanisms have ensured a measure of transparency, and enabled a successful follow-up of EU debt.
Guarantees are what remain from the full budgeting attempts. Loans, limited to borrowing for further lending, remain outside the EU budget,—as the two activities are considered to sustain each other in back-to-back operations. However, in a major contribution to consistent AAA rating of EU debt, EU budget serves to reassure creditors that, in the unlikely event of default, EU will step in as guarantor to satisfy claims,—and fast: extraordinary powers for cashing in EU own resources are entrusted to the European Commission to that effect. The shape of things to come—a much wider use of financial instruments under the new financial regulation, project bonds, proposals for mutualisation of Member States debt, with possible Eurobonds to support it—points to a wider recourse to credit in the future, thereby warranting an approach that is perhaps more comprehensive and systematic than the empirically constructed, case-by-case current set-up, marked by the opposition between a principle of credit avoidance, and exceptions that tend to get wider, by scope and by size.
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Notes
Les finances de l’Europe, L.G.D.J. Paris, 1990.
See COM (2011) 594 final of 28 September 2011, Articles 1.3.5, 6 and 7.
See COM (2011) 0334 final of 9 November 2011, Article 2, in conjunction with COM (2011) 740 final, Article 1.
Article 20(4) TEU sets out that ‘acts adopted in the framework of enhanced cooperation shall bind only participating Member States.
OJ L 22, 25 January 2013, p. 11.
Serious doubts have eventually been raised on whether the proposal infringed upon the taxing competences of the non-participating Member States, was discriminatory and led to a distortion of competition to the detriment of non-participating Member States. In April 2013, the United Kingdom introduced an action of annulment against Council decision 2013/52/EU for violation of Article 327 TFEU.
Detailed coverage of borrowing and lending by the European Investment Bank is beyond the scope of this paper, as it is not attributable to the legal person of the Union.
Currently in Article 310 TFEU.
The most recent version is Regulation (EU, Euratom) No. 966/2012 of the European Parliament and the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council regulation (EC, Euratom) No. 1605/2002 (OJ L 298, 26 October 2012, p. 1) (“the Financial Regulation”).
Article 310(1) third subparagraph TFEU; article 17(1) of the Financial Regulation.
Article 17 of the current Financial Regulation is slightly different from previous versions, thereby raising some interesting questions—see footnote No. 26.
See, e.g., Article 14 of the previous Financial Regulation (1605/2002), in conjunction with its Article 46(1)(4).
The following should not be confounded with Union action in this field: (i) the EFSF (European Financial Stability Facility), guaranteed by participating Member States on a GNI pro rata basis and (ii) the Greek Loan Facility, financed by bilateral loans. They are both managed by the Commission on behalf of the participating States without further Union involvement, a course of action validated by the findings of the European Court of Justice in the Bangladesh case (Judgement of 30 June 1993 in joint cases C-181/91 and C-248/91, ECR [1993] p. I-3713, paragraph 20).
OJ L 53, 23 February 2002, p. 1; currently under revision.
See Proposal for a regulation of the European Parliament and the Council laying down general provisions for macro-financial assistance to third countries in COM(2011)396 final.
The report is now to be filed once a year. It includes borrowing and lending operations by the EIB, which is, strictly speaking, a different legal entity from the Union, albeit that its debt is guaranteed by the latter. The Table 1 contains no information on the loans by the institutions, as the corresponding possibility was opened only from 1 January 2013, and had not been used by the time of writing.
See, e.g., the spread compared to Germany 10-year bonds and other benchmarks in Bloomberg, 20 November 2012.
In particular with, and after, Opinion 2/94 on the accession by the European Communities to the Convention for the protection of Human rights and fundamental freedoms [1966] ECR I-1759. See especially paragraph 30 of the ruling.
The Lisbon judgement of the German Constitutional Court, echoes precisely such political developments when, referring to Article 352 TFEU, it stresses the role of the national parliaments in the legitimation of the conferral of domestic powers to the EU: “In the light of the non-specificity of possible cases of application of the flexibility clause, by constitutional law its use requires the ratification by the German Bundestag and the Bundesrat on the basis of Article 23(1) second and third sentence of the Basic Law” (paragraph 328, in fine). For Germany, recourse to Article 352 hence requires the passing of a ‘respective law’ (paragraph 417) [BVerfG, 2BvE 2/08. of 30 June 2009].
It was in recognition of such problems that on 25 March 2011 the European Council adopted a decision aiming at the amendment of the TFEU by the addition of a new paragraph to its Article 136, thereby offering an uncontroversial legal basis for the establishment of a stability mechanism for the Member States whose currency is the euro. The Treaty on the European Stability Mechanism (ESM), assuming the tasks of EFSM, as well as those of the European Financial Stability Facility (EFSF) followed on 2 February 2012.
‘pm’ stands for ‘pro memoria’, in order to designate a budgetary item or line without a figure, where appropriations may be actually supplied eventually—usually through transfer.
The entry into force of the Lisbon Treaty in December 2008 rendered such arguments obsolete: the distinction between compulsory and non-compulsory expenditure, as well as the maximum rate of increase foreseen in Article 272 of the EC Treaty were abolished.
Judgement of 12 May 1998, [1998] ECR I-2745, in particular paragraph 26.
Inter-institutional agreement of 13 October 1998 on legal bases and the implementation of the budget, OJ C 344 of 12 November 1998, p. 1.
The conclusion extends to the less important class of loans that were allowed by Article 208(9) of the Financial Regulation as regards the financing of the construction or acquisition the buildings by Union institutions through loans, subject to prior approval by the European Parliament and the Council. In a unilateral statement made at the adoption of the Financial Regulation, the Commission considers that “the borrowing of funds constitutes an off-budget operation”; that “the amount of loan is not recorded in the budget as revenue, and the full amount of the building price is not recorded as expenditure”; and that “only the yearly instalment to be paid to the lending institution are included as expenditure” (see OJ C 329, 26 October 2012, p. 2). In the light of the history of loan budgeting, however (as to which, see above, Sect. 5) it is unclear whether such contentions are due to legal considerations, or to a wish to simplify. A different approach is certainly possible for this particular class of loans.
See supra, Sect. 3.
Admittedly, there has been no case of a sovereign default as regards the two larger Union operations (EFSM, BoP), but calls on the guarantee granted to EIB lending have been numerous: cases include lending to Lebanon, Syria, ex-Yugoslavia, the ex-Soviet Union, and the CIS republics. The guarantee fund for external actions was solicited, since its inception in 1994, for a cumulative amount of EUR 478 m (see the latest ‘Report from the Commission to the European Parliament on guarantees covered by the general budget, situation at 31 December 2011, in COM (2012) 609 final, loc. cit.).
The latest example available, covering year 2012, may be found in OJ L 66 of 8.3.2013, pages II/1189 to II/1218.
See Council regulation 2728/94, OJ L 293 of 12 November 1994, last amended in January 2007.
OJ l 130, 31 May 2000, p. 1, as last amended by Council Regulation No. 105/2009 of 26 January 2009 (OJ L 36, 22 February 2009, p. 1).
Currently, Council decision No. 2007/436/EC, Euratom of 7 June 2007 (OJ L 163, 23 June 2007, p. 17). It would be recalled that, pursuant to Article 311 TFEU, such Decision is taken by the Council after consulting the European Parliament, and does not enter into force unless approved by Member States in accordance with their respective constitutional requirements. Such a unique mechanism confers on the Decision a status approaching that of primary law, and any change to it is difficult to implement, as it requires unanimity in the Council and ratification by all Member States’ national parliaments.
The current MFF covering years 2007 to 2013 and about to expire, is published in OJ C 139 of 14 June 2006, p. 10. A new instrument (a Council Regulation) based on Article 312 TFEU and covering years 2014 to 2020 has been adopted by Council with the consent of the European Parliament, and shall enter into force on 1 January 2014.
By way of example, the latest available report submitted by the Commission on the basis of former Article 130 (now 149) of the Financial Regulation, the sums currently at risk and likely to be covered by the Budget and/or the external guarantee fund in case of default amounted to 3.782 billion euro. 47 % of that sum was owed by Member States. The biggest single risk was presented by a third country (Turkey, 485.8 million euro), with two EU Member States coming close behind. For the full picture, see the tables in pages 9 and 10 of doc. COM (212) 609 final, loc. cit.
See Article 312(2) TFEU.
See Articles 139 and 140 of the Financial Regulation, and Articles 222 to 226 of the Delegated Commission regulation on the rules of application thereof.
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This article is based on a presentation given at the Conference The revised EU financial Regulation: improving the EU budget?, organised by ERA on 18 February 2013 in Brussels.
This article reflects the personal views of the author, which cannot be attributed to the Council of the European Union or its Legal Service.
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Vitsentzatos, M. Loans and guarantees in the European Union budget. ERA Forum 15, 131–144 (2014). https://doi.org/10.1007/s12027-014-0340-5
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DOI: https://doi.org/10.1007/s12027-014-0340-5