On the 17th June 2008, the European Commission published a proposal for a Council regulation (EC, Euratom) No …/.. establishing a Guarantee Fund for external actions. The purpose of this proposal is to undertake a codification of Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994 establishing a Guarantee Fund for external actions. The new Regulation will supersede the various acts incorporated in it ; this proposal fully preserves the content of the acts being codified and hence does no more than bringing them together with only such formal amendments as are required by the codification exercise itself.

Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994 establishing a Guarantee Fund for external actions has been substantially amended several times . In the interests of clarity and rationality the said Regulation should be codified.

The European Council on 11th and 12th December 1992 concluded that considerations of prudent budgetary management and financial discipline called for the establishment of a new financial mechanism, and that accordingly a Guarantee Fund should be set up in order to cover the risks related to loans and guarantees covering loans granted to third countries or for projects executed in third countries.

The Guarantee Fund should be constituted by the gradual payment of resources. The Fund will subsequently also receive interest on its invested resources and amounts recovered from defaulting debtors where the Fund has already honoured the guarantee.

Financial management

The financial management of the Guarantee Fund should be entrusted to the European Investment Bank. The financial management of the Fund should be subject to audit by the Court of Auditors in accordance with procedures to be agreed upon by the Court of Auditors, the Commission and the EIB.

If, as a result of one or more defaults, the activation of guarantees during year ‘n–1’ exceeds EUR 100 million, the amount exceeding EUR 100 million shall be paid back into the Fund in annual tranches starting in year ‘n+1’ and continuing over the following years until full repayment (smoothing mechanism). The size of the annual tranche is the lesser of the following:

• EUR 100 million, or
• The remaining amount due in accordance with the smoothing mechanism.

Any amount resulting from the activation of guarantees in years preceding year ‘n–1’, that has not yet been repaid in full due to the smoothing mechanism, shall be paid back before the smoothing mechanism for defaults occurring in year ‘n–1’ or subsequent years can take effect. Such remaining amounts shall continue to be deducted from the maximum annual amount to be recovered from the general budget of the European Union under the smoothing mechanism until such time as the full amount has been paid back into the Fund.