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During last five years, the EU’s budget has been increasingly relying on different financial instruments to leverage on the EU-wide budget power to assure more efficient use of public resources. Borrowing and lending operations and budgetary guarantees have supported investments and economic recovery in the member states, while providing support for the EU international obligations and assisting further accession to the Union.
Background
The EU institutions use numerous financial instruments to support implementation of the EU-wide socio-economic policy priorities, e.g. issuance of the bond and debt securities. Thus, one of the main EU implementation program – the NextGenerationEU – is currently funded by EU-Bonds instrument. The EU also issues EU-Bonds to finance loans for countries in the EU neighbourhood, including essential financial support for Ukraine.
Under the NextGenerationEU recovery instrument, the EU is expected to raise up to €712 billion (out of a maximum program envelope of €806.9 billion) by 2026.
Reference to:
https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations_en
In addition to borrowing, the EU uses budgetary guarantees to attract private investment in strategic sectors such as infrastructure, innovation and sustainability. Besides, programs like InvestEU and the European Fund for Sustainable Development Plus are having financial backing from e.g. the European Investment Bank and national promotional banks in the forms of loans and investments. This reduces the risk for private investors and enabling projects that might not otherwise secure funding. To cover for the financial risks associated to budget guarantees, the EU maintains a Common Provisioning Fund (CPF) which “pools financial reserves” designed to cover potential losses linked to budgetary guarantees and financial assistance; the CPF ensures that the EU budget remains resilient while continuing to support long-term investment and economic stability.
More in the following Commission’s web-links: = EU as a borrower; = Report on contingent liabilities arising from budgetary guarantees and financial assistance and the sustainability of those contingent liabilities; and = Latest report from the Commission to the European Parliament and the Council on the Common Provisioning Fund in 2023.
Strengthening the role of the EU Chief Risk Officer
The Commission decided to expand the role of the independent Chief Risk Officer (CRO), with an oversight over all of the Union’s financial operations, including borrowing, debt and liquidity management, lending operations and budgetary guarantees, as well as assets under management. The CRO’s position is held by Iliyana Tsanova since her appointment in 2021.
The strengthening of the risk management of the EU financial operations is part of the Commission’s commitment to robust financial governance of the EU budget.
The CRO’s activity represents a central pillar of the so-called “’three lines of defence” model as a best-practice framework for risk governance.
In model’s constituent parts in “defence” are: a) Commission departments managing EU borrowing, lending and asset management operations as well as budgetary guarantees; b) the CRO, as an independent corporate “line of defence” formulates risk management policies and provides independent risk oversight, ensuring additional controls and accountability; and c) the EU-wide Internal Audit Service, as the third line of defence, provides independent assurance on risk governance.
With the adoption of this framework model and the establishment of an independent Chief Risk Officer, the Commission has fully implemented all recommendations of the European Court of Auditors’ special report 16/2023 on EU debt management.
Citation
Piotr Serafin, Commissioner for Budget, Anti-Fraud and Public Administration noted that strengthening the CRO’s role was a “testament to the EU’s commitment to maintaining high standards of financial risk oversight”.
Thus, using loans and budgetary guarantees will remain an essential instrument to drive the EU-wide political priorities and support investments for climate transition, competitiveness and external action. As soon as the EU-27 “navigate an increasingly complex financial landscape”, the newly adopted measures would ensure that the EU remains prepared to address emerging challenges with robust risk management practices.
Source: Commission press-release in https://ec.europa.eu/commission/presscorner/detail/en/ip_25_610