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The EU as a borrower

The European Commission is empowered by the EU Treaty to borrow from the international capital markets, on behalf of the European Union.

The EU has some EUR 57 billion in outstanding bonds. It has a liquid yield curve consisting of 19 benchmark issues of over EUR 1 billion maturing until 2042.

The EU currently has three loan programmes which are funded through bonds issued on the capital markets:

  • The European Financial Stabilisation Mechanism (EFSM) exists to provide support to any EU Member State, up to EUR 60 billion. It has been activated for Ireland for up to EUR 22.5 billion and for Portugal for up to EUR 26 billion.
  • The Balance-of-payments programme (BOP) provides assistance  to non-euro area Member States up to EUR 50 billion (EUR 10.4 billion outstanding)
  • Macro-Financial Assistance (MFA) is a form of financial aid extended by the EU to partner countries. So far there are EUR 1.1 billion in bonds outstanding.

In addition, the European Commission manages the

  • Package of pooled bilateral loans from euro area Member States to Greece; the package initially comprised a total of EUR 80 billion, which was finally lowered to EUR 52.9 billion.

 

Investor presentation

>> download: European Union – Investor Presentationpdf(2 MB) Choose translations of the previous link   (July 2014)

 

Funding characteristics of the EU

  • EU borrowing is raised on the capital markets and not from the budget, as the EU is not permitted to borrow to finance its ordinary budgetary expenses;
  • Size of the borrowings varies from small private placements of several million euros to benchmark-size issues (i.e. with at least EUR 1bn size) for balance of payment loans and the EFSM.
  • Funds raised are lent to beneficiary countries under almost exactly the same terms, i.e. with the same coupon, maturity and for the same amount. The debt service of the bond, however, remains the obligation of the European Union, which ensure that all payments are made in a timely manner.
  • For each country programme, the Council and Commission Decisions determine the overall amount, the instalments to be paid and the maximum average maturity of the loan package. Subsequently, the Commission and the beneficiary country agree loan/funding parameters, including instalments and the payment of tranches. In addition, all but the first instalment of the loan depends on compliance with various policy conditions similar to those of IMF packages, which is another factor influencing the timing of funding.
  • This timing, volume and maturity of issuance is determined by the EU’s lending activities.
  • Funding is exclusively denominated in euro.
  • The maturity spectrum is 5 to 30 years.
  • The EU issues benchmark-size bonds under its Euro 80 billion Medium Term Note programme (EMTN)pdf(285 kB) Choose translations of the previous link .

 

The EU's credit rating

The EU enjoys an AAA/Aaa/AAA (outlook stable) credit rating from Fitch, Moody’s and DBRS as well as a AA+ (outlook stable) rating from Standard & Poor’s. This reflects the very strong support of Member States, which include several of the world's largest and most developed industrial economies and which together form the largest economic bloc in the world.

The EU’s AAA/Aaa/AA+ ratings are a reflection of the fact that:

  • Borrowings are direct and unconditional obligations of the EU, guaranteed by the 28 Member States.
  • Investing in an EU bond is purely linked to the credit quality of the EU and entirely unrelated to the credit risk of the related EU loan to a beneficiary country. The debt issued by the EU is backed by several layers of debt-service protection: the bond is fully guaranteed by the EU budget (EUR 135.5 bn in payment appropriations for 2014) and, ultimately, by the EU Member States, independent of the use of the funds raised with the bond.
  • The EU may not borrow to finance a budget deficit of its own.
  • By lending funds raised on identical terms, the EU budget does not assume any interest rate, maturity, or foreign exchange risk.

 

Agency

Rating

Fitch Ratings

AAA/Outlook stable

Moody's

Aaa/Outlook stable

DBRS

AAA/Outlook stable

Standard & Poor's

AA+/Outlook stable

 

 

Distribution of loans by beneficiary

 

Commission press releases

 

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