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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 54 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 to provide financial assistance to countries experiencing financial difficulties, all three of 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 a limit of EUR 60 billion. The EFSM has been      activated for Ireland — EUR 22.5 billion — and Portugal — EUR 24.3      billion. The disbursements to both of these countries were completed by      2014.The EFSM will now be used to refinance the lengthening of maturities      if beneficiary countries request it (see investor presentation for      details).
  • The      Balance-of-payments programme (BOP) provides assistance to non-euro area Member      States up to EUR 50 billion.
  • Macro-Financial      Assistance (MFA) is a form of financial aid extended by the EU      to partner countries currently following an IMF programme.

Details can be found in the investor presentation below.

Investor presentation

>> Download: European Union – Investor Presentationpdf(2 MB) Choose translations of the previous link   (June 2015)

In addition, the European Commission administers 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. The EU has no loan exposure to Greece.

Funding characteristics of the EU

  • EU      borrowing is only permitted to finance loan disbursements to countries. The      EU is not permitted to borrow to finance its 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 1 bn size).
  • 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 bonds, however, remains the obligation of the European      Union, which ensures that all payments are made in a timely manner.
  • For      each country programme, the Council Decisions (in the case of MFA the      co-decision procedure applies, also involving the European Parliament) 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.
  • The      timing, volume and maturity of issuance are 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(591 kB) Choose translations of the previous link . Alternatively, for private placements, German loan documentation (‘Schuldschein’) is also available.

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 145.3 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

 

Commission press releases

 

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