Document originated:	29 October 1996
Department:	Foreign and Commonwealth Office
Basis of consideration:	Minister's letter of 12 June 1997
Previous consideration:	5 March 1997
Committee's assessment:	Legally and politically important
Committee's decision:	Cleared

Background

41.1  The previous Committee reported on a Commission Communication setting out options for the financing of new buildings for the European Parliament in Brussels and Strasbourg[122]. The European Parliament was proposing to take out a loan to purchase the buildings on completion, thereby taking advantage of subsidies for the acquisition of the land on which the buildings stood. The previous Committee noted that there was disagreement about this approach, and asked the then Minister to bring any further proposals to its attention.

Further information from the Government

41.2  In his letter of 12 June 1997 (reproduced below), the Minister of State at the Foreign and Commonwealth Office (Mr Henderson) tells us that this approach was judged by the Council to be contrary to the Own Resources provisions of the Treaty. He says that the European Parliament is now proposing that an intermediate financial body known as a Special Purchase Vehicle (SPV) should be set up to borrow the money from the market. The SPV would pay for the land and buildings, and immediately sell them on to the European Parliament. The European Parliament would make annual payments over a period of 20 years out of its normal budget appropriations to the SPV, which would use this money to pay off the capital and interest of the original loan.

41.3  The Minister says that the Council Legal Service is content with the proposal, and that his experts agree. The Minister expected the Presidency to seek agreement to this proposal on 17 June, with the proviso that it was an exceptional arrangement which would not set a precedent. On this basis, the Government intended to agree. In the event, the proposal was agreed.

Conclusion

41.4  We are surprised that it is necessary to resort to this rather convoluted stratagem to raise funds for the European Parliament. But we see no legal problem with what is now proposed, and we therefore clear the document.

The Minister for Europe in the previous Government, David Davis, deposited on 17 February an Explanatory Memorandum about a Commission Communication on financing for new European Parliament (EP) buildings. The EP wanted to rationalise the financing arrangements and reduce overall costs by taking advantage of subsidies to purchase the land on which the buildings stood. It was proposing to take out a loan to buy the buildings and land rather than leasing them. However direct borrowing to finance expenditure was judged by the Council to be contrary to the Own Resources provisions of the Treaty, and the EP subsequently accepted this view.

In reporting on these matters (in its Sixteenth Report, 1996-97) the previous European Legislation Committee asked that any further or amended proposals be brought to its attention. The Committee expressed particular interest in the implications of the legal issue for possible future transactions. I am writing to report further developments.

Following inter-institutional discussion at working level, the EP now proposes that instead of direct borrowing by the Parliament itself, an intermediate financial body known as a Special Purpose Vehicle (SPV) would borrow the money. As its name suggests, this financial entity would be set up solely for this special purpose. Using the money it had borrowed from the market, the SPV would pay for the land and the buildings. The EP would become the owner of the land and buildings straight away and make annual payments from its budget to the SPV over a period of 20 years. The SPV would use this money to pay off the capital and interest of the original loan.

This option has legal and financial benefits. The Council Legal Service considers this new proposal to be compatible with the Treaty because the EP will pay for the land and buildings out of its normal budget appropriations. Our own experts agree. The Legal Service also considers it to be compatible with Belgian and French law. The proposal would allow the EP to become owners of the building straight away and be able to take advantage of land subsidies.

Discussion of the proposal is now continuing at working level in Brussels. We expect that Member States will agree to it, with the proviso that it is an exceptional arrangement which will not set precedents for other expenditure, and provided that it will not cause the European Parliament share of the Community administrative budget to exceed its 20% ceiling.

The Parliament has asked for the Council's opinion on the new proposal by the end of June, so that it can begin to set up the SPV. The Presidency will therefore seek agreement in Council on 17 June. Since we are satisfied with the proposal's legality, we intend, subject to the resolution of the points mentioned above, to agree to the proposal at Council.

12 June 1997