Question
Which risk weight shall apply to outstanding/new EURATOM debt instruments?
Background on the question
Article 118 of Regulation (EU) No 575/2013 (CRR) states that international organisations like (a) the Union shall be assigned a 0% risk weight. For investors it is unclear whether debt instruments issued by the legal entity EURATOM are treated as part of the above mentioned "Union" (i.e. with 0% RW) or as separate corporate debt, as Q&A 968 states that exposures to international organisations not included in the exhaustive list of Article 118 CRR shall be treated as exposures to corporates (Article 122). As EURATOM is not explicitly mentioned, a legal interpretation could differ from an economic interpretation. This question is thus very relevant for both investor and the issuer EURATOM/European Union, also when it comes to new debt issuance.
Answer
While EURATOM and the European Union are separate legal entities with independent borrowing powers, their Member States and governing bodies are the same. Both entities share a common budget, following the principle of unity of budget according to Regulation (EU, EURATOM) No 966/2012. It is the common budget that ensures the repayment of funds borrowed by EURATOM and the European Union, so that the credit risk associated with exposures to EURATOM and the European Union is equivalent.For the purpose of Article 118 CRR, the term “'Union” should therefore be understood to refer to both the European Union and EURATOM, implying a 0% risk weight for exposures to these entities. Disclaimer: This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Financial Stability, Financial services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.