Introductory text

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 308 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament^f1,

Whereas:

The United Nations Security Council adopted Resolution 1244 (1999) (UNSCR 1244 (1999)) on 10 June 1999 aiming at promoting the establishment, pending a final settlement, of substantial autonomy and self-government in Kosovo within the former Federal Republic of Yugoslavia.

The International Community, basing itself upon UNSCR 1244 (1999), has set up an international security presence (KFOR) and an interim civil administration — the United Nations Interim Mission in Kosovo (UNMIK). UNMIK consists of four components (pillars) and the European Union is funding the fourth pillar responsible for economic reconstruction and development. UNMIK, and particularly Pillar IV thereof, has achieved substantial progress in setting up an institutional, legal and policy framework conducive to the creation of a sound economy based on market principles.

Since its establishment, UNMIK has transferred significant areas of competence to the Provisional Institutions of Self Government (PISG). In particular, responsibility for the budget has been transferred from UNMIK to the Ministry of Economy and Finance within the PISG, with the Special Representative of the UN Secretary-General retaining the ultimate power of approving the budget.

On 24 October 2005, the UN Security Council approved the UN Secretary-General’s proposal to launch the political process to determine the future status of Kosovo.

The authorities of Kosovo entitled to receive Community assistance and responsible for agreeing to and fulfilling the financial and economic conditions attached to this assistance are therefore UNMIK and the PISG or, when the future status of Kosovo will have been determined, the institution or institutions designated to take on these tasks and responsibilities.

Within the stabilisation and association process, which is the framework for EU relations with the region, it is desirable to support efforts to sustain political and economic stabilisation in Kosovo, with a view to evolving towards the development of a full cooperation relationship with the Community making the European future of Kosovo more tangible.

The Community has already found it an appropriate measure to help ease Kosovo’s financial constraints in exceptionally difficult circumstances and, pursuant to Council Decision 2000/140/EC of 14 February 2000 providing exceptional Community assistance to Kosovo^f2 and Council Decision 2001/511/EC of 27 June 2001 on further exceptional financial assistance to Kosovo^f3, provided exceptional financial assistance in the form of straight grants amounting to EUR 35 million and EUR 30 million in 2000 and 2001 respectively. The last payment under such assistance was released in December 2002.

This exceptional financial assistance complements other Community assistance programmes for the western Balkans.

In November 2005 the authorities of Kosovo agreed with the International Monetary Fund (IMF) a Letter of Intent and a Memorandum of Economic and Financial Policies laying out a fiscal framework for 2006, including medium-term orientations. They completed in the beginning of March 2006 a medium-term expenditure framework. The framework identifies budget and off-budget financing needs in 2006 to 2008. Accordingly, it is estimated that budget external financial assistance of some EUR 81 million (EUR 14 million in 2006 and EUR 67 million in 2007, respectively) would be needed until the end of 2007.

Although economic activity resumed after the conflict, Kosovo is at a low level of economic development. Kosovo is not in a position to borrow either domestically or on the international financial market and under its current status it is not eligible for membership in the international financial institutions. It may therefore not benefit from lending assistance associated with their programmes.

In view of current arrangements under UNSCR 1244 (1999), given Kosovo’s relatively low level of economic development and its precarious public finance and external accounts, financial assistance from the Community in the form of straight grants, in liaison with other donors, continues to be the appropriate form of support.

Such assistance will provide crucial bridge support pending a settlement of Kosovo’s status. It would be unrelated to new status arrangements under negotiation and not pre empt further Community and international support likely to be required upon status resolution beyond 2007.

The release of this grant assistance is without prejudice to the powers of the budgetary authority.

This financial support should be provided after verifying whether the financial and economic conditions to be agreed with the authorities of Kosovo upon approval of this Decision can be satisfactorily fulfilled.

In order to ensure efficient protection of the Community’s financial interests linked to the present financial assistance, it is necessary to provide for appropriate measures by Kosovo in relation to the prevention of and fight against fraud and other irregularities linked to this assistance, as well as for controls by the Commission and audits by the Court of Auditors.

This assistance should be managed by the Commission in consultation with the Economic and Financial Committee.

The Treaty does not provide, for the adoption of this Decision, powers other than those of Article 308,

HAS DECIDED AS FOLLOWS: