воскресенье, 26 июля 2015 г.

New measures to implement EU’s investment plan for growth

 Eugene Eteris, European Studies Faculty, RSU, Riga, 23.07.2015.
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On 22 July 2015, the European Commission has put the final building blocks in place to kick-start investment in the real economy. An agreed package of measures will ensure that the European Fund for Strategic Investments (EFSI) is up and running by early autumn 2015, keeping the President Juncker’s Investment Plan a reality.

A short history on Investment Plan and EFSI is needed to comprehend the new package of measures, which was quick and turbulent in preparation.

On 13 January 2015, the Commission adopted a legislative proposal: the new Commission’s team had been in office for little bit over two months.

The EU member states unanimously endorsed Commission’s proposal on 10 March and the European Parliament’s committee voted in favor on 20 April 2015.

Then, just after four and a half months (i.e. on 28 May 2015), the EU legislators reached a political agreement on the Regulation for a European Fund for Strategic Investments (EFSI).
The European Parliament's plenary gave its final approval on 24 June 2015, allowing EFSI to be operational by early autumn as planned.

According to the European Council conclusions (December 2014), the EIB was invited to start investment activities by using its own funds already in January 2015. The EIB as the Commission's strategic partner has already announced several projects to be pre-financed (or "warehoused") in the context of the Investment Plan for Europe.

On 22 July 2015 the Commission decided to extend the EU guarantee to the projects pre-financed by the EIB and European Investment Fund (EIF), and with EIB appointed the members of the Steering Board. Members of the Investment Committee should be in place by September 2015 following an open call for candidates.

In September 2015, the European Parliament will hold a hearing to approve the candidates for the position of Managing Director and deputy Managing Director of EFSI. The Commission plans to have the European Investment Advisory Hub (EIAH) up and running in autumn 2015, and the European Investment Project Portal (EIPP) by the end of 2015.

Research, Science and Innovation for EU’s growth

The Directorate General for Research & Innovation acknowledged that the European Fund for Strategic Investments (EFSI) could add firepower to Horizon 2020 for innovative SMEs.
Besides, Carlos Moedas, Commissioner for Research, Science and Innovation, on behalf of the Commission, signed an agreement (22.07.2015) with the European Investment Bank (EIB) and the European Investment Fund (EIF) to enable the EFSI to enhance existing loan guarantee instruments.

This notably concerns the InnovFin SME Guarantee, a part of the new generation of financial instruments developed under Horizon 2020, which is the EU's research and innovation funding program.

C. Moedas said that the InnovFin instruments would help innovative SMEs to find access to need initial financial support. He added that the backing by the European Fund for Strategic Investments would help satisfy the extraordinary demand by ensuring more and faster access to finance for innovative SMEs. In this way the Investment Plan for Europe is expected to deliver for research and innovation while increasing the Horizon 2020 importance.

More on EU R&D and Horizon program see the Directorate General for Research & Innovation’s websites: = http://ec.europa.eu/research; = http://ec.europa.eu/horizon2020; = http://ec.europa.eu/innovation-union.

Investment Plan for Europe: need for changes

Since the global economic and financial crisis, the EU has been suffering from low levels of investment. Collective and coordinated efforts at European level are needed to reverse this downward trend and put Europe firmly on the path of economic recovery, which is the top priority of the Juncker Commission.

Compared to the 2007 peak, investments have dropped by around 15% in the EU. It is known that in the short term, weak investment slows economic recovery; in the longer term, the lack of investment hurts growth and competitiveness. However, weak investment in the euro area has a considerable impact on the capital stock, which in turn holds back Europe's growth potential, productivity, employment levels and job creation.

Initially, the Investment Plan included such priorities as removing obstacles to investment, providing visibility and technical assistance to investment projects and making smarter use of new and existing financial resources.

To achieve these goals, the plan included the following priorities: a) mobilising investments of at least €315 billion in three years; b) supporting investment in the real economy, and c) creating an investment friendly environment.

See: http://ec.europa.eu/priorities/jobs-growth-investment/plan/index_en.htm

In the present version, the Investment Plan for Europe returns to the three initial objectives:

·         removing obstacles to investment by deepening the single market,
·         providing visibility and technical assistance to investment projects and
·         making smarter use of new and existing financial resources.

According to European Commission estimates, the Investment Plan has the potential to add €330 to €410 billion to the EU's GDP and create 1 to 1.3 million new jobs in the coming years.
The Commission sees that there is sufficient liquidity in the EU, but private investors are not investing at the levels needed due to a lack of confidence and uncertainty among other factors, so the Investment Plan for Europe aims to address this.

Financing the European Fund for Strategic Investments, EFSI

It has to be noted that the European Fund for Strategic Investments (EFSI) is at the heart of the general EU’s Investment Plan. EFSI's challenge is to break the vicious circle of under-confidence and under-investment and to make use of liquidity held by financial institutions, corporations and individuals at a time when public resources are scarce.

EFSI is being set up within the European Investment Bank (EIB) and the EU Investment Fund. It will mobilise additional investments in the real economy in areas including infrastructure, education, research, innovation, renewable energy and energy efficiency. It will also focus on small- and medium- sized enterprises (SMEs) and mid-caps (companies with between 250 and 3000 employees). EFSI will target projects that will, among other objectives, promote job-creation, long-term growth and competitiveness.

To establish EFSI, a guarantee of €16 billion will be created. The EU guarantee will be backed by a guarantee fund of €8 billion (half the amount) from the EU budget. The EIB will commit €5 billion, giving EFSI a risk absorbing capacity of €21 billion. EIB and European Commission’s experience indicates that 1 euro of subordinated debt catalyses 5 euro in total investment: € 1 in subordinated debt and on top of that 4 euro in senior debt. This means that € 1 of protection by the fund generates € 15 of private investment in the real economy that would not have happened otherwise. This 1:15 multiplier effect is a prudent average, based on historical experience from EU programs and the EIB.

The role of the EIB in the decision making is great: as a contributor to EFSI, the EIB will have representatives in the Steering Board. Since EFSI is operating within the EIB, any project supported by EFSI will also require approval according to the EIB’s regular procedures. EFSI financing for SMEs and mid-caps through the European Investment Fund (EIF) will equally require approval according to the EIF's regular procedures.

Connections between EFSI and the European Structural and Investment Funds, ESIF

Commission argues that EFSI regulation aims at full complementarity between EFSI risk financing opportunities and those of the European Structural and Investment Funds.
Both sources have different purposes and are implemented with different financial instruments. While EFSI focuses on attracting private investors in economically viable projects, the bulk of the European Structural and Investment Funds (ESIF) consist of grants.

The Commission is working on concrete guidance to managing authorities on how to better combine these opportunities.

In addition, the member states are encouraged to at least double the use of innovative financial instruments to optimise the impact of structural funds in the future.

A fictitious example can help to get the idea: building a road with a toll in an industrial centre might attract investors and could thus be more easily funded through EFSI. But building a road without toll in a rural area will probably not attract private investors and is therefore better funded through the European Structural and Investment Funds (ESIF).

The ways the EFSI can provide support to member states’ SMEs

EFSI will provide financing (using instruments such as equity, quasi-equity and others) for projects that are deemed high-risk, which is often missing in the current economic environment. This could be of benefit to small, innovative companies starting up, which investors tend to see as presenting higher risk than more established or larger companies. A quarter of the total investment catalysed by EFSI, or €75 billion over three years will go to SMEs and mid-caps via the European Investment Fund (EIF), which is part of the EIB group. SMEs normally receive finance via dedicated funds such as special purpose vehicles (SPVs), or intermediaries such as banks.

The EIF has already started co-financing SMEs: in May 2015 it signed a first agreement with a French bank to provide increased lending to innovative companies; followed by similar agreements with banks in other countries.

The SME Window of EFSI will support existing funding from the Competitiveness of Enterprises and Small and Medium-sized Enterprises ("COSME") program and reinforce the implementation of the COSME Loan Guarantee Facility (LGF), which have seen a strong market demand but have limited budgetary resources. Thanks to a guarantee provided under EFSI the European Investment Fund (EIF) will be able to bring forward in time the signature of transactions with financial intermediaries compared to what would have been possible under the COSME budget alone. This will create multiple positive impacts, leading to further investments, growth and faster economic recovery.

The European Investment Project Portal: information for applicants

The European Investment Project Portal (EIPP) will improve investors' knowledge of existing and future projects all over Europe in an effort to increase transparency and maximise investor participation in financing (without any guarantee that these projects will be financed by public authorities).The project portal will enable EU-based project promoters that are seeking external financing to share their investment projects and ideas with potential investors. It will be managed by the European Commission and should be operational by the end of 2015.

General reference: http://europa.eu/rapid/press-release_MEMO-15-5419_en.htm?locale=en

Eugene Eteris, European Studies Faculty, RSU, Riga, 23.07.2015.
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