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Innovative financial instruments

The Commission has adopted on 19 October 2011 a Communication to the European Parliament and Council on the use of innovative financial instruments in EU budget spending. The Communication comes at a time where the Commission is presenting its policy proposals for the post-2013 financial instruments to the co-legislator. It also provides an input to the on-going negotiations on the Commission proposal for amendment of the Financial Regulation.

The Commission Communication of 19 October 2011 on "A new framework for the next generation of innovative financial instruments – the EU equity and debt platforms" (COM(2011)622 final) presents the Commission's view on the future of innovative financial instruments in EU budget spending. Innovative financial instruments have the potential to play an important role in achieving the Europe 2020 Strategy's objectives of smart, sustainable and inclusive growth.

What are innovative financial instruments?

Spending through innovative financial instruments is another way of spending EU budget than giving grants or subsidies. Innovative financial instruments cover a rather broad range of interventions such as participations in equity (risk capital) funds, guarantees to local banks lending to a large number of final beneficiaries, for instance small and medium-sized enterprises (SMEs) or risk-sharing with financial institutions to boost investment in large infrastructure projects (e.g. the Europe 2020 Project Bonds Initiative). The aim of such interventions is to boost the real economy through increasing the access to finance for enterprises and industry producing goods and service.

How can innovative financial instruments help growth in Europe?

Innovative financial instruments have the capacity to attract funding from other public or private investors in areas of EU strong interest but which are perceived as risky by investors (e.g. high growth and innovative business activity). The fact that the EU invests risk capital in a fund or covers part of the risk associated with a certain type of projects can give other public or private investors the assurance they need to invest alongside the EU. Moreover, innovative financial instruments have important non-financial effects such as promotion of best practices.

What are the equity and debt platforms?

The equity and debt platforms are common rules and guidance for innovative financial instruments which make use of equity or debt (loans, guarantees, risk sharing). Such rules are necessary to ensure that sound financial management and best practices, for instance as regards the risks involved, are followed whenever the EU engages budget money in innovative financial instruments.

What's next?

The Commission has proposed a specific chapter on financial instruments in the Financial Regulation, setting out the overall principles for the budgetary management of such instruments. In parallel, the Commission will work on the more detailed rules and guidance in order to have this in place when the Financial Regulation has been agreed by the co-legislator.

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