EU-backed project bonds to support strategic investments in transport, energy, Internet and telecommunications networks.
To stimulate the building of strategic infrastructure, the Commission wants to guarantee bonds issued by companies to fund large-scale projects.
Large-scale infrastructure projects are of huge benefit – to the public and to the wider economy. But the global financial crisis has made it harder for companies to raise the funds they need. It has also squeezed government budgets, limiting the amount of support they can lend to such projects.
An EU guarantee for project bonds would make big investors – like pension funds and insurance companies – less wary of buying into them.
The guarantees would back only infrastructure projects that were in line with Europe 2020 – the EU's strategy to boost economic growth and jobs.
The Commission would share the risks of the guarantees with the European Investment Bank (EIB). The EIB would review projects and set a price for the guarantee or loan. The projects would have to be economically and technically viable and have the potential to generate stable and strong revenues.
Private companies – not the EU or EIB – would then offer the bonds to investors.
Smart, strategic investments
Around €1.5-2 trillion in investment will be needed over the next decade to upgrade Europe's transport, energy, high-speed Internet and telecommunication networks.
Investment is needed in transport to remove major bottlenecks, construct missing cross-border links, and interconnect transport modes. Smart grids are needed to bring electricity to where it is needed. Broadband for the next generation Internet needs to be available to everyone everywhere.
Before the financial crisis hit the markets, project finance and bonds accounted for 10% of the market. The bonds were usually backed by insurance companies, which helped make them acceptable to investors. Such support no longer exists and is unlikely to return soon.
EU-backed project bonds will fill the gap, complementing existing sources of infrastructure financing, such as bank loans and government grants.
A public consultation on 'Europe 2020 project bonds' is now underway until 2 May 2011. Opinions and suggestions will feed into a proposal on project bonds planned for this June. EU-backed project bonds should be available in 2014.