Strasbourg, 13 January 2015
Just 2 months ago we launched the EU Investment Plan.
As everybody remembers there are three parts: a risk financing part; a transparent project pipeline; and deepening the Single Market in various areas.
Now we are presenting detailed legislative proposals developing the first two pillars.
Now we need Member States and the especially European Parliament to fast-track these legal texts so they can be approved by June.
SO WHAT IS NEW?
There are 4 issues which I would like to present.
1. The first one is establishment of the new European Fund for Strategic Investment (EFSI) - the key vehicle to mobilise financing of more than 315 billion EURO over the next 3 years.
2. The second point is the creation of a transparent project pipeline in which there are well-structured, reliable and also viable infrastructure projects, so it is easier for the private money to come in.
3. Third, is the European Investment Advisory Hub (EIAH) - a one-stop-shop for technical and financial assistance for investors and project developers.
4. Fourth, we have also set out the governance structure of the new EFSI, this is very important. To add value, the EFSI must support projects with a higher risk profile to get investment flowing into countries and sectors where job creation and growth is most needed. For this reason, its Governance Structure has been designed to be less risk adverse than the normal EIB.
As we explained at the end of last year, we foresee a two-tier governance structure:
- the Steering board where the shareholders of the EFSI will be represented will define the risk profile and the investment guidelines. The investment guidelines and the detailed criteria for the selection of projects will be defined by the steering board once appointed.
- an Investment Committee made up of independent professionals, receiving a salary for their work in the EFSI, will make the individual investment decisions in accordance with the investment guidelines.
The Agreement between the Commission and the EIB will be negotiated in the coming months but, for obvious reasons, it cannot be finalised before the legislators come to an agreement on the Regulation establishing the EFSI - since it only fleshes out in more technical terms the legal obligations enshrined in the regulation.
As contributors to the EFSI, the EIB will have representatives in the Steering board.
And since the EFSI is operating within the EIB, any project supported by the EFSI will also require the approval of the EIB board under the normal procedures foreseen by the Treaty.
Contributions on the first layer from sources other than Member States' general government deficit, for instance national promotional banks, would have to come legally through co-investment platforms. The private sector could come to these co-investment platforms if it targets high risk and high returns. In the case of infrastructure and pension funds I could see them more easily participating at the level of the co-financing of projects.
It is very important to know that the selection of projects will not be political. It will be made by the professionals in the Investment Committee. This is a very important for the private sector point of view, because they have said very clearly to us that the reliability of the investment project must be of the highest level in order to strengthen the trust in the work of the EFSI.
Once the EFSI Regulation and the consequent budgetary adjustment will be adopted by the Council and the Parliament, the 6 billion from CEF and Horizon 2020 will constitute a provision in the EFSI Guarantee Fund.
That money is blocked in the Guarantee fund and can only be used to pay guarantee calls by the EIB. However, thanks to the higher multiplying effect of the Investment Plan, the impact generated on investment in innovation by amounts blocked in the Guarantee Fund will be higher than the same amount spent under H2020 an CEF, because of the higher risk and the riskier instruments.
Here I would like to remind you how our instrument works. It is important not to mix the €8bn Guarantee Fund in the EU budget and the €21bn European Fund for Strategic Investments:
- The EU budget provides a guarantee of €16bn to the EIB. . When there is a loss on a portfolio of instruments (e.g. junior debt), the EIB may call an amount, corresponding to that loss, from the guarantee of €16bn from the EU-budget.
- For prudent budget-management purposes, this €16bn guarantee from the EU-budget is backed by a guarantee fund of €8bn. These €8bn act like a safety buffer for the guarantee. Given that the EFSI will finance long-term projects, that reflows will in general be kept in the guarantee fund and that losses are in general recorded over time, it is highly unlikely that the whole guarantee fund of €8bn would need to be called at one single point of time.
The EU has a very high quality signature and its budget is solid and trust-worthy. Thus, the EU does not need to provide pre-financing for a guarantee for such a guarantee to be credible for the markets and useful for the EIB. The guarantee fund of €8bn is established only to facilitate the payment of potential guarantee calls, since it avoids having to arrange sudden spending cuts or re-programming. Thus, it brings transparency and predictability to the budgetary framework but is not as such necessary for the guarantee to work
In other words, the Guarantee fund will be put in place to mitigate any potential impact on the EU budget. Its calibration has been done in a way that will allow the EU to meet, with a safety margin, any potential risks.
Once the guarantee has been called any further profits that increase the fund above target level will gradually restore the EU guarantee to its original level. Money from the EU budget cannot be used for this purpose. If the Guarantee becomes over 50 percent the Commission shall have the option to send the surplus back to the EU budget.
WHAT IS THE WAY FORWARD?
Our timetable is very ambitious.
We want to have these proposals adopted by June so the new EFSI Fund and project pipeline can be operational by the end of the Summer. We want to get the investments flowing as soon as possible.