Explanatory Memorandum to COM(2015)10 - European Fund for Strategic Investments - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2015)10 - European Fund for Strategic Investments. |
|---|---|
| source | COM(2015)10  |
| date | 13-01-2015 |
As a consequence of the economic and financial crisis, the level of investment in the EU has dropped by about 15% since its peak in 2007. The current level is well below what historical trends would imply, and – in the absence of action – projections point towards an only partial rebound over the coming years. Economic recovery, job creation, long-term growth and competitiveness are being hampered as a result. This investment gap poses risks to reaching the targets set by the Europe 2020 Strategy. The President of the European Commission in his Political Guidelines for the Commission 2014-2019 therefore identified this issue as a key policy challenge, as did the European Council on 18 December 2014 (EUCO 237/14) as well as the Group of Twenty Leaders' Summit on 15-16 November 2014.
General uncertainty about the economic situation, high levels of public and private debt in parts of the EU economy and their impact on credit risk limit the room for manoeuvre. However, significant levels of savings and high levels of financial liquidity exist. Moreover, recent enquiries conducted jointly by the European Commission, the European Investment Bank and EU Member States have confirmed that a significant number of viable investment projects remains unfunded.
Against this backdrop, in its Communication 'An Investment Plan for Europe', published on the 26 November 2014, the Commission proposed an EU-level initiative to address this issue. The Plan is based on three mutually reinforcing strands. First, the mobilisation of at least EUR 315 billion in additional investment over the next three years, maximising the impact of public resources and unlocking private investment. Second, targeted initiatives to make sure that this extra investment meets the needs of the real economy. And third, measures to provide greater regulatory predictability and to remove barriers to investment, making Europe more attractive and thereby multiplying the impact of the Plan.
This proposal creates the necessary legal framework and provides the budgetary allocations for the first two strands of the Plan in the framework of the EU's legal order. Upon adoption of the proposed regulation, it will be implemented jointly by the Commission and the European Investment Bank (EIB), as strategic partners, with the clear aim of rallying stakeholders at all levels. For the third strand of the Investment Plan concerning the regulatory environment and the removal of barriers to investment, the Commission has set out a first set of actions in its Work Programme, adopted on 16 December 2014 (COM(2014) 910). The Commission will also work together with the other EU Institutions and the Member States in the context of the European Semester as far as these matters are concerned.
Given the key role which small and medium enterprises (SMEs) play in the EU economy, especially in terms of employment creation, they will be a key beneficiary of the support provided for under this proposal.
In this area as well, the design and features of those mechanisms are based on existing experience with innovative financing instruments employed jointly between the EU and the EIB Group.
Contents
- RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- 3.1. Creating a European Fund for Strategic Investments and Establishing a European Investment Advisory Hub (Articles 1-3)
- 3.2. Granting of an EU Guarantee and Establishment of an EU Guarantee Fund (Articles 4-8)
- 3.3. Establishing a European Investment Project Pipeline (Article 9)
- 3.4. Reporting, Accountability, Evaluation and Review of EFSI Operations (Articles 10-12)
- 3.5. General Provisions (Articles 13-17)
- 3.6. Amendments (Articles 18-19)
- 5. ADDITIONAL INFORMATION
President Juncker presented the Investment Plan to the European Parliament on 26 November. Moreover, the Investment Plan was endorsed by the European Council on 18 December 2014. The European Council also invited the Union legislators to agree on the necessary legal text by June, so that the new investments could be activated as early as mid-2015.
The legal, economic and financial concepts underpinning this proposal have been extensively discussed with the European Investment Bank Group and informally discussed with public and private sector representatives. Stakeholders from the private sector have particularly emphasised the importance of robust quality criteria and an independent selection of projects that could be supported by the Plan. More specifically, it was recommended that the projects should be economically viable with the support of the initiative, i sufficiently mature to be appraised on a global or local basis, of European added value and consistent with EU policy priorities (such as, for example, the 2030 climate and energy package, Europe 2020 Strategy and other long-term EU strategic priorities). Moreover, projects should not be limited to cross-border projects (such as the case with TEN-T and TEN-E projects).
The Commission additionally gained important insights from its involvement in the Special Task Force on Investment in the EU. The overall objective of the Task Force was to provide an overview of the main investment trends and needs; analyse the main barriers and bottlenecks to investment; propose practical solutions to overcome those barriers and bottlenecks; identify strategic investments with EU added value that could be undertaken in the short run; and make recommendations for developing a credible and transparent pipeline for the medium to long term. This work has been taken into account for the current proposal.
The final task force report is available on the following web site:
ec.europa.eu/priorities/jobs-growth-investment
The legal bases for this proposal are Articles 172, 173, Article 175 and Article 182 of the Treaty on the Functioning of the European Union. This proposal sets out the legal framework necessary to implement the first two strands of the 'Investment Plan for Europe'.
In accordance with the principles of subsidiarity and proportionality set out in Article 5 of the Treaty on European Union, the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore be better achieved by the EU. By reason of the disparities in Member States' fiscal capacity to act, action at Union level can better achieve the objectives pursued, by reason of its scale and effects. More specifically, the EU level will provide for economies of scale in the use of innovative financial instruments by catalysing private investment in the whole EU and making best use of the European Institutions and their expertise and knowledge for that purpose. The multiplying effect and the impact on the ground will thus be much higher than what could be achieved by an investment offensive in a single Member State or a Group of Member States. The Union's Single Market, together with the fact that there will be no country-specific or sectorial project allocation, will provide for greater attractiveness for investors and lower aggregated risks. The proposal does not go beyond what is necessary to achieve the objectives pursued.
3.1. Creating a European Fund for Strategic Investments and Establishing a European Investment Advisory Hub (Articles 1-3)
Article 1 of the proposal empowers the Commission to conclude with the EIB an agreement on the establishment of the 'European Fund for Strategic Investments' (EFSI) to support investments in the Union and to ensure increased access to financing for companies having up to 3000 employees, with a particular focus on small and medium enterprises, through the supply of risk bearing capacity to the EIB. Article 2 of the proposal establishes that this EU guarantee is to be allocated to specific EIB financing investment operations through the EFSI.
The use of the EU guarantee to the EFSI is to be subject to the governance structures determined therein. Notably, the EFSI shall have a Steering Board (Article 3) which determines the strategic orientation, the strategic asset allocation and operating policies and procedures, including the investment policy of projects that EFSI can support and the risk profile of the EFSI. An Investment Committee, consisting of independent professionals, shall be responsible for examining potential operations and approving the support for operations irrespective of the geographic location of the project concerned.
Members of the Steering Board are appointed by the contributors of risk bearing capacity with voting power proportional to the size of contributions. For as long as the only contributors to the EFSI are the Union and the EIB, the number of members and votes within the Steering Board shall be allocated based on the respective size of contributions in the form of cash or guarantees and all decisions shall be taken by consensus.
When other parties accede to the EFSI Agreement, the number of members and votes within the Steering Board shall be allocated based on the respective size of contributions from contributors in the form of cash or guarantees. The number of members and votes of the Commission and the EIB shall be recalculated accordingly. The Steering Board shall strive to make decisions by consensus. If the Steering Board is not able to decide by consensus within a deadline set by the Chairperson, the Steering Board shall take a decision by simple majority. No decision of the Steering Board shall be adopted if the Commission or the EIB votes against it.
Members of the Investment Committee shall consist of six independent market experts and a Managing Director. The Managing Director shall be assisted by a Deputy Managing Director. The Managing Director will prepare and chair the meetings of the Investment Committee. Decisions in both bodies are to be taken by simple majority, but in the Steering Board, consensus shall be sought. The projects will be selected on their own merits, without any sectorial or geographic pre-established allocation so as to maximize the value added of the Fund. The EFSI will also have the possibility to finance together with Member States and private investors investment platforms at national, regional or sectorial level.
Other than specific provisions governing the creation, the activities and the governance of the EFSI, the EFSI Agreement shall also establish the European Investment Advisory Hub (EIAH, Article 2(2)). Building on existing EIB and Commission advisory services, the EIAH shall provide advisory support for investment project identification, preparation and development and act as a single technical advisory hub (including on legal issues) for project financing within the EU. This shall include support on the use of technical assistance for project structuring, use of innovative financial instruments, and use of public-private partnerships.
Article 4 of the proposal creates an initial EU guarantee of EUR 16bn for EIB financing and investment operations. In accordance with Article 5, those operations need to support development of infrastructure; or investment in education, health, research, development, information and communications technology and innovation; or expansion of renewable energy and energy efficiency; or infrastructure projects in the environmental, natural resources, urban development and social fields; or SMEs and mid cap companies including by providing working capital risk financing. The support can be provided directly from the EIB or through the European Investment Fund. Those institutions will provide financing with a high degree of financial risk absorption (equity, quasi-equity, etc.) allowing private sector investors to invest alongside.
In order to ensure orderly execution of the EU budget even if the guarantee is called, Article 8 establishes a guarantee fund (the Fund). Experience on the nature of investments to be supported by the EFSI indicates that a ratio of 50% between the payments from the Union budget and from the Union's total guarantee obligations would be adequate. In the steady state, this 50% target will be met from the EU budget, the amounts due to the Union from the investments, amounts received from any defaulting creditors and the returns on the guarantee fund resources invested. However, for an initial period, EUR 8bn will be provided only via payments from the budget. From 2016 onwards, these payments from the budget will gradually build up the endowment of the Fund and should reach an accumulated sum of EUR 8bn by 2020. Nonetheless, should there be calls on the EU guarantee, it is appropriate that the alternative sources of the guarantee fund are also considered in the calculation of the target level in order to limit the potential impact on the EU budget. This consideration in the calculation will be limited to the amount of the EU guarantee that has been called.
In order to provide for maximum cost-efficiency, the Commission shall be charged with investing those resources. Moreover, the Commission shall be empowered, via delegated act, to change the Fund's target amount by 10% after 2018. This should allow the Commission to build on the practical experience acquired and prevent unnecessary drains on the budget, while ensuring its continued protection.
Except for possible losses on equity, where the EIB may decide to do an immediate guarantee call, guarantee calls should only occur once a year after all profits and losses resulting from outstanding operations have been netted.
Should the guarantee be called, the volume of guarantee would be reduced below the original EUR 16bn. However, future revenues due to the Union from the EFSI activities should be allowed to reinstate the EU guarantee up to this original amount.
As often pointed out by stakeholders, a stumbling block to greater investment levels within the EU is a lack of knowledge of ongoing and future investment projects within the Union. Alongside the work of the EFSI, the proposal also provides for the creation of a European investment project pipeline as a means to ensure that information on potential projects is transparent and available to investors.
Given the use of the EU guarantee by the EIB, it is appropriate for the EIB to report on a regular basis to the Commission, European Parliament and to the Council on operations conducted that are covered by the EU guarantee.
Article 12 sets out a number of regular evaluations by the EIB and the Commission to ensure that EFSI, the EU guarantee and the functioning of the guarantee fund are being utilised as intended. The accountability to the European Parliament is particularly important in this context.
It is appropriate for a number of general rules to be applicable within the context of the use by the EIB of the EU guarantee. Article 13 establishes that information be made publically available related to activities governed by the EU guarantee. Article 14 and Article 15 are provided in relation to the competences of the Court of Auditors and OLAF respectively, and Article 16 excludes certain types of activities. Finally, Article 17 empowers the Commission to adopt delegated acts in line with the relevant procedure.
Articles 18 and 19 provide for the reallocation of operational appropriations from the Horizon2020 Programme (Regulation (EU) No 1291/2013) and the Connecting Europe Facility (Regulation (EU) No 1316/2013).
The EU guarantee provided for the EFSI amounts to EUR 16bn and is fully available from the entry into force of the Regulation. In order to ensure orderly execution of the budget despite potential calls on the guarantee, a guarantee fund is created and provisioned for 50% of total EU guarantee obligations by 2020. Payments into the guarantee fund will amount to EUR 500m in 2016, EUR 1bn in 2017, EUR 2bn in 2018. Payments in 2019 and 2020 of EUR 2.25bn each will depend on the target amount of the guarantee fund being kept unchanged at 50% after 2018. Commitment appropriations will amount to EUR 1.35bn in 2015, EUR 2.03bn in 2016, EUR 2.641bn in 2017 and EUR 1.979bn in 2018. The progressive financing of the guarantee fund should not create risks for the EU Budget during the first years, since possible guarantee calls relating to losses incurred will only materialise over time.
As is the case with the EIB's current activities, beneficiaries will be charged the costs of the EIB operations under EFSI. The use of the guarantee by the EIB and the investment of the guarantee fund's resources should yield a net positive income. EFSI proceeds will be shared pro-rata among the contributors of risk bearing capacity. Excess endowment of the guarantee fund may be used to restore the EU guarantee to its initial amount.
However, two actions will create costs for the EIB for which the beneficiaries cannot be charged:
1. The European Investment Advisory Hub, created in accordance with Article 2 i of this proposal, will primarily be funded from existing envelopes for EIB technical assistance under existing EU programmes (Connecting Europe Facility, Horizon 2020…). However, additional funding of up to a maximum of EUR 20m per year (EUR 10m in 2015) may be necessary and will be budgeted in accordance with the Financial Statement attached to this proposal. Any potential costs for the project pipeline will also be covered.
2. The EIB will incur administrative expenses for increasing its financing via the EIF to small and medium enterprises. Based on current assumptions about the sort of instruments and the speed of signatures for new operations, this will require the payment of fees in the order of an accumulated total of EUR 105m, around EUR 48m of which until 2020. Given the possibility of a postponed payment – until income received can be used for this purpose – these payments are not yet budgeted but only described in the annex to the Financial Statement.
Costs for the EIB which have neither been recovered from the beneficiaries nor deduced from the remuneration of the guarantee granted by the EU may be covered by the EU guarantee, within a cumulative limit corresponding to 1% of its outstanding amounts.
Operational appropriations required by this proposal are to be fully financed within the Multiannual Financial Framework 2014-2020. EUR 6bn are to be reallocated within heading 1A, EUR 2.11bn will be funded by making use of the Unallocated Margin including the Global Margin for Commitments. While grant financing from the Connecting Europe Facility and Horizon 2020 will be reduced, the multiplier effect generated by the EFSI will allow for a significant overall increase of investment in the policy areas covered by those two existing programmes.
The financial envelope of this proposal does not explicitly include contributions from Member States or other third parties to any of the structures it creates. However, Article 1 i explicitly allows for those parties interested to join the EFSI agreement by means of capital contributions to the Fund.
If Member States decide to make contributions to the EFSI, the Commission has indicated that it will take a favourable position towards such contributions in the context of its assessment of public finances according to Article 126 of the Treaty on the Functioning of the European Union and Regulation (EC) No 1467/1997. The Commission Communication ("Making the best use of the flexibility within the existing rules of the Stability and Growth Pact") of 13 January 2015 sets out the specific considerations applicable in this scenario.