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The European Fund for Strategic Investments: boosting the EU’s growth potential
By Angel Benjamin - Director, Treasury and Financial Operations, Directorate-General for Economic and Financial Affairs, European Commission
The European Fund for Strategic Investments (EFSI) is a key initiative of this Commission, aiming to boost growth and jobs through investments in key sectors of the EU economy. The EU provides a substantial risk bearing capacity to the European Investment Bank (EIB), which allows the latter to sign a high volume of risky operations without endangering its AAA rating. It also allows the European Investment Fund (EIF) to increase strongly its volume of signatures, enhancing the support to European SMEs. The €21 billion risk bearing capacity of the EFSI allows the EIB Group to sign around three times this amount, catalysing around €315 billion of total investment. This multiplier of 15 corresponds to the average experience observed when using financial instruments in the previous multiannual financial framework (2007-2013).
Additionality is a key target of the EFSI. The instrument focuses on operations which could not have been financed by the market or by the EIB without it. In a context of scarce public resources, abundant liquidity and record low lending conditions, the approach retained allows to de-risk projects which cannot see the light because of investors’ risk aversion. The EIB looks as a rule for a form of subordination, by taking for instance a junior position in a project or by lending for a much longer maturity than the other co-investors.
While the EIB’s riskiest activities (called “special activities”) represented less than 5% of the EIB portfolio, all EFSI activities adopted so far fall in this category.
Boost growth and jobs through investments in key sectors of the EU economy.
The EFSI has experienced a swift start, with already more than 150 transactions in 22 countries, catalysing more than €60 billion of investments. New instruments will be launched soon to enhance the capacity to address market gaps, with actions targeting equity and venture capital.
Beyond its immediate impact, the EFSI is also a new approach to public spending, by trying to limit public financing to the amount that is strictly needed and looking for a systematic association with market funding. To put it in simple terms: public authorities should not fund what can be funded by the market. Taxpayer money should be used to crowd in investors instead of crowding them out.
The success of the EFSI could mark the beginning of a new approach, with more efforts to reduce the use of grants where they are not truly needed and systematic attempts to leverage public funds, ensuring a much higher efficiency to public spending.
The EFSI could be the embryo of a paradigm shift.