Speakers of the session
Former Minister of Finance, Belgium
Director, Treasury and Financial Operations, Directorate-General for Economic and Financial Affairs, European Commission
Deputy Director-General for Energy, European Commission
Head of Regulatory Strategy, Allianz Group
Vice-President, European Investment Bank (EIB)
Chief Investment Officer, Instituto de Crédito Oficial (ICO)
Odile Renaud Basso
Deputy Chief Executive Officer, Caisse des Dépôts Group
Independant Director, EUROFI
Objectives of the sessionThe €315 billion EU Investment Plan, announced in December 2014, has been launched to remove obstacles to investment notably in infrastructure and SMEs, provide visibility and technical assistance to investment projects, and make smarter use of financial resources. In July 2015 related legislation entered into force. At the end of 2015 the European Fund was created and the European Investment Project Portal was launched.
The session will contribute to the first assessment of these EU initiative, that the EU commission will start by mid 2016.
Points of discussion
What are the lessons learned from the first month of functioning of the FEFSI?e.g. main market failures addressed by the FEFSI; role of the EFSI on the EU programmes financing SMEs; main challenges faced to comply with FEFSI’s initial targets (public funds leveraged to attract private investors, contribution to sustainable growth and strategic investments, additionality)
- What are the main types of risk, which require the intervention of the EFSI? What are the main differences already witnessed regarding EFSI and EIB lending standards? How can we evidence the additionality of the projects supported by the E
What lessons can be learned from the support already provided by the Advisory Hub and the information provided by the European Project Portal?
- Is it sufficient to provide a large and transparent project pipeline or are further quality criteria of the underlying projects more relevant (especially for institutional investors reliable and adequate return expectations and high quality projects seem to be equally important)?
What are the main features of the specific arrangements enabling the involvement of the EFSI?
- How can a potential crowding-out of private investors be avoided?
Background of the sessionThe Juncker Plan aims to boost European investment by EUR 315 bn, within a 3-year-period, in infrastructure and SMEs. The initiative has materialised in the form of the European Fund for Strategic Investments (EFSI) which brings a risk bearing capacity of EUR 15 bn to the European Investment Bank (EIB) without endangering its AAA rating. It also allows the European Investment Fund (EIF) to increase strongly the volume of its intervention. Eventually according to the financing ratios observed in the past, the outcome of the financing facility created should amount 15 times the public resources mobilised to bear any subsequent risk.
The form of EFSI financings is still being stabilised (equity, subordinated debt, guarantee). Such financings are subordinated to related private co-investments. They target in priority the projects the risk of which exceeds the usual risk appetite of investors or the EIB. Indeed, such projects are suffering from market failures, being in sub-optimal investment situations or possibly not having sufficient founding support.
Mid October 2015 the European Parliament took an important step in finalising the governance structure of the EFSI by voting in favour of the EFSI Steering Board proposal to appoint Wilhelm Molterer as EFSI Managing Director and Iliyana Tsanova as Deputy Managing Director. However, more than 150 transactions in 22 countries, requiring more than €60 billion of investments had already been catalysed.
The EFSI architecture initiated in addition a new approach to public spending, which focuses public financing on the strictly needed amount and looks for a systematic co-investment with market funding.
In a context where banks have been concentrating the financing in particular on longer terms, and simultaneously policy makers seek to develop market finance, National Promotional Banks and Institutions (NPBIs) as traditional long term players, which are “naturally” deeply involved in the projects eligible for the Plan, help to address market failures and to anchor in-coming investors. However more recent NPBIs in the EU have not yet the necessary resources, skills and experience.
Given that usual forms of intervention of NPBIs and EIB generate low leverage, the NPBIs contribute in particular to the creation of investment platforms, to gather private and public investors and achieve the expected leverage of the Juncker Plan. These platforms also help to enable most infrastructure projects which are small to middle size and fall below the scope of both EIB and private investors to access the Juncker Plan financings. The progressive clarification of the rule and terms of reference of such platforms leads us to expect a significant boom of their financings by mid 2016.
The second pillar of the Investment Plan which is to increase advisory services through a European Investment Advisory Hub, is a key element of the Juncker Plan. Constantly delivering reliable information on the EU infrastructure project pipeline is also essential in order to demonstrate to global investors that the EU is a deep and committed investment area with lasting investment opportunities.
However, resuming sustainable growth supposes mobilising tools in the fiscal, monetary, financial or regulatory areas, which will trigger confidence, stability and higher real growth expectations and eventually private investment. Therefore, the Juncker Plan also targets the implementation of structural reforms in all Member States in order to improve the EU investment-climate. Initiatives to deepen the internal market are also fully part of this plan to boost the business climate in the EU.
In this respect the legal framework regarding capital markets should be further modernized as infrastructure investments are now frequently cross-border. Furthermore, the retro-active changes to laws in the infra¬structure area that have occurred in some European countries, create legal uncertainty which is unaffordable by investors. Certain aspects of national legal frameworks such as procedural law and the related inconsistent duration of insolvency proceedings, should also be harmonized.