EFSI - European Commission

The European Fund
for Strategic Investments (EFSI)
Questions and Answers
Contents
1.
What did the Commission propose today, what are the elements of the proposal?..................... 5
2.
What are the next steps? ................................................................................................................ 5
3.
When will EFSI be operational?....................................................................................................... 5
4.
What is the EFSI's governance structure? Who will decide on the investment guidelines? .......... 6
5.
How will the EFSI governance structure ensure independence from the public and private
contributors? ................................................................................................................................... 6
6.
What is the role of the EIB board in the decision making? ............................................................. 6
7.
What is the role of the European Parliament and the Court of Auditors in the monitoring of the
EFSI? ................................................................................................................................................ 6
8.
How will the Commission encourage the participation of Member states to the Fund in a
coordinated way? ............................................................................................................................ 7
9.
How can Member States contribute? ............................................................................................. 7
10. Will national contributions to the future European Fund for Strategic Investments count as part
of countries’ deficit or debt and will these be taken into account in the application of the Pact? 8
11. How will the Stability and Growth Pact facilitate national contributions to the Fund? ................. 8
12. Why would governments invest in the Fund if there's no guarantee that their projects would be
financed? ......................................................................................................................................... 9
13. How can National Promotional Banks contribute (money/staff)?................................................ 10
14. What type of projects will the EFSI support?................................................................................ 10
15. What criteria will be used to select projects? Which projects will be financed? ......................... 10
16. One of the selection criteria for the projects is that they "have the potential to leverage other
sources of funding". How will this criterion be applied in practice? Won't every project that
receives an EU guarantee become more attractive and therefore have the potential to leverage
other sources of funding? ............................................................................................................. 11
17. Can the EFSI be used to finance nuclear energy projects? ........................................................... 11
18. Who will manage the pipeline of projects? .................................................................................. 12
19. How will the EFSI intervene concretely to finance investments projects? ................................... 12
20. How will the EFSI intervene concretely on long-term investment projects, notably on projects
which demand a large share of public investments (50% or more)?............................................ 12
21. What would be the difference between the current EIB-financed projects and the projects that
could be finances by the EFSI? ...................................................................................................... 12
22. How will the Commission ensure that the projects financed by the EFSI are in line with the
Europe 2020 strategy? .................................................................................................................. 13
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23. How will the Commission ensure that a Fund depending essentially on private participation will
invest in projects aiming to promote sustainable and environmentally-friendly economic
growth? ......................................................................................................................................... 13
24. How will the Commission ensure that the EFSI will address macro-economic imbalances among
EU Member States and, particularly, that the most depressed economies will benefit from these
investments? ................................................................................................................................. 13
25. When will the criteria for the selection of projects be defined? What is the procedure for the
negotiation of the agreement with the EIB on the establishment of the EFSI and the investment
guidelines?..................................................................................................................................... 13
26. What about state aid?................................................................................................................... 14
27. How will the €8 billion earmarking within the EU budget provide €16 billion of guarantees to the
EFSI? .............................................................................................................................................. 14
28. Is it sufficiently credible to work? ................................................................................................. 14
29. Will mobilising € 8 billion from the EU budget require an amending Budget 2015? Will that
require the mobilisation of some flexibility mechanisms foreseen in the MFF 2014 -2020
Regulation?.................................................................................................................................... 15
30. Would the possibility to have "paid in capital" in the EFSI increase its financing capacity? ........ 15
31. As money will be transferred from Horizon 2020 to the EFSI, does this mean the money initially
foreseen for Horizon 2020 is lost? ................................................................................................ 15
32. Where is the money taken from? How much is it?....................................................................... 16
33. Why is money taken from the excellent and successful European Research Council? Is the
Commission against research? ...................................................................................................... 16
34. Why is money taken from innovation but not from other policies like agriculture?.................... 16
35. Can the debt and risk financing instruments in the EFSI be combined with structural funds? .... 16
36. Isn't there an overlap between the EFSI and the European Structural and Investment Funds
(ESIF)? ............................................................................................................................................ 17
37. Would it be possible for Member States to contribute to the EFSI from structural funds and their
national contribution (co-financing)?............................................................................................ 17
38. What options could exist for these contributions in the form of cash and guarantees? ............. 17
39. The EFSI is supposed to start working at the beginning of 2015 thanks to a "frontloading "of the
€5 billion EIB participation. How will this work concretely? ......................................................... 17
40. How will the EIB provide these financial resources? Does this reduce other EIB activities
accordingly?................................................................................................................................... 18
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41. Which financial mechanisms will ensure that more than €60 billion of financial capacity will be
available to the ESFI based on an initial input of €21bn? What do you mean by "risk bearing
capacity "? ..................................................................................................................................... 18
42. The EFSI is supposed to be a trust fund within the EIB group. Can the Commission provide
further details as to the future legal status of the EFSI? In particular, how would the EIB be
concretely involved and work within the EFSI?............................................................................. 18
43. How will the Commission ensure a full involvement of the European Parliament in the definition
and implementation of the Investment Plan? .............................................................................. 18
44. By providing the first-loss guarantee, might the Fund not be saddled with some loss making
projects for decades? Will the EFSI enable financing of projects that would be too risky for the
EIB? ................................................................................................................................................ 18
45. Where does the €5 billion EIB guarantee come from? The capital increase of 2013? Money
raised in the markets? Other resources? ...................................................................................... 19
46. How can it be then that the EFSI doesn't crowd out other investment projects of the EIB? ....... 19
47. Does the same principle apply to the €8 billion guarantee from the EU budget?........................ 19
48. Why do loans, equity and guarantees have a greater leverage effect than grants? .................... 19
49. Is it a mere coincidence that the same amount from the EIB €5 billion is also the same amount
allocated as risk capital for SME (or is EIB-money earmarked for this purpose)? ........................ 20
50. There is too little capital, too little cash, only financial engineering (as with the past €120 billion
plan)............................................................................................................................................... 20
51. Money will not go to relatively safe projects that would have been financed anyway. Isn't the
Investment Plan crowding out private investors?......................................................................... 20
52. The 1:15 multiplier is considered by the Commission as "a prudent average, based on historical
experience from EU programmes and the EIB". What is the concrete experience you are
referring to?................................................................................................................................... 21
53. What is the concrete data available? Is this historical experience relevant to the current
situation with squeezed national budgets? .................................................................................. 21
54. What kind of financial vehicles will the EFSI's activities rely on to attract private/public investors
in the financing of a project? Debt and Risk enhancement vehicles? Project-bonds? Equity
instruments? Other types of financial instruments? .................................................................... 21
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QUESTIONS AND ANSWERS
1. What did the Commission propose today, what are the elements of the
proposal?
The European Commission adopted the legislative proposal to put in place the European
Fund for Strategic Investments, which is at the very heart of President Juncker's €315 billion
Investment Offensive. The European Fund for Strategic Investments (EFSI) will mobilise
additional investments in the real economy in areas including infrastructure, education,
research, innovation, renewable energy and energy efficiency. It will also focus on SMEs and
mid-cap companies (companies with between 250 and 3000 employees). The EFSI should
target projects that promote job-creation, long-term growth and competitiveness. The
proposal also sets up a European Investment Advisory Hub (EIAH) to provide advisory
support to project identification, preparation and development across the Union. Finally, a
European Investment Project Pipeline will improve investors' knowledge of existing and
potential future projects, with no guarantee that these projects will be financed by the EFSI.
Further details can be found in the press release.
2. What are the next steps?
2.1 Establishing the European Fund for Strategic Investments (EFSI), the European
Investment Advisory Hub (EIAH) and the transparent pipeline of projects.
Council negotiations are expected to kick-off on 19 January 2015 in an ad-hoc Working
Group established for the Investment Plan for Europe. Work in the European Parliament is
also expected to start shortly. It is expected that the co-legislators agree on the text by June
so that the EFSI can be operational by mid-2015.
2.2. Removing barriers to investment
As a further element of the Investment Plan, the European Commission is working to
remove regulatory barriers to investment and strengthen the Single Market. A first set of
actions is set out in the Commission's 2015 Work Programme.
3. When will EFSI be operational?
The Commission proposal has to be adopted under the "ordinary legislative procedure" (codecision) by the Union legislators, the European Parliament and Council as swiftly as
possible so that new investments can start flowing from mid-2015. At the December
European Council, heads of state and government urged "the Union legislators (…) to agree
on [the proposal] by June, so that the new investments can be activated as early as mid2015."
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Governance of the EFSI
4. What is the EFSI's governance structure? Who will decide on the
investment guidelines?
A Steering Board will decide on the overall orientation, the investment guidelines, the risk
profile, strategic policies and asset allocation of the Fund. As long as the EIB and the
Commission are the only contributors to the EFSI, the number of members and votes will be
allocated based on size of their contributions and all decisions will be taken by consensus.
When other contributors join the Fund, the number and votes will remain proportionate to
the contributions and decisions will be taken by simple majority, if no consensus can be
found. No decision can be adopted if the Commission or the EIB votes against it.
An Investment Committee will be accountable to the Steering Board. It will vet specific
projects and decide which will receive EFSI support, without any geographic or sectorial
quotas. The Committee will consist of six independent market experts and a Managing
Director who will be in charge of the day-to-day management of the EFSI and chair the
Investment Committee. The Managing Director and his/her deputy will be appointed by the
Steering Board on a joint proposal of the Commission and the EIB.
5. How will the EFSI governance structure ensure independence from the
public and private contributors?
The use of the guarantee fund for each individual investment decisions will be validated by
the Investment Committee consisting of independent professionals receiving a
remuneration for their work in compliance with the investment guidelines. These
independent experts shall have a high level of relevant market experience, inter alia in
project finance, and be appointed by the Steering Board for a renewable fixed term of three
years.
6. What is the role of the EIB board in the decision making?
As contributor to the EFSI, the EIB will have representatives in the Steering Board. As long as
the only contributors to the EFSI are the Union and the EIB, all decisions in the Steering
Board shall be taken by consensus. Since the EFSI is operating within the EIB, any project
supported by the EFSI will require approval according to the EIB’s regular procedures.
7. What is the role of the European Parliament and the Court of Auditors in
the monitoring of the EFSI?
The draft Regulation foresees extensive rules to ensure accountability of the EFSI to the
European Parliament. Monitoring is structured around two key principles:
(a) Reporting: The EIB will report (i) semi-annually to the Commission and (ii) annually
to the European Parliament and the Council on the EIB financing and investment
operations under the Regulation. The report shall be made public. The Commission
will also report to the European Parliament on the application of the Regulation.
(b) Accountability: The European Parliament will have the right to organise at any time
hearings with the Managing Director of the EFSI on the performance of the latter.
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The Managing Director will also have a legal obligation to reply swiftly – orally or in
writing – to questions addressed by the European Parliament. The European
Parliament can also request reporting by the Commission.
The Court of Auditors will apply its normal rules for auditing the EU guarantee and the
payments and recoveries that are attributable to the general Budget of the Union. Its
existing role as regards the auditing of the activity of the EIB (detailed in a tri-partite
agreement between the EIB, the Court of Auditors and the Commission) remains
unchanged.
National Contributions to the EFSI
8. How will the Commission encourage the participation of Member states to
the Fund in a coordinated way?
The European Council on 18 December endorsed the Investment Plan for Europe:
"Fostering investment and addressing market failure in Europe is a key policy challenge. The
new focus on investment, coupled with Member States' commitment to intensifying
structural reforms and to pursuing growth-friendly fiscal consolidation, will provide the
foundation for growth and jobs in Europe. (…) The EFSI will be open to contributions from
Member States, directly or through national promotional banks. The European Council takes
note of the favourable position the Commission has indicated towards such capital
contributions in the context of the assessment of public finances under the Stability and
Growth Pact, necessarily in line with the flexibility that is built into its existing rules".
The challenge of significant investment short-falls and their impact on growth and jobs is
common to all Member States and many have expressed interest in potentially contributing
to the EFSI.
9. How can Member States contribute?
President Juncker said in the European Parliament on 17 December:
“The new Fund is self-standing. However, its impact would obviously be much greater if
Member States contribute to it. Several Member States have signalled their potential
interest in doing so and I am now awaiting concrete proposals to this end. (…) For my part, I
have signalled the Commission’s intention to take a favourable position towards such capital
contributions in the context of the assessment of public finances under the Stability and
Growth Pact. We will come forward with detailed guidance on this in January.”
The EFSI will be open to contributions from Member States, directly or through National
Promotional Banks. Member States can also contribute at the level of different projects.
The EFSI will be constructed in the most flexible way to allow for Member States'
contributions. Member States, directly or via their National Promotional Banks, could
contribute either at the level of the risk-bearing capacity (complementing the contributions
by the EU budget and the EIB), in an investment platform or by co-financing certain projects
and activities.
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10. Will national contributions to the future European Fund for Strategic
Investments count as part of countries’ deficit or debt and will these be
taken into account in the application of the Pact?
The statistical recording of such contributions in the deficit and/or debt of a Member State is
a matter for Eurostat, the independent Statistical Office of the EU, which will need to assess
the details once the Fund is established.
However, irrespective of the exact statistical recording, the Commission is able to clarify how
the existing rules of the Pact can apply to these contributions (to the extent they would have
an impact on the statistics). It confirms that Member States' contributions to the EFSI will not
be counted when defining the fiscal adjustment under either the preventive or corrective arm
of the Pact, because such contributions can be considered as "one-off measures" that are
deducted for the assessment of the fiscal effort in structural terms.
In the case of a 3% deficit reference value is no longer respected, the Commission will not
launch an Excessive Deficit Procedure if it is due to the contribution, provided the deviation is
small and expected to be temporary. When assessing respect of the debt reference value,
contributions to the EFSI will be considered as a "relevant factor" and not be taken into
account.
In its Investment Plan for Europe, it had already announced that it would take account
favourably such contributions under the Pact, and this was echoed by the December 2014
European Council.
11. How will the Stability and Growth Pact facilitate national contributions to
the Fund?
While the statistical recording of contributions to the EFSI, and specifically their impact on
deficits and/or debt, will be confirmed in due time by Eurostat, the Commission considers it
important to already provide the necessary guidance on how the existing rules of the Pact
can apply to these.
The Commission already indicated in November that it would ensure favourable treatment
under the Stability and Growth Pact for national contributions to the EFSI. A separate
Communication published by the Commission today on the use of flexibility within the
existing rules of the Pact provides further guidance on this question (add hyperlink to SGP
IP).
It makes clear that national contributions to the EFSI will not be taken into account by the
Commission when defining the fiscal adjustment under either the preventive or the
corrective arm of the Pact.
In case of a deviation from the deficit reference value, the Commission will not launch an
EDP if this deviation is only due to the contribution, and is small and expected to be
temporary. When assessing a deviation from the debt reference value, contributions to the
EFSI will not be taken into account by the Commission.
For countries benefiting from the so-called "investment clause", co-financing with the EFSI
of projects or investment platforms will also benefit from a favourable treatment under the
Pact.
Specifically, the Commission will consider that:
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Under the preventive arm of the Pact, neither the achievement of the medium-term
budgetary objective (MTO) nor the required fiscal adjustment towards it would be affected,
since both are set in structural terms. The structural balance is by definition not affected by
one-off expenditures, such as the contributions to the Fund.
Under the corrective arm of the Pact (the Excessive Deficit Procedure [EDP]), compliance
with the fiscal adjustment effort recommended by the Council would not be affected, since
this is also measured in structural terms. A contribution to the EFSI should therefore not
lead to a Member State being found non-compliant with its EDP recommendation.
In case of a breach of the 3% deficit threshold, when preparing the report envisaged under
Article 126(3) of the TFEU, the Commission will consider the contribution to the EFSI to be a
“relevant factor” in line with Article 2(3) of Regulation 1467/97. This means that an EDP will
not be launched provided the breach is due to the contribution to the EFSI, and provided it
is small and is expected to be temporary.
In case of a breach of the debt criterion, when preparing the report envisaged under Article
126(3) of the TFEU, the Commission will consider the contribution to the EFSI to be a
“relevant factor” in line with Article 2(3) of Regulation 1467/97. This means that the
Commission will not launch an EDP provided that the breach is due to the contribution to
the EFSI.
12. Why would governments invest in the Fund if there's no guarantee that
their projects would be financed?
The €315 billion EU Investment Plan was designed to stand alone. However, the EFSI has
been constructed to allow Member States to contribute directly with cash or guarantees.
The EIB is an institution with a long history without country-specific or sectorial quotas, and
yet Member States participate in its capital.
Supporting quality investments and restoring confidence in Europe's economy is a key
priority as stated in the December Council conclusions. The reduction of investment
shortfalls, the promotion of jobs and growth and a sustainable recovery would benefit all EU
Member States. The EFSI should finance projects across the Union, including in the
countries most affected by the financial crisis.
Moreover, the EFSI is an instrument that will provide additional risk-financing (the kind of
financial instruments that are often missing in the current economic environment). This
could be of great benefit for innovative smaller companies and cross-border infrastructure
projects.
Member States participating in the EFSI's capital will also get proportional seats and votes in
the EFSI's Steering Board, determined by the size of their contribution. This would allow
them to have a say in defining the investment guidelines and risk profile of the Fund, but
not to intervene in individual investment decisions.
Finally, Member States will also be able to participate alongside the EFSI via co-investment
platforms, which would allow them to channel their investments into specific areas or
sectors, as well as to collaborate on the funding of transnational and regional projects.
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13. How can National Promotional Banks contribute (money/staff)?
National Promotional Banks (NPBs) are welcome to contribute at the level of the Fund, in a
co-investment platform or at project level. It will be important for the success of the Plan to
ensure close coordination between the EIB and National Promotional Banks as the latter
also have valuable expertise on the ground.
Projects to be financed by the EFSI
14. What type of projects will the EFSI support?
Contacts with the private sector have shown that investors put particular emphasis on the
robust quality and independent selection of projects that could be supported by the
Investment Plan. Projects should be (1) economically viable with the support of the
initiative, (2) sufficiently mature to be appraised on a global or local basis, (3) 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 proposal states that the EFSI should target "projects with a higher risk-return profile
than existing EIB and Union instruments to ensure additionality over existing operations. (…)
The EFSI should only be used where financing is not available from other sources on
reasonable terms".
The Steering Board will prepare the investment guidelines which determine the types of
projects the EFSI will support. EFSI financing will be approved by the Investment Committee.
Investment operations shall be in line with Union policies and support general objectives
such as
- development of infrastructure, including in the areas of transport, particularly in
industrial centres; energy, in particular energy interconnections; and digital
infrastructure;
- investment in education, health, research and development, information and
communications technology and innovation;
- expansion of renewable energy and energy efficiency;
- infrastructure projects in the environmental, natural resources, urban development
and social fields;
- providing financial support for the companies having up to 3000 employees, including
working capital risk financing.
15. What criteria will be used to select projects? Which projects will be
financed?
The assessment will be based on strict quality criteria and there will be no country-specific or
sector-specific quotas. The criteria for assessment will be specified in the Fund's investment
policy, which will be proposed by the Steering Board of the EFSI.
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It is important to ensure that high quality and economically viable projects are selected in
key growth-enhancing areas. Projects will for example be identified according to their EU
added value, economic and social viability and the possibility for the projects to start at the
latest within the next three years, i.e. a reasonable expectation for capital expenditure in the
2015-2017 period.
The report of the Task Force on Investment – published on 9 December – already identified
more than 2000 projects worth over €1.3 trillion. It was compiled on the basis of lists
Member States prepared independently. The Task Force Report does not pre-empt financing
commitments by the Commission or the EIB. The identification of projects by the Task Force
is a first step towards creating a critical mass of projects for the EFSI to start to deliver
quickly a forward-looking and transparent pipeline of investable projects. The pipeline will
be dynamic: some projects will enter the list, others will be removed from the list, some will
get financing and some will never be financed.
There will be no such thing as a definitive list of projects that will be guaranteed financing by
the EFSI.
16. One of the selection criteria for the projects is that they "have the
potential to leverage other sources of funding". How will this criterion be
applied in practice? Won't every project that receives an EU guarantee
become more attractive and therefore have the potential to leverage
other sources of funding?
The type of risk-financing instruments will be designed so as to take uncertainty out ("first
loss protection") of as such viable projects and therefore crowd-in private sector
investments. Since the EFSI will take riskier tranches in investment projects, the private
sector will be able to join under more favourable conditions. The individual projects are not
receiving an EU guarantee. The role of the guarantee is to provide the EIB with additional
risk-bearing capacity so that it can invest in projects with a higher risk profile without losing
its triple-A rating.
17. Can the EFSI be used to finance nuclear energy projects?
Deciding the energy mix is the responsibility of each Member State.
The criteria for assessment will be specified in the Fund's investment policy. This investment
policy will be in line with President Juncker's political guidelines and will be decided by the
Steering Board of the ESFI. As President Juncker said at the European Parliament on 17
December: "We want to invest in projects that make sense. We want to invest in projects
with long-term growth potential - not into new cathedrals or new tunnels leading through
mountains that you can cross in any case. We do not want to invest in projects simply for the
sake of doing projects but because they make sense. We must counter the impression that
we have no other ideas than promoting the nuclear industry and investing in nuclear power
plants. That’s not the Commission's intention. The national energy mix is a matter for
Member States and not for the Commission in any case."
The lists of projects in the report of the joint Commission-EIB Investment Task Force
published on 9 December were prepared independently by Member States and do not prejudge financing commitments by the Commission or the EIB.
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Projects will be selected based on their viability, reliability and credibility. The Investment
Plan will also target projects with high economic and societal value. Commercial return is not
the only benchmark. It is important to ensure high quality projects are selected in key
growth-enhancing areas such as: knowledge, innovation and the digital economy; energy
union; transport infrastructure; social infrastructure; and natural resources and the
environment.
18. Who will manage the pipeline of projects?
The Commission and the EIB will develop, update and disseminate, on a regular and
structured basis, information on current and future investments which contribute to
achieving EU policy objectives. Member States will do the same at national level.
19. How will the EFSI intervene concretely to finance investments projects?
The EFSI will reach out directly to project promoters and financial intermediaries in the same
way as the EIB is already doing today.
20. How will the EFSI intervene concretely on long-term investment projects,
notably on projects which demand a large share of public investments
(50% or more)?
The is often the case in the field of energy efficiency, infrastructure and digital agenda (e.g.
broadband in remote areas) for projects to be viable. The EFSI will - as a rule - provide the
riskier tranche of the investment so as to maximise the contribution from private sources of
financing by taking risk out of the equation ("first loss protection"). Member States and
National Promotional Banks can provide co-financing at the level of different projects. In this
way they can ensure a higher level of public financing in a certain project. Clearly, depending
on the sector and the area, some projects will generate higher returns than others. This is
not problematic, since the EFSI will have a vast portfolio of different projects in different
areas, ranging from transport to education, energy to innovation.
In addition, Member States can use Structural Funds to finance projects which need a high
level of public participation and where it may be more difficult to attract private investors,
given the more limited levels of return.
21. What would be the difference between the current EIB-financed projects
and the projects that could be finances by the EFSI?
The activities of the EFSI are additional to the EIB's traditional activities because they target
a different risk profile. The EFSI will for example get involved in cutting-edge new technology
and innovation sectors, as well as finance projects that are perceived as riskier because of
their country risk and due to risk-aversion from the private sector.
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22. How will the Commission ensure that the projects financed by the EFSI are
in line with the Europe 2020 strategy?
The legal text establishing the EFSI contains a reference to the Europe 2020 targets to ensure
that financing remains in line with these important objectives. A reference to Europe 2020
targets will be included in the investment guidelines.
23. How will the Commission ensure that a Fund depending essentially on
private participation will invest in projects aiming to promote sustainable
and environmentally-friendly economic growth?
The Fund is self-standing and does not depend on private money. Private investors can
contribute to the Fund but are primarily expected to co-finance specific projects.
The Fund will decide in which projects to invest according to the investment guidelines to be
decided by the Steering Board. The Investment Committee, consisting of professionals, will
decide on individual projects, based on their merits. While the detailed criteria have yet to
be set, it is clear that viability criteria can differ depending on the nature of the sector:
Renewable energy is clearly different from transport, which is different from education.
Promotion of sustainable and environmentally friendly economic growth, creation of quality
jobs and enhanced convergence, including in terms of competitiveness, are elements that
are likely to be taken into account in this context.
24. How will the Commission ensure that the EFSI will address macroeconomic imbalances among EU Member States and, particularly, that the
most depressed economies will benefit from these investments?
Member States are encouraged to continue using the Structural Funds for regional and local
projects contributing to social and economic cohesion. The ESFI will not have funds earmarked for certain sectors or regions. However, as mentioned, viability criteria will differ
depending on the sector and societal return which will be taken into account in this context.
In any event, the EFSI will finance projects across the Union and technical assistance will be
stepped up significantly to ensure that all countries can present well-constructed, viable and
investible projects.
25. When will the criteria for the selection of projects be defined? What is the
procedure for the negotiation of the agreement with the EIB on the
establishment of the EFSI and the investment guidelines?
The investment guidelines and the detailed criteria for the selection of projects will be
defined by the Steering Board of the EFSI, once the latter is appointed.
The agreement between the Commission and the EIB on the establishment will be
negotiated in the coming months. For obvious reasons, it cannot be finalised before the
legislators come to an agreement on the Regulation establishing the EFSI, as it is meant to
flesh out in more technical terms the legal obligations enshrined in the Regulation.
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26. What about state aid?
In accordance with the Treaty, infrastructure and project investments supported under EFSI
need to be consistent with EU State aid rules. State aid rules ensure that projects address
real needs, keep costs under control and guarantee that public money is genuinely required
to get projects off the ground. Applying state aid control principles thus sends a reassuring
message to those involved in subsidised projects, competitors working on rival infrastructure
and taxpayers: it ensures the economic viability of projects, maximising effect on economic
growth and jobs.
To that end, the Commission announced in the Investment Plan for Europe that for the
purpose of State aid assessments, a project will have to meet a set of core principles,
inspired by competition policy, to be eligible for support under the EFSI – public support
should be limited to what is necessary to kick-start investment and should not result in
overcompensation; no duplication of existing infrastructure; and fair and reasonable access
to infrastructure should be available to all users.
If a project meets these criteria and receives support from the EFSI, the Commission has
announced that any national complementary support will be assessed under a simplified and
accelerated State aid assessment. This is possible because EFSI funding projects will already
respect the core principles of state aid rules.
Financing and functioning of the EFSI
27. How will the €8 billion earmarking within the EU budget provide €16
billion of guarantees to the EFSI?
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 such a guarantee to be credible for the
markets and useful for the EIB. The guarantee fund of €8 billion 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 (50% of the value of the guarantee) has been chosen so that
the EU can meet any potential risks with an adequate safety margin.
28. Is it sufficiently credible to work?
In terms of budgetary construction, a similar set-up is already being used for the EIB's
lending activities outside the Union. The EFSI is a partnership agreement between the
Commission and the EIB. The EIB is a financial institution with a track-record dating back to
1958 and ample experience in providing risk-bearing capacity and mobilising finance from
private investors.
The EFSI will have the major advantage of being able to finance projects in a number of
different sectors, ranging from energy and transport to innovation, meaning that it will have
a broad portfolio of very different projects. Moreover, the EFSI will have the flexibility to
work with a wide range of different financial instruments, chosen depending on the profile
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of the projects, including, for example, debt financing (subordinated or senior), guarantees,
equity, quasi-equity and venture capital. It is important to bear in mind that the aim is to
offer financing solutions that crowd-in private investors. The EFSI will not give grants and
subsidies.
29. Will mobilising € 8 billion from the EU budget require an amending
Budget 2015? Will that require the mobilisation of some flexibility
mechanisms foreseen in the MFF 2014 -2020 Regulation?
The proposal establishes an EU Guarantee Fund which will provide a liquidity cushion for
the Union budget against potential losses incurred by the EFSI when supporting projects. It
will gradually reach €8 billion by 2020 via payments from the EU budget. This requires an
amendment to the 2015 EU Budget, which will create the necessary new budget lines and
transfer €1.36 billion in commitment appropriations and €10 million in payment
appropriations to these new lines. The €10 million in payments will help cover the
administrative costs of the European Investment Advisory Hub. The overall impact for the
2015 EU Budget is neutral. No legislative changes to the current MFF are needed. The
provisioning of the Guarantee Fund will be constituted on the basis of existing budget
reserves and the reallocation of certain, limited amounts from the Connecting Europe
Facility and Horizon 2020.
One legal act (a Regulation) is necessary to set up the guarantee and the provisioning fund
and do the necessary, limited, changes to the Connecting Europe Facility and Horizon 2020
Regulations. The Regulation will be adopted in co-decision (the ordinary legislative
procedure). A draft amended budget was adopted by the Commission together with the
proposed Regulation.
30. Would the possibility to have "paid in capital" in the EFSI increase its
financing capacity?
Yes, higher paid-in capital (for example via contributions from Member States) in the riskbearing capacity of EFSI (currently €21 billion) would allow the EIB to increase its financing
activities and would mobilise additional investments in the real economy.
Research, Horizon 2020 and the European Structural and
Investment Funds
31. As money will be transferred from Horizon 2020 to the EFSI, does this
mean the money initially foreseen for Horizon 2020 is lost?
The seed capital for the EFSI which is taken from the Horizon 2020 to generate additional
investments of at least €315 billion, is not money lost for innovation. On the contrary, this is
money that will be used to attract much more important sums that will then be reinvested
in innovation, delivering higher returns.
The redeployment of money from Horizon 2020 to the Investment Plan represents only
3.5% of the research and innovation financial envelope. Moreover, that money will be used
for investment in innovative projects with a higher leverage effect. With the Investment
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Plan, the overall amount of investment on innovation mobilised by the EU budget in the
next years will be higher than with Horizon 2020 only.
Finally, the means in the Guarantee Fund will be phased in over time and the payments will
be significantly back-loaded. This means that the spending scheduled for Horizon 2020 in
2015-2016 will not be affected.
32. Where is the money taken from? How much is it?
The redeployment of €2.7 billion from Horizon 2020 to the EFSI Guarantee Fund represents
3.5% of the total Horizon 2020 financial envelope for 2014-2020. Horizon 2020 remains a
high priority during the period 2014-2020. After this redeployment, the Horizon 2020
financial envelope is still 49% higher than the one of the 7th Framework Programme 20072013.
Once the EFSI Regulation and the consequent budgetary adjustments are adopted by the
European Parliament and Council, those €2.7 billion will constitute a provision in the EFSI
Guarantee Fund. This money will be blocked in the Guarantee Fund and can only be used to
pay possible guarantee calls by the EIB.
33. Why is money taken from the excellent and successful European Research
Council? Is the Commission against research?
Excellence in research and the European Research Council (ERC) is a top priority for the
Union. This is reflected in the ERC's budget for 2014-2020.
The ERC budget in 2014-2020 will still represent an increase of over 70% compared to the
2007-2013 ERC budget (increase of 71.4% in nominal terms, 58% in real terms / €12,873.6
billion against €7,510 billion).
The level of ERC budget redeployment is lower (1.7%, representing €221.2 million) than
redeployment from the global Horizon2020 budget (3.5%).
34. Why is money taken from innovation but not from other policies like
agriculture?
In 2013, after difficult negotiations, the EU adopted a €1 trillion multi-annual financial
framework (MFF) for 2014-2020.
The MFF is divided into headings (e.g. competitiveness, cohesion, agriculture, external
action). A transfer of funds between headings requires a change to the MFF that can only be
decided by unanimity among Member States. Such a change would necessitate a complex
and time-consuming negotiation, the outcome of which would be uncertain.
35. Can the debt and risk financing instruments in the EFSI be combined with
structural funds?
Structural funds can be used by Member States to invest alongside the EFSI in eligible
projects. Member States and regional authorities are also invited to use EU funds at their
disposal as effectively as possible in support of investment, by focusing on key areas and
maximising the multiplier effect of every euro invested. This implies an increased use of
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financial instruments in the form of loans, equity and guarantees, instead of traditional
grants.
In the context of the Investment Plan, the ambition is to at least double the use of
innovative financial instruments in the European Structural and Investment Funds from
2014 to 2020. The increased use of innovative financial instruments, rather than grants,
should create additional impact of every euro mobilised.
By doubling the amount of innovative instruments and using the multiplier effect, at least
€20 billion in terms of additional investments in the real economy could be mobilised
between 2015 and 2017.
Member States and regions can also raise the multiplier effect of EU funds by increasing
national co-financing beyond the minimum legal requirement. Member States are invited to
use EU funds still available under the 2007 to 2013 programming period to their best effect
and ensure that they are fully used in support of this Investment Plan.
36. Isn't there an overlap between the EFSI and the European Structural and
Investment Funds (ESIF)?
No. They have different purposes and are implemented with different financial instruments.
While the EFSI focuses on attracting private investors in economically viable projects, the
bulk of the European Structural and Investment Funds (ESIF) consists of grants while
Member States are encouraged to at least double the use of innovative financial
instruments in the future.
To take a fictitious example: building a road with a toll in an industrial centre might attract
investors and could thus be more easily funded through the EFSI. But building a road
without toll in a rural area will probably not attract private investors and is therefore better
funded through the European Structural and Investment Funds (ESIF).
37. Would it be possible for Member States to contribute to the EFSI from
structural funds and their national contribution (co-financing)?
Member States will be able to use European Structural and Investment Funds (ESIF) to cofinance projects at project level. The use of structural funds to pay in capital at the EFSI level
is not possible, since the EFSI would not meet the eligibility criteria for use of ESIF.
38. What options could exist for these contributions in the form of cash and
guarantees?
Member States can contribute via their general government or via their National
Promotional Banks.
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The Financing Mechanisms of the EFSI
39. The EFSI is supposed to start working at the beginning of 2015 thanks to a
"frontloading "of the €5 billion EIB participation. How will this work
concretely?
The EIB will take all the preparatory steps at the beginning of 2015 to be able to sign
commitments, without waiting for the publication in the Official Journal of the Regulation
creating the Guarantee Fund for the EIB.
40. How will the EIB provide these financial resources? Does this reduce other
EIB activities accordingly?
No, the risk-bearing capacity will allow the EIB to increase its volumes of lending to activities
with a higher risk profile. This will be additional and complementary to the current EIB
activities. The EIB will adjust its borrowing activities for 2015-2017 once the EFSI has been
set up.
41. Which financial mechanisms will ensure that more than €60 billion of
financial capacity will be available to the ESFI based on an initial input of
€21bn? What do you mean by "risk bearing capacity "?
From a financial point of view, this multiplier effect is obtained by the combined effect of
the EIB issuing additional bonds on the markets in order to finance projects with a higher
level of risk, together with the blending of the existing and diversified EIB portfolio. The
existence of a €21billion risk-bearing capacity means that there is a capacity of public
funding to absorb significant losses. For private investors wishing to invest in a certain
project, this means that they are reassured that they have a safety net against potential
losses ("a first loss-protection").
42. The EFSI is supposed to be a trust fund within the EIB group. Can the
Commission provide further details as to the future legal status of the
EFSI? In particular, how would the EIB be concretely involved and work
within the EFSI?
The EFSI will be a separate account managed by the EIB. It will have its own accountability
arrangements, clear decision-making procedures and dedicated staff.
43. How will the Commission ensure a full involvement of the European
Parliament in the definition and implementation of the Investment Plan?
The proposed Regulation is based on Articles 172, 173, 175(3) and 182 TFEU which foresee
adoption by co-decision, meaning that the co-legislators, the European Parliament and the
Council, decide on an equal footing.
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In addition, the Parliament will be regularly informed about the activities of the EFSI (see
question and can invite its Managing Director and the Commission to answer specific
questions (see question 7).
44. By providing the first-loss guarantee, might the Fund not be saddled with
some loss making projects for decades? Will the EFSI enable financing of
projects that would be too risky for the EIB?
The EIB is a public bank whose activities are not guided towards making profit. The
characteristics of what it can do are limited by the fact that it is a bank that needs to repay
the funds which it uses to lend money and manage the risk of its portfolio. Having said that,
the EFSI will play the role of absorbing some of the risk so as to allow the bank to lend to
additional projects with higher risk profiles.
The intention is that the EFSI should not end up being the only financing source. The
objective is that the EFSI protects other investors against the first loss, making investments
more attractive for these investors. Projects will only be selected if - with the EFSI's
involvement – an appropriate multiplier effect can be achieved in terms of attracting private
investors and if the projects are viable. Obviously, some projects will generate higher
returns than others.
Projects will be selected by an independent board of experts – the Investment Committee –
based on their quality. There may be losses in certain projects, but the overall Fund
performance shall provide long-term returns to public and private investors and thus,
positive returns on taxpayer's money.
45. Where does the €5 billion EIB guarantee come from? The capital increase
of 2013? Money raised in the markets? Other resources?
The €5 billion come from the EIB’s own resources. The asset quality of the EIB’s outstanding
loans has improved in line with the economic environment. This has allowed reserves to be
freed that may be used to support this new initiative.
46. How can it be then that the EFSI doesn't crowd out other investment
projects of the EIB?
With the €16 billion EU guarantee the EIB will have substantially more firepower to finance
additional projects.
47. Does the same principle apply to the €8 billion guarantee from the EU
budget?
Yes. The €8 billion will be put in the EU guarantee fund. This will come from existing EU
funds: the budget reserve as well as the Connecting Europe Facility and the Horizon 2020
programme.
Thanks to the EFSI, the impact of these EU programmes on the real economy will be
multiplied, compared to what they would have achieved otherwise. The EFSI will invest in,
and finance, projects in the areas covered by these two instruments but, by multiplier the
resources, allows for far higher amounts to be used than the original intention. It is,
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therefore, not a matter of crowding out other investment projects, but using the existing
money better to generate additional amounts for investment projects.
48. Why do loans, equity and guarantees have a greater leverage effect than
grants?
The extra leverage is generated by the EIB borrowing against the money, rather than the
money going directly to the end-recipient. The €21 billion from the EFSI allows the EIB to
borrow around three times as much, and then invest/finance the final recipient, rather than
the €21 billion being given directly as grants.
49. Is it a mere coincidence that the same amount from the EIB €5 billion is
also the same amount allocated as risk capital for SME (or is EIB-money
earmarked for this purpose)?
The EIB money is not earmarked for this purpose. This is a coincidence.
50. There is too little capital, too little cash, only financial engineering (as with
the past €120 billion plan)
This is a smart use of public money to help channel private money into investments.
To establish the EFSI, a guarantee of €16 billion will be created under the EU budget. This
money will go to the Fund. The Guarantee, coupled with EIB-resources of €5 billion will
absorb the higher risk in strategic investments and in this way mobilise private resources
that are currently not being invested in the real economy. The Fund will thus start with a
significant firepower while being able to expand its activities further over time. Besides, the
Commission and the EIB have identified a conservative leverage ratio of 15 to 1 as sound and
feasible. The EIB has vast experience in this area.
In addition, and on top of the €315 billion mobilised by the EFSI, European Structural and
Investment Funds need to be deployed in a more efficient way which will multiply the effect
of the Fund. And finally, Member States and private investors can participate directly in the
Fund or at project level.
51. Money will not go to relatively safe projects that would have been
financed anyway. Isn't the Investment Plan crowding out private
investors?
The EFSI targets higher risk projects than the private sector would finance on its own
without the guarantee. It contributes to financing projects that could not be financed solely
by the public or private sectors. It is not the objective of the EFSI to finance projects that
could get access to finance in the private sector, national level or other EU schemes.
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The Multiplier
52. The 1:15 multiplier is considered by the Commission as "a prudent
average, based on historical experience from EU programmes and the
EIB". What is the concrete experience you are referring to?
As representatives of the EIB have said on several occasions, the multiplier effect is
considered to be "conservative", based on the EIB experience. The risk-department of the
EIB has a long track-record of lending activities in different sectors. By way of example, the
EIB capital-increase from 2012-13 is generating a multiplier effect of 1:18. On the
Commission side, experience from the COSME programme (SME-financing), suggests a
multiplier effect of at least 1:20.
53. What is the concrete data available? Is this historical experience relevant
to the current situation with squeezed national budgets?
The multiplier effect is an estimated average and there is no direct link to national budget
situations. An important element of the multiplier factor is the crowding-in of private
investors. By contrast to some years ago, there is today a high level of liquidity in Europe,
meaning that private investors have available liquidity which they can mobilise for
investments.
54. What kind of financial vehicles will the EFSI's activities rely on to attract
private/public investors in the financing of a project? Debt and Risk
enhancement vehicles? Project-bonds? Equity instruments? Other types of
financial instruments?
The EFSI will work with a wide range of financial instruments and will be flexible in terms of
which instrument to use, depending on the project in question, to ensure the most efficient
financing solutions. The EFSI can for example use debt instruments, guarantees, equity,
quasi-equity instruments, credit enhancement tools or venture capital. It will be able to
finance projects directly or participate in funds that finance various projects.
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