Letter from Brussels: Race to upgrade EFSI
Legislative moves to support the EU’s European Fund for Strategic Investments (EFSI) are being rushed through Brussels. But, so far, evidence of any torrent of fund movement by the institutional investment sector across EU frontiers has yet to emerge.
The project is one of two main planks in the European Commission (EC) programme to kick-start the EU economy. The other is the Capital Market Union. The aim of both is to rectify EU capital investment which has fallen by about 15% from its peak in 2007.
The project was only rushed into existence a few months ago, via a regulation proposed by the EC. The then-named Juncker plan aims to inject a much needed €315bn into the economy, via gearing mechanisms led by the European Investment Bank (EIB).
EFSI focuses on removing obstacles to investment, providing visibility and technical assistance to strategic investment projects such as the development of small and medium-sized enterprises (SMEs), education, research and development, and infrastructure.
It is hoped that capital will come from the large pension investment pool. Werner Hoyer, EIB president, described this potential support as “desperately necessary”. At a bank press conference he said refinements in regulation were under consideration. Probably he had securitisation in mind.
On this track, Jonathan Hill, the financial services commissioner, recently referred to securitisation as a means to free bank lending for longer-term infrastructure investment. In fact, a securitisation initiative from the EC started in September in the form of regulation.
Another regulatory step relevant to EFSI is the Solvency II Directive on capital requirement rules for insurance companies. The relevant Omnibus II Directive, of 2014, finally came into effect in January, following many delays. Relief on capital requirements could encourage investment in infrastructure, but it will take time to see its effect in terms of any flow of funds.
A further package in the pipeline includes rules on insolvency. They are aimed at reducing agony in cross-border proceedings. A regulation approved last May includes a safeguard against, for instance, “abusive forum shopping”.
This is where a company, or a class of creditors, looks for the best country to declare itself insolvent. The legislation is intended to apply from June 2017, but with exceptions for certain articles. Article 86, which specifies making information available in the current national legislation, comes into force this coming June.
While securitisation, solvency and insolvency reforms have seen progress, other dark shadows persist for potential EFSI institutional investors. The fragmentation of ineffective labour rules is one. So are complex tax situations.
The EU’s Common Consolidated Corporate Tax Base (CCCTB) project which, with great acclaim, was pulled out into the light last June, has since been knocked back into the shadow. By the autumn, any hoped-for reform was relegated to a public consultation process. The next step is a new EC proposal, to overhaul the 2011 version. But nothing new before the end of this year.
Overall, one large investor takes the line that it is still early days for the EFSI programme and continues to use its own procedures for finding cross-border investments opportunities. Clearly, it looks forward to progress.
PensionsEurope, the association for pension funds, confirms that, for occupational pension fund managers, infrastructure projects are important. However, it is unclear how much interest there will be in the initiative. More action is needed on EFSI.