The European Commission has unveiled ambitious proposals to invest €300bn in the Continent’s economy, hoping to attract institutional capital with guarantees aimed at reducing the risk of projects.
Under the proposals, which will see €5bn diverted from the European Investment Bank and €16bn in EU guarantees, the European executive said it hoped to attract €240bn to long-term investment projects and a further €75bn in funding for small and medium-sized enterprises (SMEs).
In a speech to the European Parliament in Strasbourg, commission president Jean-Claude Juncker admitted that money would not “fall from the sky”, and said the Continent would need to attract capital to put it to work.
“Today, we are setting up a new architecture that will make this possible,” he said. ”The key is to provide a risk-bearing capacity that can unlock additional investment.”
Juncker said the European Fund for Strategic Investments (EFSI) would aim to mobilise €315bn in capital in the three years to 2017, leveraging the initial €21bn to create loans worth three times the seed capital.
A note published by the Commission identified senior debt, as well as equity and quasi-equity products, as potential avenues of finance and said the fund would target broadband, transport, renewable energy and energy-efficiency projects, as well as education – with Juncker naming school construction as one potential example of projects.
“That’s €63bn of fresh financing we’ve just injected into the economy,” he told MEPs.
“But the EIB will not be acting alone. The EIB will be financing the riskier parts of projects worth €315bn, meaning private investors will be pitching in the remaining €252bn.”
The president said the key to unlocking the capital would be a “credible ” pipeline of EU projects that could attract investors, signalling that it was important all projects be selected separately from any political interference.
He said the EFSI, which would sit inside the EIB and be launched by early 2015, would have an investment committee that would consider projects based on a dual commercial and societal basis.
The approach appeared to echo that of the Ireland Strategic Investment Fund, Ireland’s sovereign development vehicle, which will aim for both a commercial return and a boost to the domestic economy.
Jyrki Katainen, the former Finnish prime minister named commissioner for jobs and growth, joined Juncker in the Parliament and sought to pre-empt complaints that the Commission had failed to find new money to invest.
“This is not about complex financial instruments for their own sake but about making investment happen,” he said.
“To those who claim this is not ‘real’ money, my reply is – nonsense. This is a very real guarantee of €21bn, to provide backing to a fund that will act as a magnet to draw in real investment, in real projects and create real jobs.”
Katainen stressed the importance of better regulation, and highlighted the need for a single energy, transport and digital market.
“We are going to use a relatively small amount of public money to remove the fear factor and unlock the investment funds that are already there and waiting to be used,” he said.
Michaela Koller, director general of InsuranceEurope, welcomed Juncker’s proposals and said her industry looked forward to discussions on how to remove barriers to investment.
James Cameron, chairman of Climate Change Capital, also saw the plans as a positive step, but warned that all projects should avoid high-carbon industries.
“If allocated wisely, with an eye on the future for all citizens, the rebuilding of Europe’s infrastructure is a tremendous opportunity for the EU to enable a low-carbon economy, which will create good jobs both in the design and implementation of this new world,” he said.