EFSI, flagship body of EU growth strategy, launches in face of scepticism
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Emerging Markets

EFSI, flagship body of EU growth strategy, launches in face of scepticism

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The European Fund for Strategic Investments was initially greeted with widespread scepticism but the European Investment Bank tells Emerging Markets it is ready to go, and will help remedy the decline in investment since the crisis

EFSI’s engine is running, just waiting for the starting flag

The European Fund for Strategic Investments, the flagship of European Commission president Jean-Claude Juncker’s drive to kickstart growth, is set to be inaugurated in the next few weeks, with €4bn of financing already committed.

At the IMF/World Bank meetings in 2014, Werner Hoyer, European Investment Bank president, told Emerging Markets that the widespread scepticism, even scorn, that had greeted Juncker’s proposal that July was unfounded. 

Commentators were deriding the EFSI because Juncker said it would generate €300bn of new investment over three years, without any new public money. The EU was shifting €16bn from other budgets, while the European Investment Bank would use €5bn of spare capital.

The EIB argued €21bn of capital would support €63bn of guaranteed financing, which would attract total investment, including private co-financing, of €315bn.

Now, the first fruits of the experiment are about to appear. “We’ve worked a lot on trying to move forward as quickly as we could,” said Ambroise Fayolle, vice-president of the EIB, which manages the EFSI. Its legal basis is now established. “We hope the managing director and deputy managing director will be approved by the European Parliament,” said Fayolle. “We are also working on selecting the eight members of the investment committee.”

Wilhelm Molterer, an outgoing EIB vice-president and former Austrian finance minister, is thought to be the leading candidate for managing director, and Ilyana Tsanova for deputy. The MD and deputy will be EIB staffers.

The other eight investment committee members, four men and four women, will be external experts in the sectors the EFSI wants to channel investment to, such as infrastructure, innovative technology, education and research.

“We are trying to tackle a problem specific to Europe – the decline in investment since the crisis,” said Fayolle. “Investment is key if we want to improve growth, job creation and the competitiveness of Europe.” Annual public and private investment fell 20% between 2007 and 2014, and Europe lags behind in innovation.

Potential EFSI investments will go through the EIB’s normal process of appraisal and due diligence. The difference is that the EFSI acts as a guarantor, enabling the EIB to make riskier loans than usual, and even equity investments.

The EIB lends about €80bn a year, of which €4bn-€5bn is riskier positions. The guarantee will enable this share to grow to €20bn. The EIB’s overall balance sheet will not grow, but without the guarantee, it would have shrunk back to about €55bn, as its €10bn capital increase in 2012 has now all been used.

To get things moving quickly, the EIB has already prepared 23 projects totalling €3bn for guarantees in the infrastructure and innovation section of EFSI, and 52 investments totalling €1.1bn in the small and medium sized enterprise segment, which will have €5bn of the capital. It has actually made the investments, by a bilateral agreement with the EU, and will move them into EFSI when it is ready.

The bigger projects include a very large wind farm in Denmark and a biotech research company in Spain. Fayolle said: “We financed a project in France to provide loans to cope with the problem of energy efficiency in private housing. The banks are not there, because the loans are small and very long term, and the risks are high because it’s a new market.” The EIB makes cheap loans via a French regional government network.

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