October 2016

The signing of the European Fund for Strategic Investments agreement, Brussels, 
22 July 2015.
The signing of the European Fund for Strategic Investments agreement, Brussels, 22 July 2015.

The European Commission’s top priority is to get Europe growing again and increase the number of jobs without creating new debt.

Since the start of the global economic and financial crisis, the EU has been suffering from low levels of investment and high unemployment.

To address the problem, the Commission, together with the European Investment Bank, launched the investment plan for Europe. A European Fund for Strategic Investments was created in 2015, with an initial €21 billion backed by the EU. This will grow thanks to a multiplier effect achieved by attracting private and public investors, triggering investments of more than €315 billion over three years. Already after one year, the plan is expected to mobilise over €138 billion of new investments across the EU, from big companies that employ hundreds of people to local small and medium-sized companies in need of capital to grow their ideas. Given the success of the plan so far, the Commission is committed to doubling the fund and has proposed to increase the target to at least €500 billion by 2020, with a commitment to doubling it to €630 billion by 2022 at the latest.

Why we need an investment plan for Europe

Since the start of the global economic and financial crisis, the EU has been suffering from low levels of investment and high unemployment.

In the short term, weak investment lowers economic growth because it means less economic activity. In the longer term, it hurts competitiveness and the economy’s potential to grow. The yearly level of investment is currently about €300 billion below what it has been in the past. This fall in investment was a significant drag on growth and employment for several years. The low level of investment is still one of the reasons why Europe’s economic recovery remains weak.

Investment has remained low even though there is money available, because investors lack the confidence to invest. They expect growth in the near future to be weak, not least because there is uncertainty about political and economic developments in the EU and elsewhere. Some EU economies have high public and private debt. Getting loans or grants is still difficult in some countries, especially for small and medium-sized companies. Governments have cut back on investment due to high levels of public debt, which have increased from an average of 60 % of gross domestic product in the EU in 2008 to around 90 % in 2015. That is why the EU needed to coordinate its efforts to boost investment and put Europe on the path of sustainable job creation and solid growth. The investment plan for Europe was its answer.

The economic crisis saw a very large rise in unemployment in the EU
The economic crisis saw a very large rise in unemployment in the EU

What the EU is doing

The Commission’s overall approach is based on three elements: re-launching investment, pursuing market reforms, and responsible fiscal policies avoiding excessive public debt.

The investment plan for Europe is at the heart of this strategy. It focuses on removing obstacles to investment, providing visibility and technical assistance to investment projects, and making smarter use of new and existing financial resources.

The Commission, together with the European Investment Bank, launched the investment plan for Europe. A European Fund for Strategic Investments was created in 2015, with an initial €21 billion of EU backing. This will grow thanks to a multiplier effect achieved by attracting private and public investors, triggering investments of more than €315 billion over three years.

How does the fund work?

The fund provides guarantees in support of projects financed by the European Investment Bank. It focuses on infrastructure, innovation and smaller companies.

The fund provides a guarantee, enabling the European Investment Bank to invest in more, sometimes riskier, projects and to invest sooner than without the guarantee. It is firmly on track to deliver on mobilising at least €315 billion in additional investments in the real economy by mid-2018. It is already active in 27 Member States and is expected to trigger over €138 billion in investment based on the approved financing so far (October 2016). Smaller companies have particularly benefited from it.

By October 2016, 134 infrastructure projects representing financing of €17.4 billion had been approved under the fund. In addition, more than 220 financing agreements, worth €7.5 billion, had been approved for smaller companies. Eventually, almost 290 000 smaller companies are expected to benefit from this finance. Project promoters can apply to the European Investment Bank for funding, while small businesses can apply via local financial intermediaries.

One of many good project examples is the Ginkgo Fund 2, cleaning up contaminated industrial sites and converting them into homes and offices. Ginkgo is expected to create around 5 000 housing units as well as 8 500 jobs in Belgium and France. The decontamination that Ginkgo carries out is important for the future of Europe’s cities, where 3.5 million former industrial sites sit vacant. European Investment Bank financing under the fund totals €30 million. This support from the fund attracted private investors to meet the total project cost of €120 million.

The fund project list can be consulted online.

The investment plan not only involves financing, it also includes tools developed by the EU to help investment projects reach the real economy

The European Investment Advisory Hub was created in September 2015 to provide administrative and technical support to project promoters throughout Europe. Project promoters, public authorities and private companies can receive technical support to help get their projects off the ground and make them investment-ready. They can get advice on suitable funding sources and access a unique range of technical and financial expertise.

In order to provide investors with more visibility of what investment opportunities exist in the EU, the Commission created the European Investment Project Portal, which went live on 1 June 2016. Project promoters can submit their projects online, where they will be visible for relevant investment opportunities — a kind of match-making service.

How does the investment plan work?
How does the investment plan work?

European Structural and Investment Funds

Of course, this is not the only money being invested in the EU economy. The EU budget has always included funds aimed at supporting economic and social cohesion, reducing differences in income, wealth and opportunities, and generating growth. Perhaps confusingly, these are known as the European Structural and Investment Funds. They are separate from the investment plan’s European Fund for Strategic Investments, but the two instruments can work very well together and the Commission encourages this.

In fact, they are made up of five main funds which work together to support economic development across all EU countries:

Together, these have a budget of €454 billion for 2014-2020 and are investing in EU priority areas such as research, development and innovation, support to smaller companies, the low-carbon economy, and information and communication technologies.

The structural funds are different from the European Fund for Strategic Investments in that they finance projects via grants and financial instruments, and are implemented in a decentralised way in the Member States. The European Fund for Strategic Investments provides risk-financing instruments via the European Investment Bank.

Any project that is economically viable, has a potential to benefit jobs and growth in the EU, and is in line with EU priorities for investments, may be eligible for funding from both the European Fund for Strategic Investments and the structural funds.

With a reinforced and extended European Fund for Strategic Investments, even more jobs, growth and competitiveness will be created and extra focus will be put on riskier/additional investments critical to Europe’s sustainable growth.

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