On 1st July, the Regulation for the creation of the European Fund for Strategic Investment (EFSI) was published in the Official Journal. This plan represents the first of the three-pillar based Investment Plan for Europe.
In total, barely seven months have passed since President Juncker announced the Investment Plan for Europe, in November 2014, and its publication.
The plan will focus on investments that have a direct bearing on the real economy (with impact on jobs and growth to be measured). This is the reason why economic and technical viability will be the main factors considered when deciding which projects will count on the EFSI’s support. It also intends to create additionality with existing EU programmes.
Source: Author / EIB
The private sector should play a paramount role in the performance of the EFSI. The main intention of the fund is indeed to crowd-in private sector’s and third parties’ contribution, therefore creating a significant volume of leverage.
The fund will be managed through the EIB group and an independent EFSI’s Investment Committee will be set-up, so that there should be a very low degree of political interference. This dimension may also ease private contribution and probably improve the EFSI performance. The Investment Committee, responsible for taking decisions on the use of the EU guarantee for potential projects and for the operations with national promotional banks, will play a critical role. Formed of eight independent experts, it will decide which projects profit from the EFSI’s support and the degree of risk that it will support.
Another key feature of the EFSI is that it will specifically take into account any geographic nor sector pre-allocation. It will focus on higher risk project and be fully operational by September this year.
European banks, being the natural partners of the EIB, will obviously play a significant role in the performance of the Fund. Proper information towards banks and other stakeholders on the process and how they can be further involved is still very much necessary.
More generally, although it is clear that a political initiative cannot change Europe’s risk-averse investor mentality, it can however represent an important change of direction. Importantly, it is necessary to create a better long-term business environment in Europe pour corporates, and notably SMEs by means of forward looking economic policies and structural reforms. A stable regulatory framework for the financial sector should also be part of it.
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