A new vehicle will finance projects across the continent in infrastructure such as broadband, energy and transport. This European Fund for Strategic Investment will be set up and operational by mid-2015, with €16bn from EU’s unused budgetary resources and €5bn coming directly from European Investment Bank (EIB). However, just half of the money in the budget is real with the remainder acting as a provision buffer.
So, how can this raise the proposed €315bn? Essentially, the operation will raise funds in the same manner as a commercial bank would; firstly, the money will work as a guarantee to raise capital in the markets such as long-term senior debt or less safe financial products like subordinated loans or equity. According to EC estimations, that process could multiply the fund to €60bn in the first phase. Grégory Claeys, research fellow of the think-tank Bruegel, expressed doubts about these calculations.
“The total amount may not be enough for the European economy because what we see now is that the new money being injected is just €8bn plus €5bn”, the French economist noted.
Members States and National Promotional Banks will also be able to contribute either at the level of the Fund or by co-financing projects. Private investors are more likely to participate by financing different projects, the last step in the process. Together, the three strands are hoped to provide the catalyst for the €315bn total.
“I am skeptical about the whole multiplier, 1/15, because this measure is not usual in financial institutions”, Claeys told The Corner. At the same time, he noted that “the EIB is known for investing in good projects and they have the expertise to do that.”
Juncker’s plan will distribute €240bn through long-term investments. The other €75bn will support SMEs and mid-cap companies, which could borrow directly from the EIB at an interest rate lower than that available in the market. According to an EC official, there are fears in some national banking sectors, notably the French, that this could mean client losses.
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