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InvestEU - The future of EU Financial instruments post-2021
04 Nov 2018

There is no doubt that the investment climate across Europe has improved.  This occurred both due to the improved economic conditions in most EU Member States but also due to an extra effort made through the Junker plan which saw an increases in investment in major projects.  But an investment gap still exists.

For this reason the EU plans a new and unified Investment Plan for Europe.  The Commission’s proposal for the upcoming 2021 – 2027 EU budget, is to establish a single investment fund, called the InvestEU fund as part of the InvestEU programme.  The InvestEU Fund is a €38 billion guarantee fund which has ambitiously aggregated all the EU guarantees administered by the different EU Commission Directorates General into a single EU guarantee fund. 

This will ensure strong synergies between EU guarantees and will play a key role in maximising the impact of the EU 2021 – 2027 budget through the attraction of more than €650 billion in private funds to address the EU’s investment needs.  The various European investment needs for the coming years have been grouped under four key policy areas, namely, (i) sustainable infrastructure, (ii) social investment & skills, (iii) R&D Innovation & Digitization and (iv) SMEs.   

Currently, the EU Commission proposal on InvestEU is being debated by the Member States in the European Council and the European Parliament with the ambition of adopting the InvestEU Regulation prior to the European Parliament elections in May 2019.  The final compromise text between these three players will dictate how the InvestEU programme will work in practice.

The InvestEU proposal presents a number of innovations in the market of EU Financial Instruments. For example, where previously all EU guarantees were centrally managed by the European Investment Bank (EIB) group, the InvestEU proposal will seek, beyond the envisaged 75% managed by the EIB Group, the direct involvement of new implementing partner’s for the rest of the Fund.  The InvestEU proposal will provide direct access to National Promotional Banks (NPBs) and International Financial Institutions (IFIs).  The rationale behind the direct involvement of NPBs is to further enhance the EU benefits for its citizens by addressing specific national financing market gaps through an in-depth understanding of national specificities.

The setting up of Malta’s own Development Bank can assist in acting as a conduit for such InvestEU funding.  This is not so straightforward, however.  The proposal as it stands may limit Malta from tapping directly into the InvestEU guarantee in view of Malta’s small size and the condition of cooperation with at least three Member States.  Discussions in Brussels are currently ongoing to explore ways on how to ease access for small NPBs.  

Another innovation in the InvestEU proposal is the creation of compartments whereby Member States will have the option to allocate part of their structural funds into the InvestEU fund.  In doing so Member States will obtain an additional tool to assist them in achieving their Cohesion Policy objectives.  Through the combination of both EU structural funds and InvestEU funds each Member State can attract more private funds and therefore create a larger impact in their market.

Malta was one of the first Member States to pilot such a principle under the current programming period 2014 – 2020 through its participation in the SME initiative, an innovative programme operated by the European Investment Fund (EIF).  Under the SME initiative, the Maltese Government contributed a portion of its European Regional Development Funds (ERDF) in the form of a guarantee, together with Horizon 2020 funds and EIB/EIF resources to attract €90 million in private funds.

The EIF, which is in charge of implementing the SME initiative effectively developed workable solutions to combine funds at a European level to launch the SME Initiative in the Maltese market.  Such effort paid off since the SME Initiative, through local financial intermediaries, has provided hundreds of Maltese and Gozitan SMEs easier access to finance together with more favorable loan terms when accessing bank financing.   

The lessons learnt from the implementation of the SME Initiative has led to a third innovation in the InvestEU proposal which is the adoption of a single set of rules when combining different EU funds.  Whilst a single rulebook will facilitate the combination of different EU funds from an administrative perspective, from a financial intermediary and SME perspective the effective combination on the ground requires modifications to EU state aid rules. 

EU funds managed at a Brussels level are not deemed state aid while EU funds managed at a Member State level indeed are.  What happens when you combine them at a National level? The EU Commission is actively seeking to clarify an answer to this question through its proposal on the inclusion of new categories of horizontal State aid as part of the new General Block Exemption Regulation.  The lessons learnt when implementing the SME Initiative can once again serve as a good basis for discussion.  

Over the next couple of months Brussels will define the rules governing the future of EU financial instruments post-2021.  These rules should allow for flexibility to address the various national market specificities whilst at the same time ease the combination of different funding streams. At stake is a much needed boost to investment, innovation and job creation in all EU Member States. 

Mark Scicluna Bartoli runs Bank of Valletta‘s EU & Institutional Affairs section and its EU Representative Office in Brussels. He has also recently been elected as a Member of the Board of Directors of the European Investment Fund.  

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).