Brussels ELTI debate: Long-Term Investments - what role for National Promotional Banks and the EIB?
Long-Term Investments: what role for National Promotional Banks and the EIB?
The ELTI debate on 2 December 2014 concerned the role of National Promotional Banks (NPBs) and the European Investment Bank group (EIB/EIF) in financing long-term sustainable investments and aimed to discuss the ways and means for them to cooperate in support of long-term investment to restart sustainable growth and employment.
All the above should act in line with the European Commission Communication on long-term financing of the European economy put forward in March 2014 which sets out a comprehensive framework of all measures required to secure Europe’s position on a sustainable growth path, including channelling all possible means of finance into the economy.
Other stakeholders are also considering what could be the role of EIB/EIF, the NPBs and MDBs in boosting long-term investment, through various forms of interaction, with or without institutional reforms, that could be thought of and EU budget funds that could also be associated with this dynamic, aiming to leverage in a wider European capacity through a better cooperation model and ensuring not only an appropriate financial resources supply but also support for sustainable investment demand.
The so-called ‘Juncker investment plan’ of € 300 bn. aiming to reconcile the necessary budget discipline and the need to reactivate sustainable growth and employment in Europe is of direct interest in this regard and the debate should help clarify how EIB Group and the NPBs can together support and help implement this plan.
On Tuesday 2nd of December, at the premises of Science14 Atrium in Brussels, PubAffairs Bruxelles hosted a debate concerning the issue of long-term investments, the role of national promotional banks and the EIB. The debate was moderated byDominique de Crayencour, Secretary-General of the European Long-Term Investors association (ELTI), while the discussants were Mr Giorgio Chiarion-Casoni, Head of Unit, European Commission, DG ECFIN, Mr Klaus Trömel, Director General of Operations, EIB, and Mrs Odile Renaud-Basso, deputy Director General of Caisse des Dépôts et Consignations.
In the first part of the debate, Dominique de Crayencour, introduced the speakers, the role of the European Long-Term Investors association, as well as the main topics which the debate would touch upon, such as the interrelation between the economic crisis and the question of long-term investments, and the European Union macroeconomic and banking policies. He then gave the floor to the discussants who could proceed to give their speeches and to discuss the issues at stake.
Mrs Renaud-Basso started her speech by stating that she found the new Commission investment plan interesting as it reallocates a part of the EU budget in order to trigger a leverage and to tackle some of the weaknesses of the EU capital market. Although there is a fair amount of work in progress and several aspects of the plan still need to be clarified, she highlighted that the innovative feature of such a plan is that it will not provide mere subsidies, but will make available guarantees, loans and equities in order to facilitate investments. She stated that the current situation is paradoxical as there is a large amount of liquidity available and, although investors are looking for new opportunities within the European Union, there is still hesitation regarding the identification of the projects to finance. She also remarked that the Commission investment plan is an ingenious solution as it would have been impossible for the EU executive body to ask for member states’ contribution, given that public money is a scarce resource during this conjuncture. She added however that a lack of subsidies when financing new projects, especially in the domain of infrastructure, is an issue which risks obstructing the reaching of an optimal financial balance.
Mr Chiarion-Casoni took the floor, stressing the fact that the European Commission has engaged with enthusiasm in this new project and remarked that the innovative feature of the plan is the breakthrough in the usual framework, namely the conceptual triangle “structural reforms”, “fiscal responsibility” and “investments”. With regard to the financing side of the plan, although he agreed with Mrs Renaud-Basso on some possible limitations of the new scheme, he believed that despite journalistic pundits the leverage effect is realistic. Gathering together promoters, such as the EIB or national promotional banks, and providing a firm institutional backup will put the new scheme in a position to encourage financial flows into the economy. In addition, he reminded us that the plan does not only concern funding, but also implies the reduction of regulatory barriers within the internal market. He concluded by remarking that the Commission asked the member states to provide an exemplary list of projects which they deemed of primary importance in order for the new framework to be as effective and inclusive as possible.
Mr Trömel began his intervention by reminding Mr Juncker’s speech in July, the first seed of the plan which culminated in the plan launch in November, after a period of intense cooperation between the new Commission and the EIB. He stated that the internal mechanics of the plan are complex, also affecting the communication outreach to market participants. However, the financial potential of the plan, as well as the institutional effort to make financial resources available for investments are the key points in it. Mr Trömel recalled that the confidence building element in the Commission’s agenda has emerged as a key point during meetings with investors. For these reasons and given that the normal procedures require a certain time before full implementation, the EIB will seek to warehouse a number of pilot transaction in 2015. The structure of this scheme should also enable the plan to be operational rapidly and efficiently. It is also the intention to enable others to join in every layer of the framework, be it at the fund to be set up within EIB, given country, sector or project level. In Mr Trömel’s opinion, the project level, however, is likely to be the primary one in order to provide for an extensive financing participation and thus inclusive multiplier effect. Mr Trömel also agreed with Mrs Renaud-Basso on the fact that the combination of liquidity at disposal in the market and low interest rates are features which create a positive environment for the good outcome of the plan. He finally underlined that, while investors are showing willingness to be involved, project promoters are still wavering due to demand, technology and regulatory risks.
The main point of discussion consisted of project identification and implementation. Mrs Renaud-Basso remarked that the plan has already reached the goal of triggering the public debate on how to foster investments within the EU. She also acknowledged that some degree of clarification is still needed on the question of project identification, as this step will inevitably bring high-level discussion and negotiations. For this very reason, the involvement of experts, stakeholders and decision makers is of capital importance. She added that large scale projects may encounter some degree of risk due to the complexity of their implementation, as well as their duration and that consequently an active participation of regional and local authorities is required. Mr Chiarion-Casoniintervened on this issue by clarifying that the new plan does not intend to create an institutional top-down approach for the identification and implementation of projects; indeed the lists of projects would be presented by member states. The listing was intended as illustrative and non-exhaustive and based on common selection criteria: the projects’ readiness to be implemented, their added value for Europe and their economic viability. On the same question, Mr Trömel replied by stating that a review of non-implemented projects is one step, while pointing out that the EIB is engaged in cross checking data and will apply its usual processes in order to identify viable projects. He also confirmed that viability will be the most important selection criteria and remarked that a fair balance between speed and risk assessment will also certainly be taken into consideration.
Another focal point of discussion was the issue of EU regulatory risk. Mr Chiarion-Casoni acknowledged that some projects may encounter regulatory obstacles at European or national level, and explained why regulatory inconsistencies also need to be tackled. Mr Trömel expressed his confidence in the Juncker Commission ability to deal with this question and he remarked that cross-border projects are complicated by such inconsistencies. Mrs Renaud-Basso said that widespread institutional cooperation is urgently needed in order to be as effective and inclusive as possible and to facilitate investment flows.
The final part of the debate and the Q&A session also covered the following issues: market fragmentation, the inclusion of local authorities in the plan, the digital agenda for Europe, the question of high speed broad band, the job creation impact of the plan, the financial balance of the Commission’s plan and the EIB role in the European market.