Details about EU’s Grand Investment Plan Revealed

Written by | Friday, November 28th, 2014

The EU Commission has finally revealed more details about the anticipated €315 billion investment plan by saying a little bit more about its first tranche worth €21 billion. It has been announced that the funding will be channeled specifically towards southern Europe, which was hardly hit by the crisis. After many years of efforts to save the euro zone from collapsing, Europe needs a massive ambitious investment plan, thinks new President of the European Commission, Jean-Claude Juncker. “We need to send a message to the people of Europe and to the rest of the world: Europe is back in business,” he said.

The investment plan was gradually devised during the summer by the team of the Commission Vice-President Jyrki Katainen. The plan is to create a new European Fund for Strategic Investments (EFSI) with about €5 billion coming from the European Investment Bank and an €8 billion guarantee from existing EU funds that are designated to secure additional €16 billion. The €8 billion guarantee will come over a three-year period from the Connecting Europe Facility (€3.3 billion), Europe’s research program Horizon 2020 (€2.7 billion), and the so-called “budget margin”, or unused funds, worth €2 billion. According to the Commission, the initial investment package will be multiplied by a factor of fifteen, which will be achieved via a number of leverage mechanisms.

The system will be protected by the EFSI funds while the activities will be carried out by the European Investment Bank (EIB). These will include, for example, long-term debt financing for higher-risk projects, equity financing, and subordinated loans. The longer-term financing instruments will target sectors such as transport, energy, and digital economy. Other operations will include also loan guarantees, securizations, venture capital injections, and seed financing. Some of these should provide micro-loans to small and mid-sized loans to fund start-ups. The €21 billion investment should increase the availability of instruments three times to be passed on as investments. Loans are in turn expected to “allow other investors to join in and produce a further fivefold multiplying effect”.

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