‘Project bonds’ launched as an experiment
In the absence of an agreement for launching Eurobonds, the EU institutions agreed yesterday (22 May) to launch the first ‘project bonds’ as a pilot project to boost investment in energy, transport and the digital economy.
If successful, the pilot could be rolled out at a much bigger scale in the 2014-2020 EU budget.
The EU will set aside €230 million in guarantees to support the issuance of project bonds for infrastructure under a deal concluded by MEPs and EU governments in Strasbourg.
Germany said it would remain firm in its opposition to Eurobonds at today’s EU summit, but has given its blessing to prepare the smaller-scale project bonds.
The European Commission, which tabled the proposal in February, says that by combining the project bonds with guarantees from the European Investment Bank (EIB), the €230 million could be multiplied by three. If other lenders chipped into projects, the amount of money raised could reach €4.6 billion.
However, these plans appear largely theoretical for the time being. It is also unclear what kind of evaluation project bonds would receive from credit rating agencies. In April last year, Fitch had cast doubts over the rating of EU project bonds.
Asked by EurActiv to comment, Commission President José Manuel Barroso said in February that it was up to the markets to decide what types of projects would be funded. He said the Commission had conducted consultations and found that the private sector was showing "an important market interest" for the scheme.
Parliament has called several times for the introduction of such risk-sharing instruments.
"Given tough national budget restrictions and bank capital requirements, we must find new ways to boost investment for growth. Project bonds should make investing in important infrastructure projects more attractive to capital market investors, without excessive risks for taxpayers," said the MEP in charge of the negotiations, Göran Färm (Socialists & Democrats, Sweden).
However, the pilot project looks modest compared to the real needs of Europe’s economy. Investment needs for transport, energy and information and communication technologies (ICT) infrastructure projects in Europe are estimated at €1.5 trillion for 2010-2020. If the pilot project proves successful, up to €50 billion could be set aside for the scheme in the next long term EU budget for 2014-2020, Commission spokespeople explained.
The idea now is to test how the financial markets perceive the initiative and to use the practical experience of the coming 18 months to fine-tune the initiative.
Parliament is expected to give a final nod to launch project bonds as a pilot project at its July session.
In his 'State of the Union' address to the European Parliament in September 2010, Commission President José Manuel Barroso spoke of an initiative to establish EU 'project bonds' issued in conjunction with the European Investment Bank (EIB).
The idea of using bonds to finance the European budget was launched for the first time by former European Commission President Jacques Delors with his 1993 plan for growth, competitiveness and employment, the predecessor of the Lisbon Agenda.
But the majority of member states opposed the idea, fearing it would ultimately increase their expenditure on the Community budget.
The principle of borrowing money - with EU budgetary backing - to fund projects or provide aid has already been applied by the European institutions in several cases, although the amounts involved have been small.
In October 2011, Barroso mentioned a figure – €50 billion – to be raised for projects in the transport, energy and telecoms sector, using project bonds.
Olli Rehn, Commission Vice President responsible for Economic and Monetary Affairs, stated:
“I welcome the agreement today in the "trialogue" with the Parliament and Council on our proposal for the pilot phase of Project Bonds, which paves the way for the vote on 31 May. This is an important initiative that can contribute to strengthen our economy. Promoting public and private investment is indeed a cornerstone of our growth initiative.”
French MEP Dominique Riquet, spokesman on 'project bonds' for the European Peoples Party (EPP), welcomed the interinstitutional agreement, inisting that the election of the new Socialist French President François Hollande had nothing to do with this success.
"The launching of "project bonds" was proposed more than one year ago by the European Commission. The agreement reached in trialogue today is the result of a long work within the European Parliament and the Council. Contrarily to what socialists try to make one think, François Hollande's election in France has played absolutely no role in this decision!" Riquet stated.
- 31 May: Parliament Budgets Committee to vote on trialogue agreement
- First week of July: Final vote in plenary