This article is part of our special report The promises and challenges of repayable EU structural funds.
Faced with tight deadlines to programme recovery and new cohesion funds while still implementing projects from the previous budgetary period, EU countries may be tempted to forget about repayable Union assistance, warned Portuguese MEP José Manuel Fernandes, in which case a lot of cheap money would be left on the table.
Countries across the bloc will have to programme 70% of €672.5 billion recovery fund — out of which only €312.5 billion are grants and the rest are loans — by 2022 and all projects have to be approved by 2026.
At the same time, states will have to finish implementing all cohesion projects from the previous budgetary period until 2023, while simultaneously designing and getting new programmes approved by Brussels.
“What is the risk? EU member states will only look at the subsidies and there could be a trend where they forget these financial instruments,” said Fernandes (EPP).
“What will most member states do? ‘Let me see the subsidies, I need to execute them and forget the financial instruments because these are loans,’ [they will say],” said Fernandes, the chief negotiator on the InvestEU.
InvestEU is the follow-up investment funds to the Juncker Plan that pulls together up to 14 existing financial instruments under a single rule book to mobilise public and private capital to address investment gaps in Europe.
“That is the risk, but competent member states will not only look at the subsidies. The competent ones will look at this in the immediate, medium and long term and will already say: ‘We have the subsidies, but we have a plan. We will use both to mobilise even more money and investments,’” he added.
Fernandes said the previous 13 assistance services that are now merged into a sole investment “Advisory Hub” can help countries that have either weak or completely lack national development banks structure projects and aid in building stronger national financial institutions.
The Portuguese lawmaker emphasised the flexibility of InvestEU that will provide around €26.2 billion in Union-backed loans that Brussels hopes will generate around €400 billion in investments currently not financed by the market.
“Invest EU is an instrument that is very important to relaunch the economy and should be used – though Council didn’t want this – to ensure the geopolitical Europe that is being called for, but then we do not have the means to ensure its existence,” the MEP said.
“Let me give you the example of my country – we produce hydro-electric power, but then we lose it because it cannot enter the European market. France and Spain do not want it.”
“Then we buy energy from Russia. This is crazy. I hope InvestEU will help this too,” Fernandes added.
He pointed out that the technical assistance with building projects will also be important to take full advantage of “blending,” the possibility of combining grants and financial instruments.
“We know that the money of the Cohesion Policy is insufficient for all investments and we also know that some investments are not viable if they only use financial instruments, meaning subsidies are also needed,” according to Fernandes.
The advisory hub, which will be lead by the European Investment Bank and free for public entities, will aid in devising ways to best combine subsidies and repayable loans for such projects.
Moreover, countries will be able to transfer 5% of their cohesion funds to InvestEU under national ‘compartments.’
Asked why national authorities would choose this option if they are going to lose the higher level of control over how the money is spent, Fernandes said “it is very easy to explain.”
In case of national authorities that do not have strong national banks but have concrete investment projects for which cohesion funding is insufficient and additional loans are needed, “you use your national ‘compartments.’”
“With these, you finance the investments that you want in the areas that you want…So, there is a possibility that is not imposed but on a voluntary basis, destined to help the weaker countries with less experience and that do not have huge national development banks.”
Fernandes added that InvestEU is a way for the EIB, which will implement 75% of the guarantee, to finance riskier projects.
“The EIB is very important due to its wide experience and its high competence. Invest EU is additional [to] the ‘normal’ things of the EIB,” he said.
[Edited by Zoran Radosavljevic]