The added value of the investment plan for Europe was questioned once again on Monday (14 November) as an independent report warned that “concerns” remain about its ‘additionality’ and “possible crowding out” of existing investment.
EY, a consultancy, drafted an independent evaluation of the European Fund for Strategic Investments (EFSI), as required by the regulation.
The report pointed out that “market (in particular national promotional banks and beneficiaries) is still in doubt whether additionality is always met”.
Additionality – the concept of mobilising additional capital sleeping in the deep pockets of the financial system through projects with a higher risk profile – was the cornerstone of the Juncker Plan. To that end, the EFSI offered an EU-backed guarantee of €21 billion in order to attract at least 315 billion in investments, mostly from the private sector.
The EY warning came after a series of reports questioned the additionality brought by the investment plan.
The European Court of Auditors (ECA) recently said that there is a risk that the multiplying effect is “overstated”, while there was limited data about the impact of EFSI to sustain the Commission’s proposal to prolong the fund beyond 2018 deadline.
“It is still too soon for the economic, social and environmental impacts to be measured or for a conclusion to be drawn as to whether EFSI is achieving its objectives,” said Mihails Kozlovs, the ECA member responsible for the opinion.
Experts also doubt that projects financed by the Commission’s flagship initiative have a higher risk profile. An analysis conducted by Bruegel think tank found only one project that would not have been financed by the European Investment Bank under existing financial instruments, a plant to recycle titanium metal.
In order to ensure that EFSI guarantees are channeled to more risky proposals, the report recommended better clarifying and defining the concept of additionality, as “it is understood differently by the various internal and external stakeholders”.
But the report also noted that the fact that the promoters decided on EFSI financing suggests that the alternatives did not provide the financing to the same extent, conditions or in the same time frame.
The executive said last week that the report’s recommendations are broadly in line with their suggestions made in September.
The European Commission proposed reinforcing the definition and criteria to ensure that projects would not have been financed to the same extent and at the same time without EFSI support.
The executive, however, emphasised that the Juncker Plan remains “on the right track”.
“It is satisfying that independent evaluators agree with our approach,” Commission Vice-President Jyrki Katainen said.
On 25 November 2014, the European Commission revealed the details of its 315 billion euro investment plan.
The idea is to create a new European Fund for Strategic Investments (EFSI), with €5 billion coming from the European Investment Bank and an €8 billion guarantee from existing EU funds, making a contribution of €16 billion in total from the institutions.
The €8 billion guarantee will come over a three-year period from the Connecting Europe Facility (€3.3 billion); Europe’s research programme Horizon 2020 (€2.7 billion) and so-called “budget margin”, or unused funds, worth €2 billion.
The resulting EFSI fund, totalling €21 billion, is expected to generate €240 billion for long-term investments and €75 billion for SMEs and mid-cap firms over the period 2015-2017.
The plan drew questions over the lack of new cash, with some members of the European Parliament calling it an exercise in "recycling and re-labelling" existing programmes.
The EFSI Regulation, which entered into force in July 2015, calls for three evaluations or reports to be made about the Investment Plan: one by the Commission which was published on 14 September 2016, one by the EIB which was published on 6 October 2016, and a third by an independent body. EY won the bid to produce this third, independent report. EY carried out the evaluation between 21 September and 14 November 2016. The evaluation covers the period from July 2015 to June 2016, the EFSI's first year.