Barroso backs EU bonds to finance infrastructure

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The president of the European Commission unveiled plans on Tuesday (7 September) to raise new sources of finance to fund EU infrastructure projects.

In a key 'State of the Union' address to the European Parliament, José Manuel Barroso offered few details on the initiative but said it would involve the establishment of EU "project bonds" issued in conjunction with the European Investment Bank (EIB).

"We should also explore new sources of financing for major European infrastructure projects," Barroso said in his speech.

"For instance, I will propose the establishment of EU project bonds, together with the European Investment Bank. We will also further develop public-private partnerships."

The EIB, a triple A-rated institution, frequently raises money on international markets which it lends on to European businesses and local and national governments to finance expansion and major projects.

In 2009, the bank raised about 79 billion euros, disbursing more than 54 billion euros to countries in the EU and to partner countries outside the bloc of 27 member states.

The European Commission, the EU's executive, has also raised money on international markets in the past. That borrowing, underwritten by EU member states, has also been AAA-rated.

Barroso's initiative hints at the possibility of the Commission and the EIB together issuing bonds that would be used to fund major infrastructure projects – such as the construction of new dams, bridges, railways and ports.

Such projects could help boost employment and investment across the EU at a time of high unemployment and low growth.

German Finance Minister Wolfgang Schauble dismissed Barroso's proposal for being out of step with the EU's more immediate priorities and "unworthy for discussion".

Public-private partnerships involve private sector companies working with government authorities to finance and operate services such as schools or large construction projects.

"The things we need now would be hindered rather then helped by this," he said, according to the German press.

FIEC, a trade group representing the construction industry, applauded the initiative. "We fully share the underlying conviction that these investments at the European level are necessary for jobs – not only in the construction industry – and the further development of the EU," said Luisa Todini, FIEC president.

(EURACTIV with Reuters.)

The idea of using Eurobonds 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.

For instance, a 'New Community Instrument' was used in the late 1970s and early '80s to promote investment and help regions affected by earthquakes in Italy and Greece. 

Currently, the bloc is providing financial support to crisis-hit Hungary by issuing EU bonds, using a facility that has not been applied since the establishment of the European Union. The ceiling for this instrument was raised from €12 to €25 billion (EURACTIV 30/10/08).

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