The uncertain economic outlook, high levels of public debt and austerity policies have caused investment to drop by about 15 per cent since 2007. There is financial liquidity in the corporate sector, but because of a certain amount of caution and a lack of trust, investors are unwilling to spend it.
The European fund for strategic investments (EFSI) - on which the European parliament and national governments in council have reached an agreement - has to change this.
The European investment bank (EIB), through the creation of a liquidity cushion, can grant guarantees for investments that are eligible under EFSI.
RELATED CONTENT
This liquidity cushion takes on the first losses of failed operations, allowing the EIB to carry out more daring investments without exposing itself to the possibility of losing its top (AAA) risk rating.
This system must mobilise at least €315bn in additional private and public investments across the EU.
The agreement between parliament and council clearly stipulates what kinds of investments will be supported.
While member states and the European commission initially wanted to carry on business as usual, MEPs were able to give a decisive focus on where and how to invest. The aim of the fund will be to modernise the European economy instead of investing in the past.
Investments should not only boost our economy, but also make it more sustainable. We should not invest just for the sake of it and risk creating white elephants, but ensure that EFSI promotes sustainable projects and gets SMEs on board.
Cash-starved smaller businesses across Europe will benefit from EFSI by money made available to them by the European investment fund (EIF), which is part of the EIB.
The EIF can provide working and investment capital and deliver risk financing from seed to expansion stages for SMEs, start-ups and small and innovative mid-caps. EIF support can also be delivered via intermediates, such as national promotion banks or dedicated investment platforms.
The agreement even expands the possibilities of the EIF financing operations. The commission's initial proposal said that at most, €2.5bn out of the €8bn liquidity cushion could be used for guarantees to EIF investments. Parliament and council have agreed that the steering board can now adjust this ceiling up to €3bn.
SMEs and small mid-caps all over Europe will not only benefit from the increased access to finance that EFSI guarantees.
Small business can also obtain technical assistance for their project structuring and financing from the single European investment advisory hub that will be established under the EFSI.
The fees charged to SMEs for this technical assistance will be capped to one third of their cost - a clear signal that the co-legislators really appreciate the role small business can play.
The challenge is now to make public and private actors aware of the opportunities of the EFSI. Let us hope that the fund will succeed in channelling private sector money into the real economy and that Europe will overcome its current investment difficulties and prepare itself for a sustainable future.