A push for growth and jobs

7 November 2012

“Today the European Investment Bank and the European Commission signed the cooperation agreement that defines the roles, rights and duties of each side in implementing the pilot phase of the EU Project Bond initiative,” said European Commission Vice-President Olli Rehn, who holds the Economic and Monetary Affairs portfolio.

“Project Bonds are an integral part of the ‘Compact for Growth and Jobs’ decided by EU leaders at the June summit and confirmed at their October summit,” said Commissioner Rehn, speaking immediately after having signed the agreement on the premises of the European Policy Centre.

“We expect growth to gradually return in 2013 and to pick up in 2014, but the European economy is going through a rebalancing process that will continue for some time yet. We need to pull all levers to strengthen long-term, sustainable growth,” Rehn said.

“On one side are structural reforms that boost the supply of capital and labour, and improve economic efficiency. Structural reform may be politically difficult to implement, but it comes with very low or zero fiscal costs,” he argued.

“On the other side, we need to make the EU a more dynamic and competitive place by meeting the physical infrastructure challenge. Investment needs are estimated at €1.5 trillion up to 2020 to improve our transport, energy and IT infrastructure. All this requires huge upfront investment at a time of tight public budgets and balance-sheet consolidation in the banking sector,” Rehn said.

“We need to reprogramme the Structural Funds to focus on sustainable growth and competitiveness. €55 billion of structural funds will be mobilised quickly. €230m of Project Bonds during the pilot phase will enable €4.5 billion of investment in infrastructure,” the commissioner argued.

“The €4.5 billion of additional infrastructure funding per se won’t pull the EU out of the crisis. But using one euro from the EU budget to generate 20 euros of infrastructure investment is a very good and efficient step towards more rational use of the EU budget as a growth engine,” Rehn said.

He said “the pilot exercise of Project Bonds will have an important signalling function” regarding the proposed Connecting Europe Facility, part of the EU’s next Multiannual Financial Framework (MFF). “It should allow us to attract private-sector funding for long-term capital projects on a wider scale, and perhaps in other fields, in future,” he said.

“Project Bonds and the increase in the EIB’s capital will play instrumental roles in connecting our economies and boosting growth in future,” Rehn concluded.

“This is a very good day for Europe. We’re taking a big leap forward. But ‘test phase’ still means test phase – we need to test how [the Project Bonds scheme] works,” said Werner Hoyer, President of the European Investment Bank.

“It’s a relatively limited amount of money, but if it succeeds, then this new tool in the toolbox may one day serve much bigger dimensions, whether in the fields of energy, transport or IT infrastructure,” Hoyer said.

“Investment is crucial for the EU’s future growth and development. The EIB and the Commission will develop further risk-sharing facilities. Project Bonds are a step in the right direction. We must take more such steps in the coming years,” he said.

“Capital market investors like pension funds are a natural source of finance for long-term infrastructure projects. Banks are finding it increasingly difficult to make long-term investment, so this capital market role is needed,” the EIB president said.

“But the risk factor makes it difficult for them. Policymakers can design initiatives to help. Project Bonds offer a significant multiplier effect. But they mustn’t be limited to only the kind of projects included in the pilot phase,” he warned.

“Public-private partnerships (PPPs) can be a contentious issue in some member states. Some people see them as the privatisation of public services, and others see them as costly off-balance-sheet borrowing,” said Fabian Zuleeg, Chief Economist at the European Policy Centre.

“Europe desperately needs new investment to boost its infrastructure capacity and to make the Single Market function more effectively. Given the limitations on public finance, a large proportion of this must come from the private sector,” Zuleeg said.

“PPPs play a key role in providing investment and expertise, but they’re no silver bullet,” he warned.

“Project Bonds are a flagship new financial instrument to pilot in the run-up to the new MFF. Why Project Bonds? The infrastructure financing needs for the EU up till 2020 are enormous, and way beyond the capacity of public budgets and the current banking market to meet – so we need a potential game changer,” said Nicholas Jennett, the director in the European Investment Bank responsible for the Project Bonds Initiative.

“Tapping into the capital markets, and especially into pension funds, is the key game changer we need to achieve,” Jennett said.

“Project Bonds are a tool to help us deliver infrastructure policy in the field of Trans-European Networks. We decided to run a pilot phase in view of a much more ambitious rollout in the next MFF via the Connecting Europe Facility, which combines grants and innovative financial instruments, of which Project Bonds is one,” said Stéphane Ouaki, Head of Unit for Connecting Europe Infrastructure and Investment Strategies, DG Mobility and Transport (MOVE), European Commission.