23 European Investment Fund
| (27952)
14606/06
COM(06) 621
| Draft Decision on the Community participation in the capital increase of the European Investment Fund
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| Legal base | Article 3 Decision 1994/375/EC (based on Article 235, now 308, EC); consultation; unanimity
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| Document originated | 24 October 2006
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| Deposited in Parliament | 31 October 2006
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| Department | HM Treasury |
| Basis of consideration | EM of 7 November 2006
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Legally and politically important
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| Committee's decision | Cleared
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Background
23.1 The European Investment Fund (EIF) was established in 1994
as a joint venture between the European Investment Bank (EIB),
with 61.35% of the shareholding, the Community, represented by
the Commission, with 30%, and 24 private sector financial companies,
8.65%. The EIF is a Community institution, which was designed
originally to contribute to the development of Trans-European
Networks and of small and medium-sized enterprises (SMEs). The
EIF's activity is now focussed on providing venture capital and
guarantees to SMEs, in pursuit of Community objectives, particularly
innovation, research and development, entrepreneurship, growth
and job creation.
The document
23.2 The EIF will exhaust its own resources by mid-2007 and will
be unable to continue its own resources operations, unless an
increase in its subscribed capital is made. Its directors have
therefore suggested a 50% increase in subscribed capital. Of that,
20% would be paid-in, raising subscribed capital from €400
million (£267.40 million) to €600 million (£401.10
million). This draft Decision would provide for the Community
to maintain a 30% shareholding and €100 million (£66.85
million) has been allocated under the Financial Perspectives for
2007-2013 for this purpose. Four annual payments would be made
over the period 2007-2010, each approximately €25 million
(£16.71 million). Because of share price fluctuations the
Commission cannot predict in advance the exact overall and annual
budgetary commitments and payments. To reduce the effect of price
uncertainties the Commission proposes that dividends paid by the
EIF during the years 2007-2010 be used each year to cover part
of the cost of new shares and that the maximum Community liability
would not exceed the €100 million budget allocation and the
dividends, estimated at around €20 million (£13.37 million).
23.3 The proposed capital increase was endorsed by the EIB's Board
of Governors on 7 June 2006, as part of the EIB Group's contribution
to the Community policy for the promotion of growth and jobs,
and was welcomed by the ECOFIN Council of 14 March 2006 and the
European Council of 23-24 March 2006. Adoption of the draft Decision
would allow the Commission to vote in favour of the capital increase
at the EIF's General Meeting in May 2007.
The Government's view
23.4 The Economic Secretary to the Treasury (Ed Balls) says the
Government supports the Community's participation in the increase
in the subscribed capital of the EIF. In justification of this
he comments that:
- SMEs provide 75 million jobs and account for 99% of enterprises
in the Community. But access to bank loans and leasing can be
particularly difficult for SMEs when they have insufficient collateral
or lack a sufficient track record and a significant number of
viable, innovative and profitable investment projects may not
be financed. It is therefore important to support SMEs both in
their early and their expansion stages.
- availability of appropriate sources of finance is crucial
for businesses seeking to invest and grow and the Government remains
committed to tackling market failures in the supply of risk capital
and improving access to finance for small businesses;
- implementation of the Lisbon Strategy and enlargement have
stretched the EIF's resources considerably, an increase in subscribed
capital falls within the framework of the Lisbon Strategy, without
an increase the EIF would run out of own resources by mid-2007
and alternative options to the proposed increase, such as borrowing,
have been considered and deemed unsuitable by the EIF's directors;
and
- maintenance of 30% shareholding by the Community helps to
ensure that the EIF remains focused on Community policies.
23.5 The Minister also draws our attention to the legal base for
the draft Decision. He says that there is sufficient power to
enact the proposed Decision in Article 3 of the Decision, 1994/375/EC,
which provided for Community membership of the EIF, but that Decision
itself was based on Article 235 (now Article 308) EC. He then
notes that both the original Decision and the draft Decision have
Recitals pointing to the EIF promoting development of SMEs (and
of Trans-European Networks in the earlier case) in furtherance
of Article 3 EC objectives.
Conclusion
23.6 The substance of this proposal is unexceptionable.
23.7 In relation to the question of reliance on Article 308
EC as the legal base we accept that the proposal is properly grounded
in Decision 1994/375/EC which was itself based on Article 235
(now Article 308) EC. The Decision does not state that it is related
to the achievement of a Community objective "in the course
of the operation of the common market", but we accept that
the connection with Trans-European networks and the activities
of small and medium-sized enterprises throughout the Community
makes this implicit.
23.8 We are therefore content to clear the document.
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