Documents considered by the Committee on 17 December 2014 - European Scrutiny Committee Contents


7 Investment plan for Europe

Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested
Document detailsCommission Communication about promoting investment in the EU
Legal base
Department

Document numbers

HM Treasury

(36540), 16115/14, COM(14) 903

Summary and Committee's conclusions

7.1 This Commission Communication suggests a plan to promote investment in the EU economy. The plan would have three strands:

·  a European Fund for Strategic Investments, to mobilise €315 billion (£247 billion) for investment;

·  a pipeline of investment projects and investment advisory "Hub"; and

·  a wider package of reforms to improve the investment climate, including action to remove barriers in the single market and improve regulation.

7.2 The Commission calls on the European Council to endorse the plan at its 19-20 December meeting.

7.3 The Government's initial comments to us about the plan are relatively positive, albeit nuanced.

7.4 We may well want to recommend that Members be given an opportunity to debate this proposed plan. However, we will not decide on that until we have had an account from the Government of the outcome of the European Council discussion of the Commission's ideas. In addition to that account, we would like to have also the Government's assessment as to:

·  the likelihood of a leverage ratio of one to 15 from use of the European Fund for Strategic Investments;

·  whether drawdowns from the EU Budget for the Fund would be a reasonable use of the programmes concerned;

·  whether the European Investment Bank's involvement in the plan poses any risk to its credit standing;

·  what additional risk the plan might pose for the EU's Guarantee Fund;

·  what fast-tracking of the draft Regulation on the European Fund for Strategic Investments might mean for national parliamentary scrutiny; and

·  what financial consequences there might be for the UK.

7.5 Meanwhile the document remains under scrutiny.

Full details of the documents: Commission Communication: An investment plan for Europe: (36540), 16115/14, COM(14) 903.

Background

7.6 In his presentation to the European Parliament in July the President of the new Commission, Mr Jean-Claude Juncker, said:

    "My first priority as Commission President will be to strengthen Europe's competitiveness and to stimulate investment for the purpose of job creation. We need smarter investment, more focus, less regulation and more flexibility when it comes to the use of public funds [available at EU level]. This should allow us to mobilise up to €300 billion in additional public and private investment in the real economy over the next three years. The focus of this additional investment should be in the areas of infrastructure, notably broadband and energy networks, as well as transport infrastructure in industrial centres; education, research and innovation; and renewable energy and energy efficiency. A significant amount should be channelled towards projects that can help the younger generation back to work."

The document

7.7 This Commission Communication sets out ideas for realising the Commission President's ambition to mobilise €315 billion (£247 billion) for investment in the EU economy. The Commission's plan would have three strands:

·  a European Fund for Strategic Investments;

·  a pipeline of investment projects and investment "Hub"; and

·  a wider package of reforms to improve the investment climate, including action to remove barriers in the single market and improve regulation.

The European Fund for Strategic Investment (EFSI)

7.8 The Commission proposes creation of an EFSI, a new €21 billion (£16.47 billion) fund, linked to the European Investment Bank (the EIB), which would aim to mobilise at least €315 billion (£247 billion) of additional investment finance in the EU over three years (2015-17). The €21 billion (£16.47 billion) would consist of a €16 billion (£12.55 billion) EU guarantee, 50% of which would be paid in from the EU Budget, and an EIB contribution of €5 billion (£3.92 billion) from its own resources. The EU Budget's €8 billion (£6.28) contribution would be drawn from the Connecting Europe Facility, €3.3 billion (£2.59 billion), Horizon 2020, €2.7 billion (£2.12 billion) and the budget margin, €2 billion (£1.57 billion).

7.9 Member States would also be given the opportunity to contribute capital to the Fund directly. The Commission says that "in the context of the assessment of public finances under the Stability and Growth Pact, the Commission will take a favourable position towards such capital contributions to the Fund".

7.10 The Commission says that:

·  the EFSI is expected to have a risk profile aimed to help pull in additional private finance to riskier investment projects that might otherwise struggle to be funded;

·  the leverage ratio would be one to 15, that is, every €1 (£0.78) in the Fund would catalyse a total of €15 (£11.76) investment;

·  the EFSI would support long-term investment projects of European significance — 75% of the Fund would go to them and the other 25% would go to SMEs and Mid-Caps;

·  the new fund would be set up "as a partnership between the Commission and the EIB";

·  it would be within the EIB Group — set up as an EIB trust fund, with its own set of investment criteria; and

·  in addition to mobilisation of money by the EFSI it would be possible to increase the use of innovative financial instruments (loans, guarantees, and equity) in domestic EU spending through the European Structural and Investment Funds.

An EU pipeline of investment projects and investment Hub

7.11 The second strand of the plan relates to the ongoing work on identification of an EU investment pipeline, through a joint EIB/Commission/Member State Investment Taskforce. This seeks to identify viable projects of particular added value across the EU, which should help unlock private investment in these projects. The Commission:

·  is clear that not every project in the pipeline should or would be funded — rather, it would allow public and private investors to access relevant and transparent information on viable projects;

·  suggests that over time this could lead to a system of "European certification" for viable projects, to be used by the EIB and national promotional banks to attract investment; and

·  the pipeline would only be an indicative list of projects at this stage, as the EIB has not done the due diligence in terms of project selection or assessment that would be required.

7.12 The Commission also puts forward the idea of an investment advisory Hub to provide support for project development, building on the expertise of the Commission, EIB, and national promotional banks. It would provide technical assistance for project structuring, innovative instruments, and public-private partnerships. It would be developed by the EIB Group.

A package of reforms to improve the investment environment

7.13 The third strand of the package is a set of measures to provide regulatory predictability, removing barriers to investment and reinforcing the single market. The Commission:

·  highlights that much can be done at national level, for example, through implementation of national structural reforms, but should also include EU level measures;

·  focusses on the need for better regulation, including reducing unnecessary regulatory burdens, and improving business conditions, in particular for SMEs;

·  talks about avoiding gold plating or creating additional burdens when transposing EU law into national law;

·  says that it will "further strengthen its overall approach to better regulation in 2015 and give it fresh impetus", stepping up efforts under REFIT[27] and ensuring that proposals for simplifying EU law happen in practice;

·  outlines plans for the creation (over time) of a Capital Markets Union to reduce fragmentation in EU financial markets, which would include adopting the draft Regulation on European Long Term Investment Funds,[28] reviving high quality securitisation markets, improving the availability of credit information on SMEs, exploring with the private sector the development of a cross-EU private placement market and reviewing the Prospectus Directive; and

·  outlines a wider set of measures that are designed to make the most of the Single Market and eliminate barriers to investment across the EU and which would include the full implementation of the Third Energy Package, resolving barriers to investment in the transport sector, developing the Digital Single Market, action on Services and Product Markets, reducing barriers to research and innovation and engaging with international partners to promote open investment flows.

7.14 At various points in the Communication the Commission issues requests to the European Council as follows:

    "The European Council is invited to endorse the setting up of the European Fund for Strategic Investments, and commit to a more effective use of the European Structural and Investment Funds, notably through an overall doubling of the use of financial instruments. The legal proposal necessary for the European Fund for Strategic Investments should be dealt with in fast-track procedure by the European Parliament and the Council, as the EU legislator, to be in force by June 2015."

    "The European Council is invited to endorse the proposal to set up a pipeline of projects at EU level and to strengthen technical assistance through an investment advisory 'Hub', to be in place by June 2015."

    "The European Council is invited to endorse the overall approach and the European Parliament and the Council, as the EU legislator, should ensure swift adoption of the forthcoming legislative measures that are necessary to improve the regulatory environment for investment."

    "The Commission invites the European Council of 18-19 December 2014 to endorse the Plan, with all its strands. It calls on the European Parliament and the Council, as the EU legislator, to fast-track the necessary legislative measure to ensure that the European Fund for Strategic Investments becomes operational by June 2015, and to follow up swiftly on the other aspects of the Plan."

The Government's view

7.15 In his Explanatory Memorandum of 9 December the Financial Secretary to the Treasury (Mr David Gauke) says that:

·  the Government considers that it is in everyone's interest to see stronger economic growth in the EU;

·  it welcomes, therefore, the focus in the Commission Communication on reforms to raise growth prospects across the EU and the emphasis on increasing private sector investment;

·  in particular, specific steps on structural reforms to complete the single market and improve the investment climate are essential for the EU's competitiveness and prosperity;

·  the Government welcomes that the Commission states that the proposed action can be funded "within the current Multi-Annual Financial Framework for the EU budget for 2014-2020" — this is an important principle;

·  it also wants to ensure that the proposals protect the financial soundness of the EIB;

·  there remains, however, a lack of detail in the Commission's document on the precise financing arrangements; and

·  the Government will be seeking further detail from the Commission in the forthcoming discussions.

7.16 The Minister tells us that:

·  the Government has participated in the work of the EIB/Commission-led Investment Taskforce to identify an indicative pipeline of investment projects of EU significance;

·  Member States contributed initial indicative lists of projects which could benefit from investment at the EU level;

·  the Government proposed a pipeline of up to £60 billion of investment in 2015-17 that could be eligible for support based on clear robust criteria that it would aim to see used at the EU level;

·  it considers that a rigorous project selection process is needed for the EU pipeline, focused on project viability and value for money; and

·  in principle, the Government supports the idea providing technical assistance in project design, but it will need to see more detail on how the proposed "investment hub" will work before reaching a final position on this matter.

7.17 The Minister comments that:

·  the Government is pleased that the plan includes measures to improve the business environment and investment climate;

·  this plan cannot rely on financing alone, especially at a time when fiscal consolidation remains a priority across the EU;

·  the EU needs to focus on getting capital markets working again and improving access to finance;

·  the Government welcomes the intention to take forward work on a Capital Markets Union, improve the regulatory environment and remove barriers to a proper functioning single market;

·  these are vital to create the right investment climate and increase growth across the EU; and

·  the Government calls on the Commission to take ambitious action in these areas, alongside its work on the new Fund and Investment Pipeline.

7.18 The Minister also comments that the Government will need to see the draft Regulation to establish the EFSI in order to judge the precise financial implications, particularly in the context of the Commission suggestions that the proposed action can be financed within the current Multi-Annual Financial Framework and that the €5 billion of EIB funds will come from existing EIB resources.

7.19 Finally, on timetabling the Minister says that, following discussions at the 9 December ECOFIN Council, the Commission Communication will be discussed at the 19-20 December European Council and that the Commission says that a draft Regulation for the EFSI will be published in January 2015, with a view to entry into force in June 2015.

Previous Committee Reports

None.





27   See REFIT. Back

28   See (35168) 12044/13 + ADDs 1-2: Fourteenth Report HC 83-xiv (2013-14), chapter 14 (11 September 2013) and Second Report HC 219-ii (2014-15), chapter 15 (11 June 2014). Back


 
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Prepared 23 December 2014