The following video is the first of five videos produced by the European Commission.
The Investment Plan reaches the real economy
Europe needs investment to create jobs, make Euro more competitive, to strengthen the single market and support small businesses. A first major initiative of Jean-Claude Juncker, President of the European Commission is therefore the Investment plan for Europe. In one year time, it mobilised more than €100 billion of investment, with 249 approved transactions via the European Fund for Strategic Investment (EFSI). This money is aimed at projects that find it difficult to secure finance in the market. With more and more projects being chosen each month, the target of mobilising over €315 billion by 2018, is well underway.
See the other videos by clicking on the links below (off-site)
About the Investment Plan for Europe and why its important
The global economic crisis brought about a sharp reduction in investment across Europe. Policymakers saw a need to charge ahead with collective and coordinated efforts at European level to reverse this downward investment spiral and put Europe on a path to economic recovery. The Commission says that adequate levels of resources are available and need to be mobilised across the EU in support of investment, noting there is no single, simple answer, no growth button that can be pushed, and no one-size-fits-all solution.
According to the Commission, its economic approach is based on three pillars: structural reforms to put Europe on a new growth path; fiscal responsibility to restore the soundness of public finances and cement financial stability; and investment to kick-start growth and sustain it over time.
Its Investment Plan for Europe is at the heart of this strategy. The policy aims, according to the EU executive, are to "remove obstacles to investment, provide visibility technical assistance to investment projects and making smarter use of new and existing financial resources."
To achieve these goals, the Commission has dran up in its plan three areas in which to be active:
- mobilising investments of at least €315 billion in three years
- supporting investment in the real economy
- creating an investment friendly environment
Adopted in November 2014, the Investment Plan for Europe was the first major initiative of the Juncker Commission. Within a year of adoption, the Commision plan mobilised more than €100 billion of investment, with 249 approved transactions via the European Fund for Strategic Investment (EFSI). This money is aimed at companies which find it difficult to secure finance in the market. With more and more projects being approved every month, the target of mobilising over €315 billion by 2018, is well underway.
The investment plan and the Capital Markets Union
As part of the Juncker Commission priority to boost jobs, growth and investment across the European Union, the Capital Markets Union (CMU), a key pillar of the Investment Plan, aims to tackle investment shortages head-on by increasing and diversifying the funding sources for Europe's businesses and long-term projects. The Commission's overall goal for the CMU is to create opportunities for investors, connect finance to the wider economy, and foster a more resilient financial system, with deeper integration and more competition. On 30 September 2015, the Commission adopted an action plan setting out 20 key measures to achieve a single market for capital in Europe. This action is accompanied by a set of initiatives that are part of the action plan
Alongside the action plan, the Commission unveiled a first set of measures to relaunch high-quality securitisation, and to promote long-term investment in infrastructure. In addition, the Commission announced changes to the Prospectus Directive before the end of the year, with a view to making it easier and less expensive for small and medium-sized companies to raise capital.
ESBG position on Capital Markets Union
Capital markets can only complement the role of bank lending. Although the European Commission insists that the CMU will firstly aim at benefitting SMEs, those benefits will be limited to specific market segments such as start-ups or established companies that might be tempted to switch from bank financing to capital markets financing. ESBG is convinced that it would not be in the interest of the European economy – especially in the markets that are strongly based on SME structures like the majority of continental Europe – to favour funding from capital markets over traditional bank lending. Not a policy of substitution but a policy of complementarity should be regarded as the best way forward in order to create a more competitive European Union.
ESBG position on SME finance
Given the current situation of the real economy, bank lending is a fundamental source of long-term financing, especially for the SME sector. The role of banks is to provide long-term financing and to protect depositors, whereas other intermediaries' – such as asset managers – role is not to protect depositors but to provide returns. If the banks are not assessing or taking the risk for the transformation of deposits into long-term investments, then the saver is directly taking the risks.
Nevertheless, ESBG acknowledges that infrastructure projects can no longer be financed through bank loans only. Economic and regulatory changes have generated the need for new financing models in order to fill the gap between available bank capital and the multi-trillion-euro medium-term investment programmes, especially in Europe. To do so, partnerships between banks and institutional investors should be developed to benefit from the know-how of banks and the investment capacity of institutional investors.
As for access to finance for SMEs, ESBG acknowledges it is best provided by banks and not capital markets, as banks have the deposits that can be transformed into adequate lending, as well as contact with local communities.
>> ESBG position on SME finance
>> See ESBG position on Capital Markets union
>> Investment Plan (off-site)
>> European Investment Project Portal (off-site)
>> One year of the European Fund for Strategic Investments (EFSI) – FAQ (off-site)
>> State of play after 1 year, including a break-down by sector and by country (off-site)