A growing characteristic of EU programming is a move away from the traditional purely grant-based approach towards the allocation of a proportion of their programme budgets towards ‘Financial Instruments’ which provide repayable loans and other financing assistance arrangements for investment purposes.
The perceived benefit of this approach is that it provides a boost to the real economy by increasing access to finance for enterprises of all sizes and for productive industry. This is achieved by using the loan sum as a primer to mobilise additional and complementary private and public investment while also re-using the same funds a number of times (upon loan repayment) as opposed to once.
Financial Instruments support a range of activities in the competitive EU programmes – mainly working in a risk-sharing capacity through financial intermediaries in the shape of commercial banks, credit institutions, equity funds or the European Investment Bank (EIB) to enable targeted on-lending at preferential conditions to large numbers of SMEs or micro-companies; to realise the expansion plans of highly-innovative business; or to boost the wider investment environment for large infrastructure development.
The following EU competitive programmes incorporate a Financial Instrument element:
- Horizon 2020 InnovFin – EU Finance for Innovators initiative.
- The COSME Loan Guarantee Facility and Equity Facility for Growth.
- The EaSI Guarantee for Microfinance & Social Entrepreneurship.
- The Creative Europe Cultural & Creative Sector Guarantee Facility.
- LIFE programme Natural Capital Financing Facility (NCFF) and Private Finance for Energy Efficiency (PF4EE).
- Erasmus+ Student Loan Guarantee Facility.
Financial Instruments have also become a prevalent feature of most European Regional Development Fund programmes at national and regional level over the last decade. National authorities may opt to invest part of their funding allocation into a revolving investment model to be used to support the development of economically viable projects in line with EU policy objectives in sectors including SMEs, energy efficiency, urban development and research & development. While Ireland has not embraced this option to date, it may be a feature of ERDF in Ireland post-2020.
In addition, the European Fund for Strategic Investments (EFSI), often referred to as the ‘Juncker Plan’ (within the Investment Plan for Europe), is one of current Commission’s top priorities as it seeks to remove obstacles to creating an investment-friendly environment in the Single Market in order to strengthen competitiveness, growth and job creation across the EU. This joint initiative with the EIB Group provides a first loss guarantee of €21 billion, intended to unlock financing of at least €500 billion (by end 2020) in more innovative, often riskier, projects in sectors of key importance for the European economy, including:
- Support for SMEs.
- Research, development and innovation.
- Strategic infrastructureincluding and energy, digital and transport.
- Social infrastructure.
- Environment and resource efficiency
In Ireland, EFSI is investing in 14 primary healthcare centres (€70 million); part of the Irish Water regulatory capital expenditure programme 2015-2018 (€200 million); the Social Housing PPP for the construction, operation and maintenance of three social housing bundles (€160 million); the roll-out of a high-speed telecommunications network to cover up to 542,000 premises under the National Broadband Plan (€500 million) as well as in various private sector projects such as an offshore wind farm in Co. Mayo; pharmaceutical innovation; sustainable forestry and the Irish Ferries fleet.
Meanwhile, in its role as the Bank of the EU Member States, the EIB is currently providing significant financing towards implementing the Limerick 2030 Regeneration Programme (2017-2022) (€85 million) and Fingal County Council‘s multi-year multi-sector Capital Investment Programme (€70 million) as well as in schemes including construction of the National Childrens’ Hospital (€500 million).