EU financial Instruments and European Structural and Investment Funds (ESIF)

Open days seminar Brussels, 9 October 2013

António Gonçalves Financial instruments and IFI Relations Directorate-General for Regional and Urban Policy

Regional Policy

On the panel

• • • • •

Vladimir Bilek, DG ECFIN L2

Jean-David Malo, DG RTD C3: Horizon 2020 instrument George Lemonidis, DG ENTR D3: COSME instrument Manuela Geleng, DG EMPL E1: Programme for employment and social innovation (EaSI) Martin Ubelhoer, DG CNECT B5: Connecting Europe Facility (CEF)

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Agenda

•

Implementing modes for the new programming period 2014-2020.

(Antonio Goncalves, DG REGIO B3)

•

EU instruments & consistency with the EU objectives (Vladimir Bilek, DG ECFIN L2)

•

Overview of the EU financial instruments and panel debate

•

Conclusions and practical next steps

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Financial Instruments in Cohesion Policy Programmes 2014-2020

António Gonçalves Financial instruments and IFI Relations Directorate-General for Regional and Urban Policy

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Financial Instruments in Regional Policy

1. ERDF support through Financial Instruments is present in the last three programming periods (since 1994) 2. In 1994-1999 and 2000-2006 (SMEs, few MS, limited resources) FIs used only in limited cases 3. In 2007-2013 major expansion:

• • • • • • •

Around 900 Financial Instruments 25 Member States 175 programmes EUR 12,6 billion programme funding through FIs EUR 8,4 billion SFs extended scope (SMEs, urban regeneration, energy efficiency) Some ESF co-financed financial instruments Significant challenges: delays, over-allocations, in some MSs too extensive proliferation, limited leverage

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Financial Instruments in 2014-2020



Commission encourages more extensive use of FIs



Advantages:

• • • • •

revolving funds, remain in the programme area leverage resources, increase impact of EU programmes financing provided before investment takes place better quality of projects (investment must be repaid) Incentives to use FIs as alternative to grants

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Financial instruments 2014-2020: Key novelties

(1) 

Wider scope:

foreseen by EAFRD,EMFF) Expansion to all thematic objectives & priorities ESIF OPs (ERDF, ESF, Cohesion Fund,  SMEs (60%), RTDI (45%) and Low carbon (45%) as emerging priorities in the public survey from May* 

Ex-ante assessment

to be carried out before the launch of FI operation under the ESIF 

Phased contributions to FIs

  MAs to pay programme contributions in at least 4 tranches Subsequent payments from MA to FI to be made on the basis of FI investment rate in relation to programme contributions received *http://ec.europa.eu/regional_policy/thefunds/instruments/doc/20130621_ta_survey_en.pdf

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

Financial instruments 2014-2020: Key novelties

(2)

Better combination of FIs & other forms of support:

 Grant component may cover financing (e.g. state aid compliant subsidy element) or technical assistance for the benefit of the final recipient  At the level of final recipients: Combination is now possible also with assistance from other programmes supported by the EU budget 

Incentives regarding EU co-financing rates:

  EU-level instruments: Up to 100% and a separate priority axis Instruments implemented at national/regional level: co-financing rate + 10 pp if an entire priority axis is implemented through financial instruments 

More detailed rules concerning

  eligible expenditure at closure the (re-)use of interest/other gains and ESIF resources returned during the programming period and after closure (legacy) 

Annual reporting by MAs

 MA to report to COM on FI operations annually (annex to the annual implementation report);  COM to publish annual summary report on the basis of data received Regional Policy 8

Financial instruments 2014-2020: Key novelties

(3) 

More implementation options for managing authorities:

 Contribution to national or regional FIs under shared management  Tailor-made instruments (cf. current period) survey) Standardised quick roll-out "off-the-shelf (13% in the survey) (57% in the instruments for 

Contribution to EU level FIs under central management (ring-fencing)

(6% in the survey)

 MAs may undertake implementation tasks directly for FIs consisting solely of loans and guarantees Regional Policy 9

Financial Instruments in MMF proposals 2014-2020

2.Centrally managed by COM

(Financial Regulation)

1.Shared Management with MS

(Common Provisions Regulation) Research, Development Innovation Growth, Jobs and Social Cohesion Infrastructure

Horizon 2020

Equity and Risk Sharing Instruments

Competitiveness & SME (COSME)

Equity & guarantees Employment and social innovation (EaSI)

Creative Europe

Guarantee Facility

Erasmus+

Guarantee Facility

Connecting Europe Facility (CEF)

Risk sharing (e.g. project bonds) and equity instruments

European Structural and Investment Funds

 EU level (central management)  National/regional instruments (shared management)  Off-the shelf FIs  Tailor made FIs

Significant higher amounts than currently!

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MA contributing OP allocation to EU level instrument European Commission Managing Authority Operational Programme Creative Europe

Guarantee Facility

Horizon 2020

Equity and Risk Sharing Instruments

Entrusted Entity Erasmus+

Guarantee Facility

COSME

Equity & guarantees

EU compartment Employment and social innovation

(EaSI)

Connecting Europe Facility (CEF)

Risk sharing (e.g. project bonds) and equity instruments

Final recipients Financial intermediaries Financial intermediaries Final recipients

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Regional compartment Financial intermediaries Final recipients

Why to contribute with ESI Funds to a EU Level Joint FI?

Alignment with EU policy objectives Reinforcement of EU funds and scale effect (investors interests) Easy, no much of management (design, tendering, legal, financial, audit, reporting, administrative costs…) High co-financing rate (up to 100% ESI Funds) Early start maximise impact

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EU level instruments & consistency with the EU objectives

Vladimir Bilek

European Commission DG Economic and Financial Affairs Financing of competitiveness, innovation and employment policies Open Days, Brussels, 9 October 2013

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EU Objectives

The main objectives of the Union are to promote peace, the Union's values and the well-being of its peoples.

These general objectives are supplemented by detailed objectives (in

RED

Instruments): those already supported by EU Financial       an area of freedom, security and justice without internal frontiers an

internal market where competition is free and undistorted

;

sustainable development, based on balanced economic growth

and price stability

, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment; the promotion of scientific and technological advance; the combating of social exclusion and discrimination

, and the promotion of social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child;

the promotion of economic, social and territorial cohesion

, and solidarity among Member States .

14 Regional Policy Article I-3 of the Constitutional Treaty

EU: Substantial Financing Needs

    EU RDI funding: should reach 3% of GDP (EU currently at 1.5%, but US and Japan at approx. 3% of GDP) Continuing market gaps and deficiencies in debt and equity markets for financing of enterprises, and especially SMEs    75% of SMEs dependent on external financing 'access to finance' the second most pressing problem for Eurozone SMEs, right after getting customers venture capital fundraising and investment levels at one quarter of 2006 levels

BUT

Limited Public Resources

EU budget (and national budgets) unlikely to increase EU budget for 2014-2020 reduced by Council Data: EC ex-ante assessment of the Connecting Europe Regulation, Access to Finance Surveys, EU 2020 Strategy Regional Policy



The EU's response

Responding to the Crisis: Assistance to countries in difficulty, creation of new legislation and institutional infrastructure ("Six- Pack", "Two-Pack", Fiscal Compact, ESM, Single Supervisory Mechanism at the ECB)  Legislation supporting entrepreneurship (Small Business Act, new regime for venture capital)  Provision of financing through 

Grants



Greater use of EU FINANCIAL INSTRUMENTS

 Based on market needs, partnership with the financial sector  Recognised political priority (Europe 2020 Strategy, Communication on a Budget for Europe 2020, plans for the next MFF) Regional Policy 16

What are EU Financial Instruments?



Equity/risk capital

projects : e.g. venture capital to SMEs with high growth potential or risk capital to infrastructure 

Guarantees

to financial intermediaries that provide lending to e.g. infrastructure projects, SMEs, persons at risk of social exclusion 

Other risk-sharing arrangements

the EU funds with financial intermediaries in order to increase the leverage capacity of  or a combination of the above with other forms of EU financial assistance in single instruments (e.g. grants) Source: Financial regulation (EC) No 966/2012, Commission delegated regulation of 29.10.2012 on the rules of application Regional Policy 17

1998-2013: Long and successful co-operation with Financial Intermediaries

•

Risk-sharing with financial intermediaries



SME Guarantee Facility under CIP and predecessor programmes

1998-2006: EUR 436m of EU budget generated EUR 27.5bn of lending to 370,000 SMEs 2007-2013: So far approx. EUR 460m of EU budget generated

EUR 14.2bn of lending to 240,300 SMEs

, volumes are increasing fast.

•

Co-investments with private and public investors



High Growth and Innovative SME Facility under CIP and predecessor programmes

1998-2006: EUR 309m of EU resources generated EUR 1.9bn of total investment into 433 highly innovative SMEs.

2007-2013: So far, EUR 438m of EU resources generated

EUR 2.3bn of total investment volume

available, amounts growing fast. 312 highly innovative SMEs covered so far.

•

Risk-sharing with the EIB Group and financial intermediaries



Risk-Sharing Finance Facility (RSFF)

2007-2013: EUR 2bn of EU and EIB resources expected to generate over EUR 10bn of lending to RDI projects. By March 2013, EUR 10.5bn of lending agreements already signed with final beneficiaries. Dedicated RSI facility for SMEs implemented through the EIF.

•

Combination of risk-sharing and co-investments



European Progress Microfinance Facility (EPMF)

2010- : By 2020, the EU contribution of EUR 100m is expected to have generated EUR 500m of micro-loans. Regional Policy 18

Future Instruments: Main Elements



Limited number of standardised instruments with critical mass

 

Demand-driven

intermediaries; applications to EIF and/or other implementing entity implementation through a cascade of financial

All main types

of beneficiaries and the

full funding cycle

covered:  Generalist SMEs: venture capital and guarantees for mainstream SMEs  Research, development and innovation: venture capital and guarantees for SMEs, Mid-caps, large corporates, universities, research infrastructures  Microfinance: microcredit and social investment  Sector-specific: guarantees for enterprises in the creative industries  Infrastructure promoters: project bonds or equity Regional Policy 19

Financial Instruments included in proposals for 2014-2020

Centrally managed by COM Shared Management

Research, Development Innovation

Horizon 2020

Equity and Risk Sharing Instruments

EUR 3.5bn

Growth, Jobs and Social Cohesion

Competitiveness & SME (COSME)

Equity & guarantees

EUR 1.4bn

Employment and Social innovation

Micro-finance EUR 192m

Creative Europe

Guarantee Facility

EUR 210m

Erasmus +

Guarantee Facility EUR 881m

European Structural and Investment Funds

EU level Off-the shelf instruments Tailor made instruments Infrastructure

Connecting Europe Facility (CEF)

Risk sharing (e.g. project bonds) and equity instruments

Budget not yet decided

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Significantly higher amounts than currently

20

New SME Initiative: Objective

Increase the volume of lending to SMEs in the EU

Build on the proposals for COSME and Horizon 2020 and their ex ante assessments, to pool resources with the European Structural Investment Funds in a Joint Instrument.

In addition, use EIB/EIF/National capacity.

Plug in to what we already have,

impact act fast and achieve significant

to stimulate SME financing and economic growth.

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New SME Initiative: Proposal

Why?

: To increase access to finance for SMEs by offering products to banks that are beneficial in terms of  liquidity to finance new SMEs loans   number of SMEs supported, volume of SME financing capital relief, to the extent necessary to support SME loans

.. more value added, more financing to SMEs How?

: The options considered include a combination of guarantees on newly originated portfolios of SME loans, securitisation of existing portfolios and securitisation of new portfolios 22

Conclusions

Financial instruments:

 Well-tested, efficient and effective way of supporting growth, jobs and innovation. That is why we wish to build on our experience and use them more.

 Can attract private funding for public policy objectives. This is particularly needed in times of limited public resources.

 Can enhance the partnership between the financial service sector and public bodies and play a major role in helping Europe get out of the crisis.

Moreover:

 We are not only providing the financing – we also work on the regulatory framework, both for within the Commission and for financial intermediaries.

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Overview of the EU Financial Instruments

European Commission DGs

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

Horizon 2020

Objectives (Market failure addressed) Difficulties in obtaining funding to carry out research and innovation due to information asymmetries, high transaction costs, the credit crunch, and a low supply of venture capital in Europe

    

Alignment with Cohesion Policy Thematic Objectives Research, development and innovation Final recipients' eligibility Legal entities of all sizes, particularly SMEs and small midcaps with potential to carry out innovation and grow rapidly Products Loans from EUR 25 000 to EUR 300 million; hybrid or mezzanine finance from EUR 7.5 million to EUR 25 million; early-stage equity investments Financial characteristics Direct loans; intermediated loans, direct and intermediated hybrid or mezzanine finance; guarantees or counter-guarantees; intermediated risk capital.

Timing for implementation First quarter of 2014 (2015 for technology transfer pilot)

• 

Contact Jean-David Malo, [email protected]

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COSME

•        

Objectives: Ease access to finance for SMEs and reinforce EU Venture Capital industry Alignment with the Cohesion Policy Thematic Objectives: Enhance SME competitiveness Final recipients' eligibility: participating countries SMEs according to EU definition, COSME Financial products offered: Direct and counter guarantees, securitisation / direct investments in risk capital funds and funds-of-funds (later) Financial characteristics of the product: guarantees are capped on a portfolio basis and according to expected cumulated losses. Free of charge.

Timing for implementation: depends on negotiations with entrusted entity (EIF), in principle, continuity with existing CIP instruments.

Contact for more information: [email protected]

Links for more information: support/access-to-finance/ ; http://europa.eu/youreurope/business/finance http://www.eif.org/ ;

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Microfinance and social enterprise support under the programme for employment and social innovation



Objectives: social finance Market gaps in debt finance, barriers to develop and strengthen the market for



Alignment with the Cohesion Policy: Thematic Objectives 8 and 9



Final recipients' eligibility: V ulnerable persons in a disadvantaged position and social enterprises



Product: Guarantees or funded instruments (e.g. loans)

•

Financial characteristics of the products: Microloans up to EUR 25.000 (M) - Investment of up to EUR 500.000 (SE)



Timing for implementation: Q1 2014 (guarantees) - Q2 2014 (funded instruments)



Contact for more information: [email protected]

– [email protected]



Links for more information:

•

http://ec.europa.eu/social/main.jsp?langId=en&catId=836&newsId=1093&furtherNews=yes

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CEF for broadband networks



Objectives:

Sub-optimal levels of investment in the roll-out of broadband networks, especially with respect to fast and ultra-fast connections, and bottlenecks in access to bank and capital market financing for long-term telecom infrastructure.



Alignment with the Cohesion Policy Thematic Objectives:

Enhancing access to, and use and quality of ICT; also: (i) competitiveness of SMEs, (ii) research, technological development and innovation (iii) efficient public administration 

Final recipients' eligibility (CEF regulation and guidelines for trans European telecoms networks)

 Open to wide range of promoters: Telecom network operators, utility companies, public entities (including when considering PPP structures), etc.

 Projects must make a significant contribution to the broadband targets of the Digital Agenda for Europe  Need to focus intervention on innovative and/or replicable business models Regional Policy 28

CEF for broadband networks



Product: what financial product(s) is (are) offered? What are its (their) characteristics?

 Choice of financial instruments (debt, e. g. loans, guarantees, continuation of project bonds, or equity) and design subject to ex-ante assessment to be carried out in 2014;  Targeted (and limited) technical assistance: helps all groups of promoters (private/public) to improve the maturity of project proposals for broadband deployment, independently of whether CEF financing is involved.

 CEF broadband instrument(s) will be open for additional

allocations from national or regional sources which will be ring-fenced and invested on behalf of and in the region of origin

 •

Links and contact:

Anna Krzyzanowska, [email protected]

, T:+32 2 29 87246  Digital Agenda:  Projects bonds bonds/index.htm

http://ec.europa.eu/digital-agenda/ pilot – EIB: http://www.eib.org/products/project Regional Policy 29

CEF for trans-European energy networks



Objectives:

To achieve high economic, social and environmental benefits by completing the internal energy market, major investments in energy infrastructure are needed. These are likely to exceed the financing possibilities of transmission system operators. With social and political limits to increase network tariffs, the Connecting Europe Facility can ease and accelerate the necessary infrastructure investments and help to overcome the funding gap.



Alignment with the Cohesion Policy Thematic Objectives

: Facilitate cross border connections, contribute to a more competitive social market economy and combat climate change.



Final recipients' eligibility:

Being a project of common interest falling under the categories set out in Annex II.1, 2 and 4 of Regulation (EU) No 347/2013.



Product: what financial product(s) is (are) offered?

Grants for studies and financial instruments and under certain conditions also grants for works.

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CEF for trans-European energy networks



Financial characteristics of the product

: Union financial aid shall in general not exceed 50% of the eligible cost in regards to grants for studies and/or works.

Financial instruments may be equity or debt instruments and the overall contribution to financial instruments shall not exceed 10% of the financial envelope of CEF (EUR 29.3bn for the period 2014 to 2020).



Timing for implementation

: Financial envelope for the energy sector is EUR 5.126bn for the period 2014 to 2020. The Commission will adopt multiannual and annual work programmes and decide on the amount of financial aid to be granted to projects selected.



Contact for more information: Catharina Sikow-Magny

,

[email protected]

, T: +32-2 296.21.25 and Links for more information:

http://ec.europa.eu/energy/mff/facility/connecting_europe_en.htm

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•

CEF TEN-T (Transport)



Objective:

Insufficient public and private financing for infrastructure investment in Europe, in particular on the TEN-T network. Restriction of public investment programmes, reluctance of bank lending for long-term/risky projects, scarce involvement of capital market in the financing of infrastructure.



Alignment with the Cohesion Policy Thematic Objectives

the States' priorities and the eligibility of projects under the CEF Thematic objective: sustainable transport, in line with the revised TEN-T guidelines. Strong up-front coordination between DG MOVE and DG REGIO of the Operational Plans and Partnership Agreements submitted by the States in order to assess 

Final recipients' eligibility: (Regulation on the CEF and Regulation on the TEN-T)

 Grants for works: most projects must be in the list of pre-identified projects in the

Annex I of the CEF Regulation

 Financial Instruments: all projects eligible under the TEN-T guidelines can receive support from financial instruments if they are adapted to their use.

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

CEF TEN-T (Transport) What financial products are offered?

 Debt instruments in the form of the Loan Guarantees and Project Bonds for TEN-T infrastructure projects;  Targeted Technical Assistance: for the Cohesion Member States to enhance the capacity of the procuring authorities to prepare the applications for projects under the CEF 

Financial characteristics of the products: (expected)

 Guarantees provided by the EIB up to 30% of the senior debt to the project promoters, with EU taking parts of the risk  Loan Guarantee: secure the revenues of the projects, for instance in case of the drop in revenues generated from the traffic (LGTT)  Project Bonds: enhance credit rating of the investment to attract long term institutional investors (e.g. Pension Funds) • 

Links and Contact for more information:

Mr Stéphane Ouaki, [email protected]

,T: +32 2 29 67 286 Project Bonds (current pilot phase) EIB: http://www.eib.org/products/project-bonds/index.htm

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Erasmus+ Student Loan Guarantee Facility



Increasing access to affordable finance for cross-border higher education studies



Aligned with the Cohesion Policy Thematic Objective of investing in education, skills and lifelong learning



Final recipients: mobile masters students, undertaking a full Masters-level degree programme in another Erasmus+ programme country



Capped guarantee instrument providing up to 90% of first losses up to a ceiling of 18% of the loan portfolio in the event of student default



Approx. 500m € EU contribution (3.5% of the Erasmus+ programme) with a projected leverage of 6.17x (>3bn € for student loans)



The guarantee instrument will be established in 2014 and the first loans will be available to students via banks/student loan bodies in Member States in time for the 2014/5 academic year

• 

Contact for more information: Culture) [email protected]

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(DG Education and

34

Cultural and Creative Sectors Guarantee Facility



Facilitate access to finance and strengthen the financial capacity of SMEs in the cultural and creative sectors (CCS)



Aligned with the Cohesion Policy Thematic Objective of improving competitiveness of SME in creative industries



Final recipients: SMEs active in CCS/ wanting to develop CCS project

 

Capped guarantee instrument offering up to 70% on first losses (with a cap of 25% on loan portfolio). Guarantee bundled with Capacity Building Scheme (CBS) targeted towards financial intermediaries.

Indicatively 121mEUR, with a projected leverage of 5,7x (>690mEUR for SME in CCS)

 

Launch of CBS in 2015, guarantee facility as from 2016 More information: [email protected]

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Conclusions and practical next steps

António Gonçalves Financial instruments and IFI Relations Directorate-General for Regional and Urban Policy

Regional Policy

Conclusions and next steps

Partnership agreement and operational programme preparation Ex-ante assessment for ESI Funds programmes are starting EU level instrument term sheets and characteristics are under preparation Designation of entrusted entities for EU level instrument asap

Time for consultation and cooperation between Managing Authorities and Stakeholders

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Thank you for your attention!

38 Regional Policy