With approval on the European Fund for Strategic Investments expected from EU finance ministers later this month, it’s timely that Idox assesses the wider Investment Plan for Europe (or the Juncker Plan as it is more commonly known). As it is proposed that the Plan is part-funded by Horizon 2020, this blog considers whether such investment guarantees have an adverse impact on open grant programmes.
What is the Juncker Plan?
In November 2014, the newly elected President of the European Commission, Jean-Claude Juncker, proposed a €315 billion Investment Plan (also known as the Juncker Plan) which aims to reinvigorate the sluggish European economy and create jobs.
The Plan is built on three main strands:
- The creation of a new European Fund for Strategic Investments (EFSI), guaranteed with public money, which aims to mobilise €315 billion of additional investment over three years from 2015 to 2017.
- The establishment of a pipeline of credible projects together with an assistance programme to channel investment where it is most needed.
- A roadmap to make Europe more attractive for investment and remove regulatory bottlenecks.
The Commission estimated that the proposed measures could add €330-€410 billion to EU GDP and create up to 1.3 million new jobs. The Plan is intended to finance projects that contribute towards common European priorities around infrastructure, notably broadband and energy networks, as well as transport infrastructure in industrial centres, education, research and innovation, and renewable energy and energy efficiency.
What are the implications?
The intention is for the new EFSI Fund to act as a guarantee fund totalling €21 billion, to be made up from a combination of finances at the Commission and the European Investment Bank, which would then leverage in innovative financing consisting of a mixture of Member State contributions, bonds and private bank debt. The initial €21 billion starting fund will be made up of €16 billion from the Commission (€8 billion in cash and €8 billion in guarantees) and €5 billion from the European Investment Bank. However, the €8 billion cash from the Commission is not new money. It will instead be transferred from other budgets – originally including €2.7 billion from the Horizon 2020 research and innovation budget and €3.3 billion from the Connecting Europe Facility transport budget.
Not surprisingly, this has raised concerns from scientists, researchers and engineers, including leading university groups Academia Europaea, EuroScience and the League of European Research Universities (LERU), as well as transport organisations.
Professor Sir John Walker, a Nobel prize winning chemist at Cambridge University and a signatory to a letter sent to the Commission, told the Bureau of Investigative Journalism: ‘if the proposals were to be implemented they would cause immense damage to the EU science effort and seriously undermine long-term economic recovery based on knowledge and invention. It is nothing less than a disastrous proposal.’
Labour MEP Theresa Griffin, who sits on the European Parliament’s industry, research and energy committee, has also expressed her ‘extreme concern’.
Similarly, COST (European Cooperation in Science and Technology) also expressed strong concern about ‘potential future budget cuts’ with the President of the COST Association, Dr Angeles Rodriguez-Pena, commenting that COST is ‘fully in the spirit of EFSI and should therefore not be cut’. If the EFSI related budget cuts are confirmed, it will have important consequences on the number and budget of COST Actions. All COST participants and stakeholders have been invited to support a stable COST budget by signing and sharing an online petition.
Transport organisations are also unhappy with the plans, which include €3.3 billion of Connecting Europe Facility funding being moved into the EFSI pot, arguing that although EFSI will support large-scale projects, it will not support the projects that were in line to be supported by the CEF, and which are still essential.
The argument from the Commission is that the cuts represent only 3.5% of the seven-year research and innovation budget, which at €80 billion was significantly higher than in 2007-2014, and suggests that investment in innovative projects will actually increase once the new Investment Plan is up and running.
The Juncker Plan has also run into other problems with only six EU Member States having so far pledged funding – a combined total of €33 billion from Germany, France, Spain, Italy, Poland and Luxembourg – although all 28 Member States made submissions to the projects pipeline. Among the largest UK projects submitted to the Commission for consideration last December are a £25 billion nuclear, wind, tidal, biomass and solar project in Anglesey, a collection of offshore wind projects off the British coast requiring £21.3 billion and the £46 billion Hinckley Point nuclear facility. A number of flood defence schemes, road improvements and broadband projects are also included in the UK’s project list.
Independent experts will determine which projects get the go-ahead, with scoring based on the number of jobs they generate, their anticipated profitability and the growth they will yield.
In April 2015, the European Investment Bank announced pre-financing for projects in Spain, Ireland, Italy and Croatia for projects that range from healthcare to industrial and infrastructure sectors as part of its commitment to ‘get the ball rolling’ ahead of the formal establishment of the EFSI. A further four projects were approved in May including backing for energy efficiency investment in France; new renewable energy and related transmission links in northern and western Europe; reduction of industrial energy use in Finland; and improvement to gas transmission in Spain.
What is happening now?
EU legislators have concluded negotiations, and as a result EFSI is set to become operational and start financing projects at the end of summer 2015. During the trilogue, agreements were reached on the outstanding issues, in particular the budgetary allocations to the EFSI guarantee fund.
Rather than the originally proposed €2.7 billion, €2.2 billion will now be taken from the Horizon 2020 budget, alongside €2.8 billion from the Connecting Europe Facility rather than the €3.3 billion originally proposed.
Finance ministers are expected to approve the EFSI Regulation at the ECOFIN Council on 19 June, and the European Parliament plenary vote on the Regulation is expected to take place on 24 June, allowing the EFSI to be operational by September 2015.
There is a considerable amount of debate over the direction being taken with the Juncker Plan, not least because reallocating Connecting Europe Facility and Horizon2020 money to it could prevent sustainable urban and public transport infrastructure projects getting the finance they require. Idox will be following the development of this initiative as the EU seeks to reconcile the key economic and environmental sustainability objectives on its agenda.
By Sharon Pryke, Idox