Latvian Presidency welcomes the vote of the European Parliament on its negotiating position on the regulation on the EFSI

The Latvian Presidency welcomes the vote of the European Parliament of 20 April 2015 on its negotiating position on the regulation on the EFSI. The vote paves the way for the agreement on the EFSI to be achieved during the Latvian Presidency thus allowing the ample liquidity reserves in the private sector to match the need to finance potential investment projects already this year.

The Presidency is pleased that the Parliament shares the general thrust of the Council's position that was agreed by the EU finance ministers on March 10, 2015. This will allow the Presidency, on behalf of the Council, to start negotiations already this week and proceed speedily.

The main amendments suggested by the Parliament that would be subject to negotiations seek to increase its role in governance of the new investment fund. The Parliament also suggests using negotiations of the annual EU budget to identify the financial sources to endow the guarantee fund.

When adopting the Council's negotiating position, the EU finance ministers emphasised the following two elements that are key to make the new initiative a success:

• Simple, lean, transparent and de-politicised governance system;
• Financial solidity and soundness of the EU guarantee and, especially, of the EU guarantee Fund.

The Latvian Presidency will negotiate with the European Parliament on the basis of these principles.

Indeed, impartiality of the governance bodies and the independence of EFSI investment guidelines are both crucial elements to ensure private sector trust and active participation. It is of outmost importance to uphold the credibility of newly created EFSI instrument at all levels of its structure. The initial phase of building the EFSI guarantee fund is particularly crucial. The EU finance ministers aimed at providing full certainty as to the sources to fill in the Guarantee Fund in order to ensure full credibility.

Under the compromise agreed by the Council, the EFSI will be established within the European Investment Bank by an agreement between the Commission and the EIB. The fund will support projects in a broad range of areas, including, but not only, in transport, energy and broadband infrastructure, education, health, research and risk finance for SMEs. It will target viable projects without any sector or regional pre-allocation, in particular to address market failures. The EFSI will complement and be additional to ongoing EU programmes and traditional EIB activities.

Funding

The Council agreed that the fund would be built on €16 billion in guarantees from the EU budget and €5 billion from the EIB. To facilitate the payment of potential guarantee calls, a fund of €8 billion would be established. The EU finance ministers endorsed Commission's proposal to redeploy grants from two EU programmes, namely Horizon 2020 (research and innovation) and the Connecting Europe facility (transport, energy and digital networks) that would provide the bulk of funding. This decision represented a clear commitment to the principle of financial soundness that is necessary to attract private investors.

Governance

According to the EU finance ministers' decision, the EFSI would have a simple, transparent and de-politicised two-tier governance structure:

• A steering board would set the overall strategy, investment policy and risk profile of the fund. It would adopt investment guidelines for the use of the EU guarantee to be implemented by the investment committee. To ensure an impartial steering board and avoid political influence over the selection of projects, the board members would come from the Commission and the EIB only. Their numbers would reflect the institutions' size of contributions in the form of cash or guarantees. The steering board would take decisions by consensus.
• A fully independent and professional investment committee would select projects to receive EFSI support. Accountable to the steering board, it would consist of eight experts and a managing director. Any project supported by the EFSI would require approval by the EIB.

Identifying new projects

The proposed regulation would also set up a "European investment advisory hub" to provide advisory support for the identification, preparation and development of projects across the EU. It would further establish a "European investment project directory" to improve investors' knowledge of existing and future projects.

In the coming weeks, the Latvian Presidency will not spare any effort to arrive at a compromise that is much needed and long awaited to support the recovery of the EU Member States' economies.