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Danuta Hübner
Member of the European Commission responsible for Regional Policy
“Reforming cohesion policy”
Ministerial seminar “Reforming Cohesion Policy”
Brussels, 11 October 2005

European Commission - SPEECH/05/594   11/10/2005

Other available languages: none

SPEECH/05/594












Danuta Hübner

Member of the European Commission responsible for Regional Policy




“Reforming cohesion policy”






















Ministerial seminar “Reforming Cohesion Policy”
Brussels, 11 October 2005

Ministers, Excellencies, Ladies and Gentlemen,

I would like to welcome you to this seminar on reforming European cohesion policy. I would like, if I may, to take this opportunity to convey a special welcome to the representatives of Turkey and Croatia following last week’s decision to begin formal accession negotiations.

I would also like to thank Mr Ian Pearson and the UK Presidency for participating and for taking such an active interest in this event. I am also pleased to welcome my colleagues from the European Investment Bank and the European Bank for Reconstruction and Development with whom I, and my services, have been working intensively over the past year to bring forward two new initiatives for your attention.

Reforming cohesion policy

The initiatives that will be presented at today’s seminar form a significant part of my ongoing efforts to reform cohesion policy.

The Barroso Commission set the scene by making growth and employment its top priority during its mandate. It has set in train a renewed Lisbon Strategy identifying priority areas that can make a decisive contribution to strengthening growth and creating new jobs in the Union. In addition, the Member States have accepted to put in place a more demanding governance system for the follow-up of the strategy based on the National Reform Programmes prepared under the supervision of a high level Mr (or Mrs) Lisbon at national level.

Then, following the Spring Council last March, and as a result, I think, of the efforts we have been making in the current generation of cohesion programmes in the 25 Member States, cohesion policy is now firmly recognised as a key instrument for implementing the Lisbon agenda. This is also strongly felt at the regional level as confirmed at the conference I held last March in this building with over 400 representatives of regions and regional associations and yesterday at the inauguration of Open Days week.

The role of cohesion policy in the Lisbon agenda is the principle theme of the draft Community Strategic Guidelines for future cohesion policy adopted by the Commission at the beginning of July. The Guidelines pick up on the three main headings of the renewed Lisbon Strategy: making Member States and regions attractive for investment; promoting innovation; creating more and better jobs.

The Guidelines are very much part of our ‘business as usual’ approach to preparing policies for the next period. In other words, although the negotiations in the Council on the Financial Perspectives and on the new Structural Funds regulations are ongoing, we have already begun, in partnership with Member States, the preparation of the future programmes. As you know, it is paramount that we are ready with ambitious, well thought-out strategies and programmes for the beginning of 2007. I believe that this is a message that we all understand.

As the Guidelines indicate, part of the reform and modernisation agenda is reflected in the work we have carried out with international financial institutions to develop two initiatives on, respectively, improving the delivery of major projects - JASPERS - and improving access to alternative forms of finance for business development - JEREMIE.

I will explain in more detail, in my introductory remarks to the two main sessions, why I consider each of these initiatives to be of the utmost importance to the new programmes. In essence they are both about making better use of resources in line with the renewed Lisbon agenda.

Those of you who have followed cohesion policy for some years are already well aware that the proposals tabled by the Commission in July last year already represented a significant reform, and a marked shift towards Lisbon priorities such as research and innovation, and more and better jobs.

You may not be aware that, even in the current programming period, at least two-thirds of cohesion policy expenditures fall clearly under the Lisbon priorities set out in the integrated guidelines for growth and jobs.

But I do not intend to stop there. The Lisbon strategy has moved on since 2004. The importance of venture capital and the need for greater regional and local ownership of the growth and jobs agenda were two factors highlighted in the Kok report, for example. With JASPERS and JEREMIE we are showing our determination to keep EU cohesion policy at the frontier of global best practice.

What are the objectives of this seminar?

Let me finish here by outlining what I hope to gain from this seminar.

First, of course, I would like to have your broad support for these initiatives. We are presenting them to you at a relatively early stage, and there are still some technical details to be worked out. Your comments on the technical details will be most welcome, but preferably in writing after the seminar! What I am most interested in today is your overall reflections and suggestions.

Secondly, we want to encourage you and your colleagues at national and regional level to make use of these instruments when they are up and running. All being well, and with your support, that could be from the very beginning of the next programming period in the case of JASPERS, and perhaps even before in the case of JEREMIE.

Ministers, ladies and gentlemen,

I look forward to hearing your reactions, and without further ado I would now like to give the floor to Ian Pearson.

JEREMIE

JEREMIE – Joint European Resources for Micro to Medium Enterprises – is about improving the supply of risk-capital to small and medium-sized enterprises in the regions. I would like to begin by explaining why we need such an instrument.

If the Lisbon agenda is to succeed, it is crucial that innovative and growing SMEs have better access to risk capital. The limited availability of finance is a major obstacle for these businesses to get started and develop. As the Kok review of the Lisbon Strategy pointed out, company financing in Europe is currently too lending-based and not enough risk capital-based. For example, compared to the United States, which invested US $ 18.4 billion in venture capital in 2003, Europe only invested € 10.7 billion.

The advantages of alternative forms of financing are clear. First, they are important in areas where entrepreneurship is hampered by market failures because of the high risks associated with highly innovative activities. For example, such forms of financing are better suited to the needs of the knowledge economy which is key to job and wealth creation. Second, risk capital finance, such as venture capital or loan schemes, specifically target the private sector which is, and will remain, the engine of economic prosperity. Third, they also encourage new economic governance through public-private partnerships where public investment provides additional leverage to private-led initiatives. Fourth, with increasing pressure on EU resources, it is important to make available Structural Funds ‘work harder’. Where these schemes are recyclable, their life extends beyond the end of programming period.

Of course, JEREMIE will by no means be the first instrument for promoting risk capital for SMEs in Europe. The new Competitiveness and Innovation Programme under the responsibility of Günter Verheugen will contribute to this effort on an EU-wide basis. I know that such actions already exist in many Member States and, in moving forward, we could make good use of this experience. And although cohesion policy is sometimes criticised for depending solely on grant-based instruments, this is not strictly true. Cohesion policy programmes in some Member States and regions have placed increasing emphasis on risk capital instruments such as equity-based venture capital and innovative loan schemes as a more cost-effective and sustainable public investment instrument than traditional grand-based aid.

Nevertheless, our experience is that many national and regional authorities would like to do more in this field but find that they do not have, at the local level, the expertise or the financial intermediaries to carry this work out. JEREMIE will offer a turn-key system that allows managing authorities - if they so wish - to avail of the help of the EIB/EIF in order to develop a financial engineering capability on the ground where none exists or where it is ill-adapted to the task.

The rationale for JEREMIE lies in the recognition that the lack of access to capital is one of the market failures that holds back self-sustaining development of economic activity at the regional level. In line with the general economic principle of tackling market failures at source, the Commission and the EIB Group have jointly developed the JEREMIE initiative to improve access to finance for SMEs and to develop micro-credit at the regional level.

Highlights of JEREMIE

I would like to present to you some of the broad principles of JEREMIE as I see them, before handing over to my colleague, Francis Carpenter, from the European Investment Fund.

Let me clarify at the outset that JEREMIE would operate on a totally voluntary basis. Authorities managing programmes financed by the Structural Funds would make use of the JEREMIE facility only if they so wish.

With your support, we would hope to get JEREMIE up and running before the start of 2007. I am expecting that most programmes will be giving greater priority than ever to innovation and business development. To make use of JEREMIE, the programme authorities would take contact with the EIF. Together, they would work out an action plan with the broad objective of achieving a supply of financial engineering and micro-credit services sufficient to meet the ambitions of the business development part of the programmes. The evaluations undertaken in the preparatory phase would inform these action plans.

Once the action plan is agreed, the programme authority and the EIF would work out a “Funding Agreement”. This will indicate how much the programme authorities would contribute in ERDF grant capital to their specific account created within the EIF. The EIB Group would contribute additional loan capital to finance joint actions with the operational programme to support SMEs and micro-enterprises in the regions. Depending on the type of finance provided, the additional capital provided by the EIB could be as much as 10 times the amount of ERDF funding. This leverage effect should be another big attraction for managing authorities.

Other international financial institutions could also participate in the JEREMIE initiative - I would very much welcome this - providing additional loan capital to be used like the EIB loan capital to finance similar actions in the regions.

I believe that the authorities in the Member States and regions would get much from participating in JEREMIE. For example, they would benefit from:

professional management of the grant capital they contribute. Interest generated would be recycled to finance similar actions;

assistance to prepare and publish open calls for expression of interest by financial intermediaries, to draw them into the region;

a service that evaluates, selects and accredits financial intermediaries and micro-credit providers, giving the regional authorities a quality assurance;

a follow-up of the implementation of JEREMIE projects by the financial intermediaries and micro-credit providers, thus helping to ensure that every effort is made to hit targets in terms of promoting SMEs and micro-business.

In short, many of the difficulties that we know from experience are encountered by regions contemplating more activity in this field would be alleviated. The winners would be the regions who can expect to see an increase in business start-ups, innovative activity and risk-taking. This is key to enhancing growth and essential to achieving the aims of the renewed Lisbon agenda. As a new departure for cohesion policy, I hope you will give it your support.

JASPERS

I want to turn now to our second major subject for discussion today, the JASPERS initiative: Joint Assistance for Preparing Projects in European Regions.

JASPERS: who needs it?

I would like to begin by reminding you of the major impact that cohesion policy will have on the economies of the Member States in the next period. In the least prosperous Member States, transfers from EU funds may approach 4 % of national GDP. And for the new Member States alone, our estimates suggest gains of approximately 10 % in GDP by 2013. In terms of employment, we estimate that approximately 2.5 million additional jobs could be created.

Absorption of transfers on such a scale is not an everyday economic event. This is why, with my services, I have begun a series of visits to national capitals of the Member States concerned to discuss the macroeconomic management of transfers – in particular, how to ensure that resources flow as quickly as possible into generating supply-side improvements through investment in physical and human capital.

To maximise the impact of the transfers on growth and jobs, we need a good supply of high-quality major projects in the pipeline. As you know, major projects are subject to individual approval by the Commission, and we estimate that there may be as many as 300 per year or more from 2007.

JASPERS: part of the response

JASPERS is, in essence, a pool of expertise to help with the preparation of major projects in convergence regions. It will be a new facility to assist the European regions in preparing new, high-quality projects, and it will enable the Commission to approve support for well-prepared projects which meet its requirements more quickly.

We have been working intensively on JASPERS for the past year with colleagues in the European Investment Bank and other international financial institutions. I am particularly pleased to welcome the European Bank for Reconstruction and Development fully on board, as of yesterday.

The EIB and the EBRD both have extensive experience in the analysis, both technical and financial, of major projects in areas ranging from primary transport infrastructure to municipal environmental facilities. We intend to harness this expertise and experience which has been built up world-wide over many years.

JASPERS will be a specialised team of experts within the EIB but its work will be completely separated from the lending operations of the EIB. JASPERS will have a staff of 64 specialising in all aspects of project preparation. The EIB and EBRD will provide 24 staff and the Commission provides the remainder, through technical assistance including the cost of external consultancy whenever this is needed to complement the work of the professional staff.

The assistance from JASPERS will be entirely voluntary - no country is obliged to use it - and it will be provided free of charge to the beneficiaries. If a country does accept assistance from JASPERS - and we know from our contacts in the Member States that there is considerable interest in JASPERS already - the beneficiary is under no obligation whatever to borrow from the EIB or EBRD.

On the other hand, if a beneficiary accepts assistance from JASPERS to prepare a project and later decides to borrow from one of the participating banks, or indeed another international financial institution, there will be no obstacle to this. Indeed, our expectation is that using JASPERS to help prepare projects will help programme managers to secure additional sources of funding, whether through bank loans, public-private partnerships or other forms of financial engineering.

While JASPERS will be a major new initiative, the Commission and the EIB acknowledge that the resources to be provided cannot cover all potential demands and to be effective JASPERS will have to specialise in certain countries and certain sectors of investment. JASPERS will be complementary to the activities of private banks and consultancies that assist with project preparation, and indeed we expect direct cooperation between JASPERS and many of these bodies.

Part of the JASPERS staff will be based in the EIB in Luxembourg. Both the Commission and the EIB understand the practical value of having a long-term presence in the region where most of beneficiaries will be and, for this reason, it is intended to place the largest part of the JASPERS operation in the central and eastern European region, including in new offices in strategically located centres in the region. Thus, JASPERS’ resources will be concentrated where needs are greatest.

The work programme of JASPERS for each year will be discussed at an early stage with each country. Priorities will be agreed in advance with the country and with the Commission. Management will be active and flexible through a steering committee which will meet frequently to follow the implementation of the work programme.

The Commission, the EIB and the EBRD are open to expanding the scope of JASPERS by involving other International Financial Institutions. Each of these bodies has specialised skills and experience that can be used to the benefit of the new member states. Initial discussions have already taken place with a number of these bodies to explore ways in which they can participate in JASPERS. These contacts will continue over the weeks ahead.

Discussions about the technical aspects of implementing JASPERS, including legal agreements about funding, are now well underway between the Commission and the two Banks. We all appreciate the urgency of setting up JASPERS and it is our intention, with your support, to complete the practical arrangements as quickly as possible. I give the floor now to Vice President Ivan PILIP who will give us the European Investment Bank’s perspective on JASPERS.

Concluding remarks

I look forward to an interesting exchange of views and a general discussion on our initiatives today. I am especially interested to hear from representatives of those Member States which contain several convergence regions and are thus likely to be major potential beneficiaries.


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