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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
Europe's growth challenge and innovative infrastructure financing
EU-EIB Cooperation Agreement for the pilot phase of the Project Bond Initiative /European Policy Centre, Brussels
7 November 2012
President Hoyer, Ladies and Gentlemen,
Today, the European Investment Bank and the Commission signed the Co-operation Agreement that defines the roles, rights and duties of each side in implementing the pilot phase of the EU Project Bond Initiative. This is an important moment since together with the increase of the EIB's paid-in capital, this initiative forms an integral part of the "Compact for Growth and Jobs" decided by EU Heads of State at the June 2012 Summit and confirmed in the recent European Council of 18 October.
Earlier today I presented our latest economic forecast, entitled sailing through rough waters. While we expect growth to gradually return next year and firming in 2014, the European economy is undergoing a rebalancing process that will last for some time. Therefore we have to pull all levers to strengthen the long-term drivers of sustained growth.
On one side are structural reforms that boost the supply of capital and labour or economic efficiency. These reforms may be difficult to implement politically but often come with a low or even zero fiscal price tag and by raising growth will improve also public finances.
On the other side, we need to ensure that the enabling physical infrastructure is in place to make Europe a dynamic and competitive place. Unlike structural reform, meeting the EU's infrastructure challenge – with investment needs estimated at 1.5 trillion euro up to 2020 in transport, energy and ICT – will require huge upfront financing at times of tight public budgets and on-going balance-sheet consolidation in the banking sector.
Missing links in the single market reduces market size and depth. It also reduces competitive pressures, thereby hampering incentives for innovation. Moreover, basic services using infrastructures would be more expensive for downstream producers than they would otherwise be. This is why the Single Market and Connecting Europe are central elements of our growth strategy.
The objective of connecting Europe entails both regulatory and infrastructure-financing aspects. The most urgent actions under the regulatory aspect include completing the internal energy market by 2014 and achieving a Digital Single Market by 2015.
Let me now move on to the huge infrastructure investment needs in Europe. Unlike structural reform, meeting these investment needs costs a lot of money and this is where the EIB is going to play an even more important role in the future.
I can see at least three reasons why infrastructure investment needs are indeed high in Europe and why this would be good for growth:
First, the backbone of today's transport networks in the old EU countries dates back to the late 19th and early 20th century and has a national focus. The same holds for energy networks. The Trans-European Network plan is meant to overcome cross-border bottlenecks, and we are far from having completed the agreed investment programme. In the new member states, transport networks – national and cross-border – have not reached cruising speed everywhere.
Second, in energy, investment has been rather low in the 1990s and early 2000s but now a significant share of the energy infrastructure in the old member states comes up for renewal. Moreover, the push for renewables in all EU countries, and the phasing out of nuclear power in some of them, implies the need for new power generation and transmission capacity.
Third, reaching the speeds needed in many innovative Internet applications requires new infrastructure to be deployed both in fixed-line and in mobile telephony. High-speed Internet can be seen as an enabler of innovation and productivity growth that can only be reaped if significant investment in the enabling infrastructure is undertaken.
The "Investing in growth" part of the Growth Compact will be instrumental in triggering some of the investment just described. The total financing package, which assigns a significant role to the EIB, amounts to 120 billion euro and consists of three parts:
Currently, institutional investors are redefining their investment and risk diversification strategies. A return to infrastructure financing is clearly on the menu worldwide as international investors look for better return opportunities. Europe has an interest to be on their radar screen!
The key idea is to use EU budget funds and the EIB's balance sheet and expertise more efficiently, so that certain long-term infrastructure projects can attract capital market financing, for instance, from insurance companies and pension funds, when the banking sector is still deleveraging.
Of course, the 4 ½ billion euro of additional infrastructure investment per se will not pull Europe out of the crisis. However, using one euro from the EU budget to generate about 20 euros of infrastructure investment is evidence of a major qualitative step forward towards a more rational use of the EU Budget as a growth engine. With the EIB's long-standing record in these markets, we expect that the same euro can be used again in future projects as the project funds from the first round are repaid. Finally, it is important to revive the infrastructure asset class and to attract institutional investors to it at a time when commercial banks are more reluctant to lend at long-enough maturities. The case for these investors to come forward is strong as these bonds could match their long-term liabilities.
In view of our proposal for the wider Connecting Europe Facility in the next MFF, the project bond pilot will have an important signalling function. With a successful pilot, we should be able to attract private finance to long-term capital projects on a greater scale and perhaps even in fields other than transport, energy and broadband. The expectation of a broader project bond market would in turn attract investors to the pilot phase.
Ladies and Gentlemen,
Together with the increase of the EIB's capital, the project bond initiative will be instrumental in connecting the countries of Europe and renewing the productive tissue of our economies. It is evident that the Commission will regularly report on progress, also in view of the Connecting Europe Facility for the next MFF.
I would like to thank the colleagues in DG ECFIN and your EIB colleagues who designed the initiative together and who will be available later for technical questions. I would now like to pass the floor to President Hoyer.