Thank you very much for staying in the room, even given the very summer-like weather outside!
ECB Governor Mario Draghi has given an excellent speech here today and I must say that I fully agree with what he has just said. If you look at economic growth in Europe and one part of it, namely lack of investment, the reality that we are below the long-term average in terms of investment, it is mostly down to lack of competitiveness of Member States.
Everybody knows what the Central Bank is doing at the moment with almost nonexistent interest rates, low oil prices supporting demand and still growth is not as good as it is supposed to be. It is improving, stability has come back to Europe, but still things are not improving as fast as they could be. It is mostly because of structural weaknesses in our economies.
It would not be wise to expect too much more from the European Central Bank than what they have done already. That is why the European Commission is concentrating more than ever before on the structural side of our Member States’ economy. We need more structural reforms. It means in some countries better commodity markets. It means reforms in labour markets in some countries, not all. It means reforms to public welfare systems. It may mean municipality reforms, more efficient energy sector to lower energy prices etc.
The Commission did its Annual Growth Survey, analysing the economies of Member States, their strengths and weaknesses. We identified the main investment obstacles in each Member State. Some of those findings ended up in the Country Specific Recommendations which we expect all the Member States to respect and deliver next year and the year after.
So, the number one thing in order to improve investment in Europe, we need to understand that the world around us has changed, as it has changed over the last hundreds of years. It means that we have to reform ourselves to be more suitable to future needs.
The Investment Plan for Europe is also a structural reform, a Europe-wide structural reform. We just analysed the results of the Investment Plan last week and I must say that the Plan as a whole is moving in the right direction and actually quite fast.
As you probably know, the most important part of the Investment Plan is the third pillar of it, meaning deepening and widening the Internal Market. We call that a European structural reform. We have a relatively well-functioning internal market in Europe, but if you look at, for example, digital goods and services, there are still plenty of national obstacles. We still have 28 national regulations on copyright, 28 different VAT regimes. If you try to legally buy some digital products from your neighboring country, you cannot legally use it in your own country. That is the reason why my colleague Andrus Ansip is proposing concrete measures to address those investment barriers.
The same thing with capital market. The first result of the Capital Markets Union is the change to the Solvency II Framework which means in practice that there are lower capital charges for insurance companies if they invest in infrastructure. So, we expect this change to increase capital flows to productive infrastructure projects.
We have also tabled a proposal to create a transparent and simple securitisation market in order to improve corporate financing in Europe. As everybody knows, Europe’s economy is very bank driven. Due to the fact that bank regulation has changed, it has led to the situation where some banks – because of this reason - are more risk averse than before. That is why we need to further develop our capital market, to address the situation.
Circular economy package, Energy Union initiative, decarbonisation of transportation – they all are examples where the Commission is moving forward in order to create a Europe-wide regulatory environment. It basically means we are creating new markets for European consumers, producers, industry and entrepreneurs. We believe in this part very strongly, because every time you make business easier, you will stimulate growth.
In the second pillar of the Investment plan there are two major initiatives. The first one is European Investment Advisory Hub. It means a one-stop-shop for private investors, but also public authorities if they want to get advice on how to use EU's financing facilities or how to improve the quality of their projects in order to be more attractive in the eyes of private financers. So we had collected together the expertise from the European Investment Bank, from the Commission, in order to help people to get technical assistance for their projects.
The second element in the second pillar is the newest creation, the European Investment Project Portal. The idea came from the UK. We visited UK a bit more than a year ago and the investment bankers told us that they have plenty of liquidity, they are willing and capable to invest in European infrastructure, but sometimes it's very difficult to find good projects. They said, why does EU not establish a platform to which project promoters could send their projects and by doing so, they would have better visibility in the eyes of the investors. By the way, this is an initiative that was disclosed, published on 1 June – there are already 100 projects in the portal. It's also the part of the Investment Plan that seems to interest most the 3rd country investors. Sovereign wealth funds from third countries are mostly interested in the European Investment Project Portal.
The first pillar is EFSI, the European Fund for Strategic Investment. I'm sure that the president of the European Investment Bank will explore more this in more detail and go through what EFSI has already done. But the basic idea behind the fund is to provide risk financing, mostly for private investors. So the basic philosophy is to address the market failure, to address the situation which is in the market. There's plenty of liquidity, but risk financing is something that's missing to a large extent. Partially, because of an underdeveloped capital market in Europe. In the longer term, we are creating a better capital market, but meanwhile we have to address the acute problem by providing risk financing to investors.
One of the success stories of EFSI has been SME financing. EFSI has already signed 185 agreements with mostly commercial banks, but also national promotional banks and venture capital funds. This is supposed to provide financing to around 150 000 European SMEs. In Italy, there are 27 banks which have signed an agreement and if everything goes as planned, will provide financing to 44 000 Italian small and medium-sized companies.
Especially equity type of financing seems to be a scarce resource in Europe and this is something EFSI can provide through intermediaries. We are also planning to establish a new venture capital fund of funds which is bigger than the ones we have at our disposal at the moment. It's supposed to encourage the venture capital activities in Europe, especially to encourage to increase the size of the funds – these are significantly smaller than the ones in the United States.
There are two concrete challenges regarding EFSI at the moment. The first big challenge is the lack of awareness: what EFSI is about, how it can be used and at whom it's targeted. In many Member States there's an understanding that EFSI is providing financing to large public projects. The other misunderstanding is that it's very complicated and bureaucratic and if a company wants to apply for resources, it needs public sector approval. This is not the case at all. EIB is a bank and bank has individual clients. Everybody who's interested in looking at the opportunities can meet people at EIB's local branches and there's no need for public sector approval.
The second challenge is to use EFSI for smaller projects, because EIB cannot deal with a huge amount of smaller projects. Apart from SME financing, there's a possibility to create investment platforms, which can collect together a big amount of smaller size investment projects. We already have a couple of examples of this. For instance one in France where the region of Île-de-France has established a platform together with a private bank to collect 40 000 houses in order to retrofit them to reduce the energy consumption of the houses. EFSI is part of this platform, providing long-term loans to house owners who will pay the loan back over time. The same model could be copied to other countries, for instance in Greece or Cyprus in the tourism sector or in whatever area of business there is a need for this.
Ladies and gentlemen, there is no magic wand to boost economic growth or investments in Europe. We can provide – and we are already providing – risk financing; we are providing technical assistance and advise to investors; we have established a platform that will give better visibility to good projects; and we are pushing forward with Europe-wide structural reforms in order to create a better market. We are also encouraging Member States to reform their societies, because we have to be competitive again and there is no reason why this could not happen in the near future.
Thank you very much.