Progress on the ‘Juncker Plan’ continues – but are Member States behind it?

In the end, the member states avoided making the decision and agreed to let the European Parliament, echoing the concern of local constituencies, decide on the outcome of the negotiation. This will be subject to intense lobbying from local and regional actors.

National promotional banks (NPB) contributions to the EFSI

The possibility to let member states and NPBs contribute to the capital of the EFSI and have a voice in the Fund’s “Steering Board” was also left unresolved by the Ecofin. Initially, the Commission vowed that such contributions would not be counted under standard deficit rules. It became clear that the contributions of States were not forthcoming because the “Steering Board” is not granted the power to select individual (geographically and/or sectorially targeted) projects as was the desire of member states. In addition, many countries simply lack the necessary means. But the contributions of NPBs to the capital of the EFSI were expected.

Given that NPBs wanted to have the same guarantees as the EIB, there were two alternatives:

• If the NPBs did not contribute to the EFSI, there was a risk that the Bank’s investments would have been “crowded out” whilst the Fund’s capital and leverage effect would not have been improved. The guarantee of the EFSI would also have benefited the NPBs and thus risked being consumed more quickly by both the EIB and the NPBs on the risky tranches financed. This option was therefore highly questionable.
• If NPBs had contributed to the Fund and asked for a pro-rata guarantee, the capital of the EFSI and the leverage effect for the NPB’s economies would have been improved. Indeed, NPBs would be invited to make the same kind of risky investments as the EIB whilst being protected by the guarantee of the Fund. This option was desirable but would have invited States to seek for national returns (i.e. selection of projects) on their indirect contribution.

The issue of NPBs’ contributions to the EFSI engaged the interests of States, which called for a decision of the Council. Unfortunately, the Ecofin has not announced more than simple NPBs co-financing promises like those of the German KfW, the Italian CdP, the French CDC and bpifrance (EUR 8 bn each), and Spanish ICO (EUR 1.5 bn). True, many member states do not have a NPB, which may explain why the co-financing promises remain patchy. Also, such promises are positive as they help to boost the impact of the Plan. But they lack ambition. However, a “critical mass” – both in volumes and in number of contributions – of NPBs’ contributions to the EFSI capital would have been needed to bring the cooperation between the EIB and the NPBs to a higher level.

A new European project hidden behind an innovative financial scheme

The Juncker Plan is more than an innovative financial scheme. It is also a quick political response to Europe’s investment challenge and can greatly help to modernise the financing of member states economies. But the negotiation thus far shows that member states do not seem to stand strongly behind the Plan. As expected, given the dissent between governments and the need to deal with the Greek and French situations, the March Ecofin agreed to let the European Parliament decide on the possibility to have projects benefiting from CEF and Horizon 2020 funding to be financed under the Plan. More seriously, the Council failed to commit to numerous and large contributions of NPBs, thereby hampering their further cooperation and leverage effects. The Plan would have a far greater impact if the member states fully engaged with it. It is not too late to do so!

Olivier Marty is a lecturer at ESSEC