EU proposals to extend Juncker Plan fund are premature, auditors warn

14 Nov 16

Plans to increase the size of the fund underpinning the EU’s so-called Juncker Plan by €12bn are premature and not supported by evidence, the European Court of Auditors has argued.

 

The court analysed the European Commission’s proposals to increase the European Fund for Strategic Investments and extend it after the commission started drawing up proposals for this when the fund had only been in operation for one year.

Mihails Kozlovs, the member of the ECA responsible for the court’s opinion on this topic, pointed out that it is still too soon for the economic, social and environmental impacts to be measured or for a conclusion to be drawn as to whether the EFSI is achieving its objectives.

As investment needs place increasing demands on the EU budget, the EFSI mechanism hopes to work to leverage private investment and make EU funds go further.

It consists of a guarantee fund, made up mostly of cash from the EU budget. This enables the European Investment Bank to significantly scale up its lending – investment the EIB then uses to attract private cash.

The commission said it was important to scale up the fund now to build on its original success and give project promoters certainty that they can still submit the project after the initial investment period.

“Waiting too long would have unnecessarily delayed the process and possibly even created a financing gap for EFSI projects by mid-2018,” a commission spokeswoman said.

Under the current EFSI, the guarantee fund consists of €16bn from the EU budget and €5bn from the EIB and runs until July 2019, while contracts can be signed until June 2020.

The commission wants to scale up EU budget contributions to the guarantee by €10bn and EIB contributions by €2.5bn, extend the investment period until December 2020 with contracts able to be signed until December 2022, and increase the investment target from €315bn to €500bn.

The commission will also reduce the amount set aside for the guarantee from 50% to 35%. While auditors said this could lead to more efficiency, they warned it will also increase the likelihood of further calls on the EU budget, which will have a liability of up to €26bn.

Kozlovs pointed out that this marks a “considerable change” that should not be discussed, as it is currently being by the European Council and parliament, until an independent evaluation of its outcomes has been submitted – as is required by the regulation currently governing EFSI.

The commission is currently undertaking an evaluation, which its spokeswoman said would be available next week, but suggests removing this provision from future EFSI regulation.

Kozlovs also argued that because too little data is available, it is too early to complete a proper evaluation or draw conclusions: “The fund is only one year old. The governing structures of the fund were only created at the end of 2015. You cannot have reliable data to do an assessment and to understand whether objectives are being achieved.

“From our perspective, we have to look at facts. We have looked at the facts [that are available on the EFSI] and based our opinion on these facts. We cannot say whether the objectives are being achieved or not.”

In their assessment, the auditors also became concerned that the results of EFSI could be overstated. Discerning how much private money can be leveraged by public sources is a complex calculation, and Kozlovs told PFI the auditors found other methodologies, such as those from the OECD, which might be more accurate than the one currently used by the commission.

While Kozlovs stressed the ECA is not able to speculate on the achievements of EFSI because there is not enough data, the auditors have previously found such financial instruments to fall short of expectations.

He said the auditors had called on the commission to ensure it takes into account the lessons learned from their previous reports, such as how to reduce fragmentation and overlaps between different financial instruments, but this had not happened in the commission’s proposal.

A spokeswoman said the commission takes note of the auditors’ opinion, but that the ECA’s conclusions were either addressed in the extension proposal or “not sufficiently justified”.

She stressed that the EFSI has been successful in spurring investment in a climate of weak growth and uncertainty, and that the EU “cannot wait for the long-term results but must act now”.

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