On April 15th 2015, the European Committee of the Regions (CoR) organized a conference in Brussels entitled “An Investment Plan for Europe: joining forces”. CoR brought together over 250 EU policy makers and regional and local representatives to assess the Investment Plan for Europe from a local perspective. The conference was organised in cooperation with the European Investment Bank and the OECD.
The Juncker Plan is an answer to the 15% reduction of the investments in Europe compared with the situation of 2007. This reduction caused a considerable loss of competitiveness. The aim of the Juncker Plan is ambitious: it is not only to pump 315 billion euro into the European economy thanks to the EFSI –the European Fund for Strategic Investments-, but moreover,to reassure the business community. The business community lost its confidence because of an unpredictable regulatory environment. The rules of procurement have to become attractive and need to reform the various sectors opening them to new ambitious players. The money from the Juncker package makes this broad initiative a comprehensive whole. In brief: the Juncker Investment plan can be an opportunity for Europe as an additional tool. We are not talking about subventions anymore but about loans and loan guarantees.
The primary aim of the Juncker Plan is to support the SMEs. These are, by definition regionally located and strengthen the regional power of economy. The second goal is the increase of innovation, because this is the only way to enhance the competitiveness of the European economy. The wish is to arrive at an equal distribution of innovative capacity throughout Europe, but the Commission is aware that this will not always be possible. The third goal is infrastructural initiatives. Support for investment in broadband in the rural areas is indicated as a classic type of investment that can be supported. The fourth element is the European Investment Advisory Hub that the European Investment Bank will be setting up in order to guide regional authorities into developing projects and strengthen their capacity for promoting policy learning of these types of important projects and their dedicated financial instruments. [1]
More than 50% of the investments on the public side in Europe is realised by regional authorities. Due to the fact that the present procedure for receiving loans and loan guarantees in this framework starts from packages of minimum 100 million EUR, it will be paramount that regions regroup their initiatives and introduce demands for larger projects. An example that was always quoted by the European Investment Bank (EIB) was a project for water purification introduced by Veneto region, regrouping 22 municipalities joining their forces in the same initiative. Cities and their rural hinterland are also invited to work closely together in developing projects. They will also have to try to combine European loans with European grants and to leverage EU and Member States budget resources. The typical instruments that will be put at the disposal of regions and SMEs are Framework Loans (FL) , a flexible instrument to finance multi-scheme operations, and Structural programme Loans (SPL) -FL multi-scheme operations financing Operational Programmes blending and leveraging EU funds. These are important instruments which not only allow for financing on the national, multi-regional, regional, urban, and sectorial level, but also cater to smaller scale projects by funding investment programmes.[2]
Each project is to be evaluated anticipatively on all its aspects: technical, economic viability, environmental, social and governance. A combination of financial instruments will often be necessary in order to close the budget, especially when it comes to investment project with a social aim: funding instruments, commercial finance, EIB/NPB[3] finance, joint EIB/NPB and national/regional budget instruments, budget grants.[4] Public-private partnerships are fostered in this context. This type of externalization of public investment has been in decline in Europe since 2006 and has to be promoted once again. Belgium, Estonia, Sweden and Germany are the countries with the most PPP-share of bonds in SNG total outstanding debt in Europe.[5]
The OCDE insists upon an effective public investment toolkit across levels of government. These contain peer learning possibilities where examples of good practices can be disseminated, capacity building stages helping all levels of government diagnose capacity challenges for investment, and monitoring moments providing a comprehensive picture of multilevel governance of public investment in countries and see how it evolves over time.[6]
The Juncker Plan: a solution for regional and municipal investments?
According to Claude Gerwerc, President of the Picardie region, member of the European Regions and rapporteur Committee on the Juncker investment plan: the Juncker plan is an opportunity as an additional tool. And subnational authorities should be involved as partners, not in the risk assessment process that should be entrusted to experts, but in the attribution debate, because the regional entities have much more field knowledge and experience than national and supra national authorities. [7]
Raffaele Cattaneo, President of the Regional Council of Lombardy, Italy, Chair of the CoR Commission for Territorial Cohesion Policy and EU Budget, went in the same direction. The Plan, as it has been set up now, is directed towards national entities. National governments have been invited to enumerate their “Christmas 2014-list”. Regional entities have not been involved in the process. The fact that packages of 100 million € of investment are considered to be the minimum and that the investment requires also a change of policy and a restructuring of sectors and fiscal taxation, shows clearly that the idea is not to address these funds to regional and local entities. Which is a missed opportunity considering that more than 50%; of all the public investments in Europe are an emanation of the regions and cities.
In his keynote speech at the closing session Markku Markkula, President of the European Committee of the Regions pointed out that “many participants of today’s conference have (…) confirmed that accessibility to financial instruments especially by small projects and small regions and municipalities is still an issue. Currently, small municipalities and small projects have the possibility to group together in order to reach critical mass to implement financial instruments. In practice, however, this means that small projects and small municipalities will be most probably dependent on national and intermediary levels and effective coordination among themselves to reap the benefits of the Investment Plan.” [8]
Markkula insists upon the fact that regions and cities should be part of the process of project identification, preparation and implementation. In other words, the capacity and ability of local and regional administrations to identify and prepare suitable projects.
Chronicle of a failure foretold?
This mega-project of the European Commission can only be acclaimed. When combined with the structural funds and the Horizon 2020 funds, this could give a boost to the economy.
Europe unfortunately has been confronted too much in the past with corruption and money thrown away in wasted projects. It has become extremely suspicious and therefore creates so many controlling issues that it makes involvement of smaller entities in the investment project almost impossible. Of course, a decentralized advisory hub could create a solution, but we do not see how it will be operational without creating an inflation of manpower.
Moreover, the European administration is unaware of what the needs are of SMEs and smaller public entities. The fact that during the Conference the only examples of regional projects were the Veneto project of water purification and the broadband implementation in rural areas, illustrates the administration’s absolute unawareness of how less densely populated and fragile areas should be redynamised and how SMEs –even succesfull ones- function. The minimum of 100 million € in order to enter into the project, excludes most SMEs –the motor of the European economy- and will promote multinationals into becoming the privileged partners. We know how far the loyalty of the latter goes, once there is no European manna available anymore. SMEs have needs [9] and a bank guarantee for risky projects should be welcomed. But the moment their counterpart will be the traditional big national commercial banks, that fear every risk, they will receive no guarantee and no additional employment will be created.
The same way of thinking applies to the subnational entities. They may have good ideas and could even be convinced to collaborate with other regions, and their willingness to ask for advice to the Advisory Hub can also be considered, but from the moment they will have to apply for grants, guarantees and equity in order to complete one project, several years will pass. Most politicians do not think in terms of more than one legislation. They want to reap the benefits of the initiatives they have taken.
Our advice to the Commission is the following: The principle of boosting the economy is good. Please make things simple, don’t try to squeeze them into existing schemes, don’t set your goals on several levels, and create a decisional lead time that does not exceed a few months.
And please learn that boosting the economy refers to the future economy, not the economy of the past. So when trends are e.g. to abandon shopping centres in the US and promote small regional and local brands, help the setting up of small brands. The main issue is real estate in this question. Small shops should be located downtown. But when downtown has been privatised, it is subject an greedy real estate tycoons that prefer to leave shops empty –before receiving the authorization of new real estate projects- rather than reducing the rental price. When trends are to re-use rivers and canals as transportation tool, and to create multimodal transportation, this requires grants in order to smoothen the competition between trucks and boats or rail. When trends are to re-use materials, designers and manufacturers should be able to create a new market or a new mentality, which goes much slower than importing cheap goods from China or Bangladesh, and needs the willingness of many partners –press, local and regional authorities, chambers of commerce- to disseminate the same message.
The commitment should be the close collaboration between all levels of decision, supranational, national and regional. The target group should be the hidden champions[10] and future hidden champions of the SMEs that have already a track record but especially have the spirit to commit themselves in their business and the strong willingness to develop it for their own benefit and the benefit of the community.
Louis Delcart – Head of Department – European Academy of the Regions www.aer-ear.eu