Brussels, 21/05/2012 (Agence Europe) - At a trialogue meeting this Tuesday, the European Parliament and the member states hope to agree on the pilot phase of the launch of obligatory loans to major infrastructure projects, better known as “project bonds”. By granting institutional guarantees, this financial mechanism aims to attract private investors. It is designed to be part of the European growth agenda, which is on the agenda of the informal dinner of the European leaders on Wednesday 23 May (see other article). The pilot phase is expected to be given the green-light by the European institutions before the summer.
At a time when banks are reluctant to finance the real economy and governments are spending less, it is hard to find the money needed to fund major infrastructure projects, which yield little in the very short term, but which are strategic to the EU and its economic recovery. Private investors are still able to inject funding, but they need to be attracted and convinced. In order to move the situation forward, the European Commission one year ago came up with the idea of issuing obligatory loans for projects in the transport, energy and broadband network sectors, known as “project bonds”, not to be confused with euro-bonds, which allow a proportion of the sovereign debt of the eurozone countries to be shared out. From the summer, a pilot phase will start, with around 10 projects which are far enough along to be implemented in 2012 and 2013. This comes under the framework of the broader proposal of the Connecting Europe Facility (see EUROPE 10584).
Appeal to the private sector. The principle of these obligatory loans will be to involve the EIB and the EU as guarantors for the risks related to investment in these projects. By benefiting from these guarantees, the promoters of the projects in question will issue first-rate debt instruments (the rating A- is to be aimed for) in order to stimulate flows of private investment. Another advantage is that the initiative will not increase direct public funding and therefore public debt.
The EU is initially prepared to commit €230 million: a drop in the ocean compared to the cost of modernising Europe's infrastructure, estimated at nearly €2 billion. However, it has been calculated that the project bonds mechanism will attract 15 to 20 times the initial amount, thus increasing the available investments by a leveraging effect, to €4.6 billion over the pilot phase alone.
Tight timeframe. At this stage, the Commission's proposal has by and large gone down well with the member states and the European Parliament (EP). At the end of April, the EP budget committee voted on this proposal on the basis of the draft report by Göran Färm (S&D, Sweden). Trialogue negotiations, attended by the commissioner in charge of the euro, Olli Rehn, have speeded up. A further session, possibly the last, is scheduled for tomorrow.
Urgency. The prospect of the dinner of the heads of state and government increases the political pressure to find a solution. In his letter of invitation to the European leaders (see related article), the European Council President Herman Van Rompuy speaks of the urgent need to put the pilot phase of the project bonds into place. In similar vein, Commission President José Manuel Barroso last week stressed the importance of making decisions on ideas which “are gaining ground among the European leaders” and which “can help to make investments available, thereby boosting demand within a relatively short period of time, and also help create jobs”. If the inter-institutional trialogue fails to reach an agreement on Tuesday, there is a risk that the dossier could be put on ice until September. (MD/transl.fl)