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The Investment Plan focuses on strengthening

European investments to create jobs and growth. It does so by
making smarter use of new and existing financial resources,
removing obstacles to investment, providing visibility and
technical assistance to investment projects. The Investment
Plan is already showing results. The projects and agreements
approved for financing under EFSI so far are expected to
mobilise over EUR 164 billion in total investments across 28
Member States and to support more than 388 000 SMEs. On
14 September 2016, the European Commission proposed
extending EFSI by increasing its firepower and duration as
well as reinforcing its strengths. On 26 November 2014, the
European Commission announced its investment plan for
Europe which is intended to facilitate investments in excess
of 315 billion across the EU in the next three years alone.
Outlined by the President of the European Commission Jean-
Claude Juncker on 15 July 2014 , the investment plan is
required in order to stimulate growth and investment in the EU
.
A new European Fund for Strategic
Investment (EFSI) will receive 21 billion in
guarantee and capital, which, with a
multiplier of 15, could facilitate over 315
billion of investments. Some say that this is
not feasible, too little and too late.
In December 2014, the European
Commission announced a 315 billion
European Fund for Strategic Investment
(EFSI) with the aim of mobilizing additional
investments in the real economy.

The plan focuses on creating a new

pulse of investment to overcome Europes
ongoing economic malaise. While GDP and
private consumption in the EU were in the
second quarter of 2014 roughly at the same
level as in 2007, total investment was about
15% (430 billion) below 2007 pre-crisis
figures. In certain Member States, the decline
in investment has been even more dramatic,
with the shortfall ranging from 25% to over
60% in the hardest-hit Member States.
New research by the Commissions
DG ECFIN shows that the main causes of the
current weakness in investment behavior is
sluggish weakness in aggregate domestic
demand and the very low level of growth in
the recent past, with credit factors such as
deleveraging pressures in the private sector
and households playing a critical role. In their
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conclusions, DG ECFIN points out that there is a need to
put in place policies to support capital formation in the euro
area. By boosting infrastructure spending, the European
Investment Plan should play a central role in ensuring a
sustained rebound in investment in 2015/2016. New
investments are not only needed to energise the EU
economy but also to tackle the longterm challenges that
threaten Europes welfare and prosperity. These include loss
of competitiveness, climate change, dependency on scarce
and critical natural resources from outside the Union, and
the volatility and unpredictability of energy and resource
prices.
In particular, the European Commission estimates
that the transition towards a more secure and sustainable
energy system will require major investments in generation,
networks and energy efficiency, estimated at some 200
billion annually in the next decade. In this context, it is
essential that the economic sectors that are built up through
the investment package become the foundations of Europes
future economic prosperity, rather than inflating temporary
bubbles of activity or subsidising sectors in structural
decline. The energy and transport infrastructure investments
made over the next few years will still be with us in 2050, by which time Europes economy will need to
have been transitioned away from fossil fuels. The EFSI will need to bring new investment into Europes
energy transition rather than pushing more funding into high risk, high carbon infrastructure that could
ultimately become stranded as the EU meets its climate and energy goals.
This briefing note sets out how the EFSI can be
designed to deliver maximum benefit to Europe over
both the short and the long term.
The investment plan aims to kick-start long-term
investments across transport, broadband, energy
infrastructure and infrastructure; innovation and
research; renewable energy and energy efficiency; and
support SMEs and mid-cap companies, in each case
through utilising already existing EU funds in order to
leverage private investments and to de-clutter the
regulatory environment on an EU as well as on a
national level. The investment plan is a package of
measures to be implemented in order to unlock public and private spending of at least 315 billion over the
next three years7 , meeting the perceived mismatch between desired investment sizes and the size of
projects. The plan consists of three steps: mobilizing increased finance capabilities without increasing
public debt supporting investment in key areas removing barriers to investment.
EFSI will focus its financing potential on sectors of key importance to the EU where the EIB has
proven expertise and capacity to deliver a positive impact on the European economy, including: strategic
infrastructure (digital, transport and energy investments) education, research and innovation investments
boosting employment, in particular through funding SMEs and measures for youth employment
environmentally sustainable projects. Funding would seek to direct efforts to where investment is needed
most, notably by: responding to market gaps requiring higher risk-bearing capacity working with new
clients and ensuring a larger sector coverage offering new products providing new delivery modes in
cooperation with national promotional banks and private sector financial institutions.
Ultimately, the investment plan is intended to serve three objectives: to reverse the downward
investment spiral, boost new jobs and recovery without putting further burden on public budgets and
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spending to take decisive steps to
meet long-term needs of the EU
economy, increasing competitiveness
to strengthen human capital,
productivity and physical
infrastructure across the EU. The
European Commission and the EIB
will work together as strategic
partners; as illustrated below, the
European Commission will re-
allocate 16 billion of funds from the
EU budget in the form of a guarantee
and the EIB will commit 5 billion, thus funding EFSI with 21 billion, which could mobilise at least 315
billion over the next three years or 15 times the EFSI funds.
Investment risk
Every investment and financing transaction has its own risk profile. In each case, factors such as
market, environment, technical, regulatory, political and financial interrelate differently. In particular, the
project finance market has found ways to deal with regularly occurring risks and has developed tools to
mitigate them: hedging to manage currency and price risk and fixed-price contracts and performance
guarantees to manage cost overruns and delays; take-or-pay agreements to mitigate long-term power supply
risks and power purchase agreements to manage offtake risks. The financing of projects and the deployment
of the funds need to be approached on a regional, if not on an individual, country basis. As illustrated
overleaf, there are differences between the Member States that will drive or indeed prohibit investments. The
European Commission is currently considering the ways in which the financial instruments can be best
deployed so as to maximise utilisation and target those projects that are most in need of EU funding.
Country risk
The inherent risks of investing in a specific sovereign country require detailed analysis. Euromoney
Country Risk analysis is an example of how the Member States could be assessed broadly. Euromoney
Country Risk evaluates the investment risk of a country, such as risk of default on a bond, risk of losing
direct investment, risk to global business relations, by using a qualitative model, which seeks an expert
opinion on risk variables within a country (70 per cent weighting), combining it with three basic quantitative
values (30 per cent weighting). The Country Risk analysis shows us that the country risks are higher in
south and south-east Europe.
EU 28 key facts and risk indicators
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Investment Plan for Europe the Juncker Plan and implications for Hungary

The economic crisis had deeply shaken investor sentiment in Europe. This has led leaders of the
European Union to the recognition that reversing this downward trend and re-igniting economic growth
would require joint and coordinated efforts at a European level. The Commissions action plan rests on
three pillars: pro-growth structural reforms; promoting fiscal prudence to restore financial stability;
jumpstarting investment and maintaining the pace of growth thus achieved. The blueprint for the practical
realization of these priorities is the European Investment Plan, certain findings of which this short paper
aims to highlight.
The European Commission announced on 26 November 2014 a large-scale programme for
promoting investment, with a framework amount of EUR 315bn. The package, nicknamed Juncker Plan
after its mastermind, European Council President Jean-Claude Juncker, is based on the following
cornerstones: it is an investment package to be implemented in the period 2015- 2017, over the course of
three years, with a total cost of at least EUR 315bn, financed partly from private and partly from public
contributions. At the heart of the programme is the stimulation of private investment through public
sector investment projects. The expected multiplier effect is 1:15, which means that it would mobilize
EUR 15 of private capital from EUR 1 of public capital invested. A major vehicle for the realization of
this programme is the European Fund for Strategic Investment (EFSI), the joint product of the
Commission and the European Investment Bank. The EIB and a guarantee fund financed from the
EU budget have contributed EUR 5bn and EUR 16bnm respectively, to the EFSI.

Another expected outcome of the investment plan, which may be even more important, is to make
the Structural and Investment Funds more efficient. One instrument to this end would be the promotion
of innovative financial instruments, and an anticipated leverage ratio of 1:3- 1:4. The Juncker Plan
focuses mainly on infrastructure (digital and energy in the first place, and transport (in industrial zones) in
the second, renewable energy, education, research and development (Horizon 2020), SMEs, mid-cap
enterprises. The key to the success of the programme is the finding the optimal end-point for funds.
Funds can only reach adequate projects provided adequate projects do exist. Relevant authorities have laid down
three preconditions for the identification of these projects. They must be
Economically viable that generate EU added value;
Economically sustainable, with high social-economic output
Scheduled to start within the next three years at the latest
In order to better fulfil these requirements, the Council encourages the creation of a roadmap
and thus eliminate obstacles to investment and remove market-distorting sector- specific regulations.
Aiming to improve business and financing environment, the Commission has launched an action plan to
forge a capital market union, which would lead to a common capital market for the 28 EU member states
by 2019.
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The EFSI supports state-initiated infrastructural (or other) large projects within the
framework of public-private partnerships (PPPs) or of similar cooperation projects that combine
state and private sector financing. To assist these, the EIB has established its own European Investment
and Advisory Hub (EIAH) to provide technical assistance free of charge for the planning of traditional
state- initiated large, for-profit projects with long-term profitability (bankable), partly with the aim to help
member states that have had negative experiences concerning PPPs to launch successful PPP-type
constructions.
According to a report by the Commission, the EFSI was instrumental in 80 percent of investment
projects to be completed in 2016. This year, within the framework of the Investment Plan the financing of
57 infrastructure-related and 165 SME projects were approved. The EFSI supports these projects with
EUR 7.8bn and EUR 3.4bn, respectively, and the value of follow-on projects exceeds EUR 80bn. The
aforementioned amounts are to be channelled to the following sectors: 22 percent to the energy industry,
11 percent to transport infrastructure and 7 percent to mid-cap companies.

OBJECTIVES INSTRUMENTS

1. Mobilize finance for European Fund for 315 billion Long-term

investment SMEs and
investment Strategic Investment
midcap firms

Better use of ESI Funds Additional 20 billion

for SMEs, Research,
(extensive use of financial
Transport and
instruments) Environment

2. Make finance reach Technical Assistance JASPERS

the real economy FI-Compass

3. Improve investment
Ex-ante conditionalities
environment
As far as Hungary is concerned, 17 member states have been hitherto involved in SME financing
schemes, among them Hungary. The EIF and Hungarys K&H Bank signed an agreement in December
2015, according to which the EIF provides EUR 2.4 million in total to improve the competitiveness of
Hungarian SMEs. Some estimates predict that the initial loan of EUR 2.4 million may mobilize some
EUR 135 million of which approximately 1500 Hungarian SMEs might benefit. The low investment
rate and the overwhelming weight of EU funding are the Achilles heel of the Hungarian economy: some
two-thirds 60 percent of investment volume hinges on EU funds. Only 40 percent of domestic
investment is not supported by EU funds; these projects are related to sports, religions or other prestige
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schemes. The downward trend of private and corporate investment has been weighing heavily on the
Hungarian economy for almost one year and a half.