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EFSI and 1:15 multiplier. How do they work?

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EFSI and 1:15 multiplier. How do they work?

 

Investment Plan for Europe (2015-2020)

The Investment Plan for Europe is a package of measures to unlock public and private investments in the real economy of at least € 315 billion over the period ranging from 2015 to 2017.

The amazing fact is that during 2015 it worked so well that in 2016 the European Commission and the European Investment Bank decided to expand the Plan to 2020 with the objective to increase the amount to unlock and take it to at least € 500 billion.

The Investment Plan consists of three pillars:

  1. mobilising investment finance without creating new public debt
  2. supporting projects and investments in key areas such as infrastructure, education, research and innovation
  3. removing sector-specific and other financial and non-financial barriers to investment

 

Mobilising the € 500 billion additional finance for investment at EU level

It is a joint effort between the European Commission and the European Investment Bank (EIB). Member States, National Promotional Banks, regional authorities and private investors are also contributing.

 

How?

The European Fund for Strategic Investments (EFSI) is the initiative to face the first pillar.

EFSI has a different risk profile, provides additional sources of financing and targets projects delivering greater societal and economic value beyond the projects currently financed through the EIB or existing EU programmes (e.g. Horizon 2020).

 

The first impact seems not so clear? Hereafter some bullet points describing how EFSI works

  • A guarantee of € 26 billion are created under the EU budget. € 8 billion of these € 26 billion came from existing EU funds: € 2 billion from the existing margins of the EU budget, € 3.3 billion from Connecting Europe Facility and € 2.7 billion from Horizon 2020 programme.
  • The EIB commited to invest € 7.5 billion.
  • Thus, the Fund started with a significant firepower: € 33.5 billion.
  • Member States, directly or through their National Promotional Banks, have the opportunity to contribute to the Fund by paying in capital.
  • The Fund is reaching a multiplier effect of 1:15 in real investment in the economy.
  • It is expected to mobilise about € 500 billion: about two-third in long term investments such as infrastructures and innovation, and  about one-third in SMEs.

 

What is the 1:15 Multiplier?

The calculation is the results of a prudent average, which is well know by EIB.

for each protected European € 1

€ 3 could be provided by sub-ordinated debt, and for each € 1 of sub-ordinated debt

This created a “safety buffer” which leads to

€ 4 could be get in senior debt

 

This means that € 1 of protection by the fund generates € 15 of private investment in the real economy, that would not have happened otherwise.

 

Tell us what do you think about it!

 

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