Energy and tourism in Cyprus could gain from the new European Fund for Strategic Investments (EFSI), European Commission (EC) Vice President for Jobs, Growth, Investment and Competitiveness Jyrki Katainen told the Cyprus Weekly in an interview.
The Commission introduced the plan for €315 billion of loans for infrastructure and small business last November. The plan rests on using capital from the European Investment Bank and the European Union budget to provide guarantees for private investors who back projects chosen by a team of EU experts.
The EU has drawn up a list of almost 2,000 projects worth €1.3 trillion that may be included in the investment plan.
Germany has expressed concern about governments adding to their already high debts, but it has said it would indirectly contribute to the EFSI through state-owned development bank KfW.
“I imagine that investments could help, for instance, tourism, to further develop in Cyprus, or energy investment,” Katainen said.
“I understand that energy prices, electricity in particular, are very high, well above average … and that’s why investment in this side will be very much needed,” he added.
Katainen said the fund will concentrate on high-risk projects, and that it is particularly suitable for investment in countries perceived as higher risk.
“That’s why I would expect that Cyprus, especially the small and mid-sized sector in Cyprus, could benefit from the fund,” he said.
A potential natural gas pipeline from Cyprus to Greece that has already been identified as a Project of Common Interest could qualify for funding if the private sector participated in the project, Katainen said.
He explained that the new fund’s investment policy follows EC policy priorities, one of which is creating an energy market with interconnections between member states.
“So in principle this pipeline could be suitable for the new fund’s investment policy,” Katainen said, adding that he could not be absolutely sure because it is up to the management of the fund to select projects.
The new fund differs significantly from existing EU investment instruments like structural funds, according to Katainen, because it consists of three separate strands – the new risk fund, a transparent project pipeline and a goal of deepening and widening the single market in areas where it is weak.
He said the new fund creates a public platform for private and public investment to make it easier for private investment banks, insurance companies and pension funds to find economically viable and well-structured projects.
Katainen used the example of digital services and products to illustrate the problem of market fragmentation across member states, pointing out that are still 28 different copyright regimes and data protection laws. He also said that regulation varies considerably between countries and should be harmonised and integrated.
In addition, Europe needs to boost the amount of funding it gets from capital markets, as its small and mid-sized enterprises are too dependent on bank financing. “If you compare Europe to the US, there 80% of financing comes from the capital market and only 20% from banks,” Katainen said.
“In Europe it is the other way round and that makes small and mid-sized financing very difficult in Europe,” he added.
Katainen said initial feedback shows that financial institutions will be prepared to take the risk and become involved in the potential projects.
He said the fund provides for €21bn in capital to enable the EIB to raise up to €60bn from the market, and stressed that Europe is not lacking liquidity at the moment.
“The idea is to share the private investor’s risk,” Katainen said. “In whatever a company wants to invest in, new technologies for instance, or investing in a gas pipeline, the new fund shares the private investor’s risk so this will encourage the private investor to invest in European infrastructure,” he added.