The EFSI Legacy: Lessons learned

Dalia Dubovske, Investment Committee member, independent PPP expert and investment project development advisor

Additionality was quite a mystical word in the beginning. The concept was extensively discussed. There were several occasions when we made the decision not to support a project because there was a lack of evidence supporting additionality. Of course, we were assessing the social and economic benefits, alongside a discussion of whether it was appropriate to use the EFSI guarantee. Investment Committee members submitted enquiries for further information. Over these five years, we made extensive efforts to adapt the project presentation template to support the efficient exchange of information between EIB project managers and Investment Committee members. The people on the EIB side know all about the background. We were the final step. Sometimes we received information that was too general and we needed details to justify our decision. We asked questions that were relevant for us and this gave the EIB loan officers a different perspective, allowing them to see things in a new light.

Working on the Investment Committee strengthened my idealism about Europe. I gained experience in remaining constructive when there is disagreement on key issues. I support the idea of strong  national promotional institutions to tackle market gaps. I will continue my career using this distinct experience to guide me.

Andreja Kodrin, Investment Committee member and chief executive of Quintaum, Slovenia

The governance structure might look unusual, because it’s not what you would expect from a typical fund’s investment committee. But the structure was set up very prudently, in particular because it was a bridge between the European Commission’s policies and the European Investment Bank’s modus operandi as a financial institution. As members of the independent members of the Investment Committee, we brought to this structure an independent and agile perspective on the investment’s rationale and additionality, while pursuing the ultimate goal of maximising value for EU citizens and taxpayers. In the end our diversity brought independence and market drivers to an otherwise institutional structure.

EFSI was intelligently set up at the initial stage, but it also evolved based on comments and questions from the Investment Committee. The extensive knowledge that came from every member of the Investment Committee gave us insight into the different perspectives of each project. In terms of my own background, I was able to combine my knowledge of corporate finance and how venture and private equity funds operate with the underlying need for all these projects to build competitiveness and resilience to climate change. At the moment of decision, I always kept in mind EU citizens, for example the working single parent somewhere in the EU, struggling at work, coping with kids and the daily commute, but who at the end is the taxpayer and who contributes to the financing of the guarantee for all these new investments. EFSI is not only about how the economy can be more competitive; it’s also about how the project might make life better for all EU taxpayers. If we don’t have our citizens constantly in our minds, we create yet another bubble that’s distant from those to whom the projects should be dedicated.

Manfred Schepers, Investment Committee member and member of the supervisory board of Nederlandse Waterschapsbank

With my background in development banking, my focus was on additionality, on asking whether an investment really needed EFSI support and if it could not be handled by the private sector instead. That remains very much a grey area, I think. It’s dependent on the price of the capital, because there’s a price for everything. If we’re going to have instruments like this, there comes a point in time—and this is more about the economic theory of public versus private finance—that we need to ask whether public finance is crowding out the private sector versus filling a gap. It’s a really fundamental issue.

There were heated discussions on projects. There were definitely diverging opinions and debates on various aspects of project additionality. But that was our job. There was no easy formula that you could apply. This is a qualitative criterion and it was open to sometimes subjective interpretation by the individual members of the Investment Committee. But the criterion needed to be properly understood, based on the members’ experience and knowledge. It was their different backgrounds in infrastructure investment, or research and development, or development banking, or all kinds of sectoral experience or market knowledge that helped each individual make their minds up.

Thierry Deau, Investment Committee member and founder and chief executive of Meridiam, Paris

We focused very much on additionality. All members of the Investment Committee were very conscious of the fact that if we were going to use taxpayers’ money, there had to be a good reason. We relied on the pillar assessment of the documentation that was proposed. But everyone’s experience came into play from a sector perspective. Obviously, there were a number of things—for example, market failure, which is quite well-defined and at same time not well-defined—that gave us an additional perspective on whatever the EIB staff were proposing as an analysis. We brought discipline and consistency to the assessment of additionality. The climate and the climate transition were a big topic, but we all shared the view that economic growth was not just about jobs. Access to social services was also pushed as much as research and development, even though R&D was a concern for everyone because there is a real market failure in this field in Europe. We focused on making sure every one of the projects could have real impact.

On additionality, we had two debates. Once with EIB staff, because they initially had a concept of additionality that was that if something fits the regulation, it’s additional, and therefore let’s move along. Then we had an internal debate to figure out what we thought was important, really assessing the impact. We came to a real consensus, I think, after the first year and half.

Professionally, this was a rewarding conversation that broadened my knowledge and understanding of sectors that I don’t necessarily deal with every day. I’m on the investment side. I’ve known the EIB for 30 years. But things that were new for the Bank—SMEs, for instance—gave me a broader view of how financial products in the EU were percolating through the economic framework via SMEs with various financial intermediaries, which is quite fascinating. It gave me a wider overview of the efficiency of EU instruments. From the outside, it can look a little complex. But it’s not that complex.

For me, it was a truly European experience. I was pleased that there were ten of us from different Member States coming to a consensus on what was important in terms of supporting an economic programme and deploying this instrument. Europe is often caricatured, but when it comes to doing things in a concrete way, we can actually be quite efficient. That strengthened my belief that we probably need more Europe. And we need Europe to be more concrete.

Dalia Dubovske, Investment Committee

EFSI was not just another pocket of money. It came with the call for broad structural reforms and with the European Investment Advisory Hub. When formulating any economic programme, we need to understand how it will work and be implemented, and by whom—along with what is needed to make it happen. Policymakers have to think ahead in terms of how operations should or shouldn’t be implemented and what actions they envisage. Sometimes the reality can deviate from what was intended by policymakers, if the policy decision was vague.

Gordon Bajnai, Investment Committee member, former Hungarian prime minister and head of global infrastructure at Campbell Lutyens

EFSI is an unprecedented experiment in how to combine public and private resources. It’s a combination of a policy-driven stimulus programme with private resources that becomes a significant multiplier of this private financing. It’s an illustration of how to combine public policy goals with private sector resources and interests in the best way. The question is how do you channel private money to serve the common good? EFSI is the answer.

The programme was conceived at an historic moment for Europe when Juncker’s Commission wanted to create a recovery plan from the previous crisis. But from a recovery plan and stimulus programme, this post-crisis management tool evolved into an economic development tool, focusing on the greening of Europe, green infrastructure, research and innovation and small and medium-sized enterprises, plus an overarching cohesion target. It became an industrial economic policy tool. With COVID-19, we may be going back to the roots of EFSI. What Europe needs now is a classic stimulus programme. It’s good that we now have something tried and tested for that.

The Investment Committee’s role is to make sure that the public policy goals are present and achieved in each and every project and that they are matched with the private sector’s market interests. The Investment Committee is an independent body and is not driven by the bureaucratic or administrative concerns of an EU institution like the EIB. But it’s not driven by the profit considerations of the private sector either.

How do we make sure that public policy considerations don’t kill the mobilisation of private finance? We have to strike a balance. We were independent and not part of the Bank, but our mission was to continuously represent public policy goals.

Additionality was one of the most frequent and meaningful debates in the committee. It’s no easy task for the EIB to balance being additional with optimising how private resources are crowded in—that is, to achieve the public policy goal with the minimum use of public money. I couldn’t say that the best possible results were always attained, but overall I believe that we did go in the right direction.

Gordon Bajnai, Investment Committee

It was almost like a psychological or sociological experiment. Find a group of eight independent experts who haven’t met, all from very different walks of life and different parts of Europe, put them in a room and give them a task that’s complex but which serves a higher mission. They have to work together for quite a few years. How do they learn to work together, driven by that mission? It restores your faith in mission-driven benevolence and people’s capacity to see beyond narrow personal interests.

Professionally, the opportunity to see a broad aspect of European investment policy at work—SMEs or infrastructure and R&D—gave me unparalleled insight into where Europe is heading, but also where the problems are. I really enjoyed every minute of  the experience.

Personally, I was always happy in my life and in my career to take on tasks that I felt were bigger than myself, that were about more than just me. This was clearly how each one of us on the Investment Committee felt. It was a role where we were working towards goals going far beyond our own interests or walks of life. It was an honour to be able to do that.

Vicky Kefalas, Investment Committee member and head of investment and development projects at Consolidated Contractors Company, Athens, Greece

The Bank and the EU have created an environment of impeccable diligence, and also of inclusion and diversity. These exemplary qualities were evident in everything the Bank did in relation to EFSI. Not only did a lot of effort go into everything, there was also an environment facilitating discussion and openness to finding areas where there was room for improvement.

A lot changed over time with EFSI. The application form itself looked very different in December 2015 than it does now. That’s a result of [the Investment Committee’s] contribution and the Bank’s willingness to listen and improve. It was a very good environment that stressed collaboration. Willi Molterer had a very catalytic role. He’s passionate about facilitating EFSI and respected members’ opinions while providing a forum for discussion. The secretariat did a very good job. EFSI was a well-oiled mechanism. I regard it as a professional accolade to have been appointed to serve on the committee. I was there in December 2015 at the inception and I stayed through the extension of the term.

You read about and are exposed first-hand to current investments in projects in different sectors across the various Member States, so that you know what companies will invest in, even in times of economic crisis. I had access to the Bank’s background references along with its outlook on risk, compliance and sustainability. We had distinguished guest speakers from within the Bank coming to give presentations at almost every session. We had presentations at the opening of the committee and during lunch. For example, the chief economist, Debora Revoltella spoke. We heard from the head of compliance, from the president many times and from members of the Steering Board. This created a very open environment.

Personally, I take away a lot of satisfaction knowing that I was able to help make hundreds of projects across Europe a reality, providing jobs, heating and access to finance for SMEs, at a time when Europe needed it the most. The effect will be long-lasting. A real structural contribution was made. EFSI supported a large financing package for14 regional airports in Greece, for example. This, for Greece, is huge. For me this is the greatest source of satisfaction.

More lessons…

Articulating the need for EFSI support, i.e. market failure/suboptimal investment situation

Fabio Pammolli, Investment Committee member

Additionality cannot be easily embedded in deterministic algorithms. I do not see any easy solutions beyond the methods we adopted that would allow us to achieve more than we did. The assessment of additionality is a combination of expert behaviour, data analytics and evidence-based analysis. Using independent experts on the Investment Committee is a very intelligent way to address this topic. The probability for us on the Investment Committee to have false positives was relatively low, because of the quality of the work from the services of the Bank. They took our advice into consideration from the very first iteration of the process. They even modified the way they collected information and presented the dossiers.

Geographic concentration

Nieves Rodriguez Varela, Investment Committee member and independent investment project advisor

Although we were from different countries, the country itself was never a topic for discussion, when we were deciding on the guarantee. We didn’t push our own country’s perspective. You see a project and not the country. I would like to see some additional criteria, because some countries are clearly more favoured than others, and not necessarily those in the greatest need. The most developed countries are better prepared to access the guarantee. If the real aim is to develop Europe as a whole, we should focus on countries that are the most in need of the guarantee, the countries that are the most in need of the funds. This would, of course, be possible if Europe could do something about the regulatory frameworks in these countries and monitoring the use of the funds.