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EIB | How flexible European financing programmes help fight a crisis

When coronavirus struck, the European Commission joined with EU countries and European institutions to prepare a swift and massive package of relief for businesses devastated by the pandemic. One European programme was already at work, immediately delivering hundreds of millions of euros in financing for projects that aim to fight COVID-19.

With the backing of the European Fund for Strategic Investments (EFSI), the European Investment Bank financed a €50 million deal in May to back COVID-19 trials of a treatment by German-Israeli company Pluristem that uses placenta cells to fight infections. In June, the Bank used the EFSI guarantee to back Germany’s BioNTech with a €100 million to support its COVID-19 vaccine programme.

“EFSI shows what can be done with scarce financing by joining public and private forces,” says Wilhelm Molterer, the former Austrian finance minister who is EFSI managing director. “This experience is even more important, given the huge challenges ahead of us.”

One such challenge is climate action. Despite the demands of COVID-19, EFSI is surpassing its targets on this front too. After all, the coronavirus crisis is just the latest chapter in the eventful story of EFSI, which was born out of the financial crash of a decade ago. As part of the Investment Plan for Europe, a ground-breaking economic stimulus programme designed to kickstart the continent’s economy, EFSI started in 2015 as a guarantee from the EU budget to stand behind the lending activities of the European Investment Bank, the EU bank. With its mandate extended and increased in 2017, EFSI has now surpassed its target of supporting €500 billion in investment ahead of schedule.

“EFSI has changed the way public finance is used,” says Iliyana Tsanova, EFSI’s deputy managing director. “EU public support has been pivotal in sustaining risk-capital financing across the Union. It gave us a highly efficient and flexible instrument that was fit to meet evolving market needs.” Adds Tsanova, “I was excited to see how fast we managed to adapt our strategy and respond to the COVID-19 crisis. Flexibility is the key to success.”

EFSI legacy counters COVID-19 tsunami

EFSI’s immediate response to COVID-19 illustrates how thoughtfully its original structure and governance was set up, and how finely tuned its operations have become. Some of those best placed to observe these workings sit on EFSI’s independent Investment Committee, which ensures that the European Investment Bank deals proposed for backing by the EFSI guarantee meet the criteria designated in the programme’s regulations.

One member of the Investment Committee, Gordon Bajnai, a former prime minister of Hungary who heads global infrastructure at investment advisor Campbell Lutyens, describes a crisis such as COVID-19 as “like a tsunami. If you survive the first wave, you have a chance to rebuild. If the systems of industrial production are broken and collapse, it can take decades to rebuild—or they might be rebuilt somewhere else, not in Europe.”

That makes the swift EFSI response to the coronavirus pandemic so important. Bajnai, who lead Hungary during the financial crisis, says that “in a crisis, money that is given fast is worth three times as much as money given later on.”

There will surely be more EFSI deals to fight COVID-19 in the summer and autumn. They will provide yet another chapter in the story of EFSI.

AUTHOR:

Compliments of the EIB – a member of the EACCNY.