Plan to add €10B to Strategic Investment Fund not justified, says EU accounts watchdog

Plans to expand the European Fund for Strategic Investments (EFSI), also known as ‘the Juncker Plan’ were drawn up too soon and with little evidence that the increase is justified, according the European Court of Auditors. \

In September the Commission proposed boosting the fund from €16 billion to €26 billion and extending its timeline, just one year after its launch. But with little evidence of EFSI’s achievements, this decision was premature, the court writes in a report released on Friday.

“It is still too soon for the economic, social and environmental impacts to be measured, or for a conclusion to be drawn as to whether EFSI is achieving its objectives,” said Mihails Kozlovs, the lead auditor on the report.

In addition to adding €10 billion – with the European Investment Bank chipping in a further €2.5 billion - the Commission wants to extend the original three-year investment period to 2020. And instead of attracting €315 million in public and private investment, it wants EFSI to increase the investment target to €500 billion.

However, the proposal was not accompanied by an impact assessment and there are, “Few, if any, macroeconomic indicators available to measure the impact of EFSI,” the auditors say.

There is also a risk that the fund’s ‘multiplier’ which promises to leverage private money with public funding by a factor of 15 – is “overstated”.

In response, the Commission says it is “plain wrong” for the auditors to claim the evidence base for the fund is not sufficient. Expectation of weak growth ahead is the main justification for expanding EFSI. 

“Independent bodies like banks (Unicredit, Deutsche Bank), national legislative institutions (French Assembly) and think tanks (DIW) have issued reports on EFSI activity so far. All point to the success of the plan in terms of investments mobilised,” said Siobhan Millbright, press officer for jobs, growth and investment.

An evaluation by the consultancy EY, published on Monday, also says it seems likely EFSI will reach its targets for capital raised.

Economists have offered their thoughts on the fund too.

Gibran Watfe, an economist at the College of Europe in Bruges, said its performance has been above expectations. The think tank Bruegel, on the other hand, questions whether EFSI-funded projects represent a higher risk than the EIB would normally take, which was meant to be the motivation behind the fund.

Strong support for SMEs

The auditors acknowledge that 300,000 small and medium-sized businesses are benefiting from the fund, with signed guarantee deals with banks in several countries worth €3.5 billion.

The report also welcomes the Commission’s pledge to take action on sharp imbalances in the take-up of funds.

Ninety-two per cent of the EFSI budget has gone to older, richer member states concentrated in the North West of Europe and only 8 per cent to newer, poorer countries in Central and Eastern Europe. 

Projects supported by the fund include a new milk processing factory, a broadband network and a titanium recycling plant in France, new ferries and smart meters in Italy, railways and money for supplies at a bioscience lab in Spain, renovation of a gas plant in Denmark, a new hospital in the UK and a bio-product mill in Finland.

Five projects involve investment in motorways, four offshore wind farms and two onshore wind farms.