Viewpoint 1: We don’t need an endless list of financial tools. We need cash

What can the EU’s coronavirus recovery budget do for research and innovative SMEs? MEP Paolo Borchia gives his views below.

Q. What would you like to see in a revamped EU budget? We are getting some hints on the contents: a large investment programme (called EUInvest) will be strengthened, regional funding will be prolonged, there will be massive borrowing on capital markets… 

Borchia: InvestEU is supposed to replace and continue the role covered by the European Fund for Strategic Investments (EFSI), which was conceived under the previous mandate to boost infrastructure spending. While the European Commission has made great efforts to present EFSI as a European “success-story”, scepticism has emerged concerning its actual added value. Remarkably, the European Court of Auditors has questioned the actual amount of investments that were supposedly triggered via the EFSI, pointing out that it appears to have just duplicated a function already covered by other existing tools. Similarly, concern emerged about the substantial exclusion of SMEs from the range of the EFSI funding. There is reason to believe that the new InvestEU will not perform any better than its predecessor.

What else? Well, how to align Green Deal ambitions with the EU budget was already an issue even before the outbreak of the pandemic. Climate-related goals as set by the commission seemed excessively demanding for the actual capacity of European businesses, while the commission was overconfident about the mitigating effect that such instruments as the ‘Just Transition Mechanism’ would bear after the implementation of the new and supposedly “climate-friendly” legislation.

There was never clarity about how much real money would be channelled into these tools, while the commission seemed to lack also a clear strategy when it came to crucial issues such as unemployment stemming from the speeding-up of the energy transition process or how to preserve global-level competitiveness under the forthcoming stricter environmental legislation.

It was clear however that Green Deal would entail new financial and administrative burdens for either small, medium or large-sized enterprises across the entirety of the producing sectors. The recent and still ongoing crisis has made it even clearer that it is definitely not the time to go forward with such plans. Flexibility is of the essence if we truly want to ensure that either SMEs or the larger industry make it out of the crisis, as some business sectors – even strategic ones – are close to being erased from the economic spectrum. Adding new burdens, deadlines and expectations from the crisis-ridden world of business is not the way to go.

Q. More money is perhaps the obvious answer, but are there creative ways for offering more support, considering how difficult it will be to raise money from member states? And how will you feel if the new money raised for the COVID-19 recovery is mainly loans rather than cash?

Borchia: I am not sure that “more money” is the best answer. It is customary for the parliament to call for more ambitious funding; however, a more appropriate response would be paying more attention to the way we actually spend the money we already have, rather than just “throwing” money and hope that showing off generosity will make things right. Spending on R&D needs special attention in this sense, as proven by the current worldwide struggle to find a vaccine for COVID-19. Adding more money for R&D will not necessarily mean that we are improving the ways the money is allocated.

Further, it is hardly news that application procedures to access EU tenders are often excessively complicated, both in terms of administrative burdens and in terms of access requirements. SMEs can often not even begin an application due to such restrictions, even when their projects are of actual value. Again, this is the type of issues we should be addressing, rather than just “throw money” and hope this fixes the issue.

Loans or cash? What we need is cash. Over the last months, we saw the commission working out an endless list of financial tools to fight off the economic setback. However, all of these instruments rely on a complex architecture of risk-based financial mechanisms, as well as purely theoretical projections about the possible interest of the private sector to participate in such mechanisms. Such conditionality to the unreliable financial laws that regulate international markets is likely to reduce substantially the real effectiveness of any loan-based instrument that the commission may put forward. It is a very long shot to expect the virtual sums generated via financial speculation to actually turn into real cash into the pockets of SMEs across Europe, while, at the same time, member states receiving the loans are likely to see just more debt piling up on their shoulders.