On 7 October 1998, the European Investment Bank (EIB) signed finance contracts with the Landesbank Hessen-Thüringen (Helaba) paving the way for establishment of the Hessen Innovation Fund.

This Fund will make equity and quasi-equity available to small and medium-sized enterprises to support development of innovative products and services and to accompany them during the market penetration phase.

The Hessen Innovation Fund was initiated by Helaba, which will act as general partner whilst tbg Technologiebeteiligungsgesellschaft, a subsidiary of the Deutsche Ausgleichsbank, will subscribe to the Fund as a limited partner. Part of the EIB's financing will be guaranteed by the Land of Hessen.

The Fund will be built up over coming years to a total of DEM 80 million and will invest in growth-orientated and technology-based companies. Helaba and tbg will each be putting in DEM 20 million in the form of equity participations and shareholder loans. The EIB is advancing a loan of DEM 40 million.

The Fund will be managed by Helaba Beteiligungs-Management mbH, a subsidiary of the Landesbank Hessen-Thüringen.

On the occasion of the signature ceremony in Frankfurt, EIB Vice-President Wolfgang Roth stated:"New jobs have to be created in SMEs, particularly those in innovative industries and services, and in young or newly-established firms. We can no longer expect a great deal on the employment front from large industrial and service companies. A fundamental element of economic policy must therefore be to encourage the creation of companies and their rapid growth and, to this end, external venture capital needs to be channelled to young firms. That said, capital alone is not enough. To be sure of success, professional fund management is vital, to keep permanently in touch with the new companies and offer proactive business advisory services.

The Hessen Innovation Fund marks the European Investment Bank's entry into venture capital financing in Germany, and other similar operations have already been agreed. It gives me great satisfaction to be able to extend the EIB's productive co-operation with Helaba through this operation, which offers so much in terms of new jobs."

In June 1997, the European Heads of State or Government decided at their Amsterdam Summit to take action in support of Growth and Employment in Europe. In response, the European Investment Bank developed its Amsterdam Special Action Programme, which provides, inter alia, for a total of ECU 1 billion (1) in venture capital financing to be made available up to the year 2000.Of this amount, ECU 125 million has been allocated to the European Investment Fund (EIF), which is drawing on this finance, together with ECU 80 million from its own resources, both to invest in existing venture capital funds and to establish new funds jointly with private co-financiers.The EIB is providing some ECU 850 million for European financial institutions which have successfully worked together with the Bank over a number of years and which either already run or are setting up venture capital funds, have direct holdings in SMEs, particularly innovative and young firms, or furnish other forms of quasi-equity financing for such businesses.

(1) The conversion rates used by the EIB for statistical purposes during the current quarter are those obtaining on 30 September 1998, when ECU 1 = DEM 1.96, GBP 0.69, IEP 0.79, USD 1.1759.