Originally intended to counter the low investment environment that followed the financial crisis a decade ago, EFSI developed into a flexible tool for fighting a shock like COVID-19 or a broader crisis like climate change.
Its success is built around the concept that, rather than using public money for grants, a market approach can draw private investment into a project alongside the EIB and thus multiplies the impact of the original public guarantee many times over.
“EFSI shows what can be achieved with scarce financing when public and private forces are combined,” says Wilhelm Molterer. “This experience is becoming even more important, given the huge challenges ahead of us.”
EFSI beat its targets
EFSI exceeded its stated target of supporting €500 billion in investment six months ahead of schedule, even as it adapted to the impact of COVID-19 on Europe’s economy.
“I was excited to see how fast we managed to adapt our strategy and respond to the COVID-19 crisis,” says Iliyana Tsanova, EFSI’s Deputy Managing Director.
“We were able to quickly provide urgently needed liquidity to support companies impacted by the pandemic as well as funding for companies working on the development of cures and vaccines. Flexibility is the key to success.”
At a time when budgets are tight and public financing must make every euro go further, EFSI’s structure—and its success—has been remarkable. Its record “will prove useful in the time ahead,” says Molterer.
Guarantee fund bolsters small business through ‘time ahead’
Before the COVID-19 crisis, Molterer might have expected that the “time ahead” would mainly include the investment components of the European Commission’s European Green Deal and InvestEU, the investment programme planned in part as the successor to EFSI. Unexpectedly, EFSI had to show it could cope with the devastating blow to Europe’s economy delivered by COVID-19.
EFSI’s immediate response to COVID-19 illustrates the careful thought that went into its original structure and governance, 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 defined 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 adviser 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.”
Bajnai, who led 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.”
That makes EFSI’s swift response to the pandemic key—and makes the swift foundation of the Pan-European Guarantee Fund vital to the year ahead.