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Regional PolicyRegional Policy
EU financial Instrumentsand European Structural and Investment Funds
(ESIF)
Open days seminarBrussels, 9 October 2013
António GonçalvesFinancial instruments and IFI Relations
Directorate-General for Regional and Urban Policy
Regional PolicyRegional Policy
On the panel
• Vladimir Bilek, DG ECFIN L2 • Jean-David Malo, DG RTD C3: Horizon 2020 instrument• George Lemonidis, DG ENTR D3: COSME instrument• Manuela Geleng, DG EMPL E1: Programme for employment and
social innovation (EaSI)• Martin Ubelhoer, DG CNECT B5: Connecting Europe Facility
(CEF)
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Agenda
• Implementing modes for the new programming period 2014-2020.
(Antonio Goncalves, DG REGIO B3) • EU instruments & consistency with the EU objectives (Vladimir Bilek, DG ECFIN L2)
• Overview of the EU financial instruments and panel debate
• Conclusions and practical next steps
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Regional PolicyRegional Policy
Financial Instruments in Cohesion Policy
Programmes 2014-2020
António GonçalvesFinancial instruments and IFI Relations
Directorate-General for Regional and Urban Policy
Regional PolicyRegional Policy
Financial Instruments in Regional Policy1. ERDF support through Financial Instruments is present in
the last three programming periods (since 1994)
2. In 1994-1999 and 2000-2006 FIs used only in limited cases(SMEs, few MS, limited resources)
3. In 2007-2013 major expansion:
• Around 900 Financial Instruments• 25 Member States• 175 programmes • EUR 12,6 billion programme funding through FIs• EUR 8,4 billion SFs• extended scope (SMEs, urban regeneration, energy
efficiency)• Some ESF co-financed financial instruments
Significant challenges: delays, over-allocations, in some MSs too extensive proliferation, limited leverage 5
Regional PolicyRegional Policy
Financial Instruments in 2014-2020
Commission encourages more extensive use of FIs
Advantages:
• revolving funds, remain in the programme area
• leverage resources, increase impact of EU programmes
• financing provided before investment takes place
• better quality of projects (investment must be repaid)
• Incentives to use FIs as alternative to grants
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Regional PolicyRegional Policy
Financial instruments 2014-2020: Key novelties (1)
Wider scope: Expansion to all thematic objectives & priorities foreseen by ESIF OPs (ERDF, ESF, Cohesion Fund, EAFRD,EMFF)SMEs (60%), RTDI (45%) and Low carbon (45%) as
emerging priorities in the public survey from May* Ex-ante assessment to be carried out before the
launch of FI operation under the ESIF Phased contributions to FIs
MAs to pay programme contributions in at least 4 tranches
Subsequent payments from MA to FI to be made on the basis of FI investment rate in relation to programme contributions received
*http://ec.europa.eu/regional_policy/thefunds/instruments/doc/20130621_ta_survey_en.pdf 7
Regional PolicyRegional Policy
Financial instruments 2014-2020: Key novelties (2) Better combination of FIs & other forms of support:
Grant component may cover financing (e.g. state aid compliant subsidy element) or technical assistance for the benefit of the final recipient
At the level of final recipients: Combination is now possible also with assistance from other programmes supported by the EU budget
Incentives regarding EU co-financing rates: EU-level instruments: Up to 100% and a separate priority axis Instruments implemented at national/regional level: co-financing rate + 10 pp
if an entire priority axis is implemented through financial instruments
More detailed rules concerning eligible expenditure at closure the (re-)use of interest/other gains and ESIF resources returned during the
programming period and after closure (legacy)
Annual reporting by MAs MA to report to COM on FI operations annually (annex to the annual
implementation report); COM to publish annual summary report on the basis of data received
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Regional PolicyRegional Policy
Financial instruments 2014-2020: Key novelties (3)
More implementation options for managing authorities: Contribution to national or regional FIs under shared
management Tailor-made instruments (cf. current period)
(57% in the survey) Standardised "off-the-shelf instruments for quick roll-out (13% in the survey)
Contribution to EU level FIs under central management (ring-fencing) (6% in the survey)
MAs may undertake implementation tasks directly for FIs consisting solely of loans and guarantees
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Regional PolicyRegional Policy
Financial Instruments in MMF proposals 2014-2020
Infrastructure
Horizon 2020Equity and Risk Sharing Instruments
Horizon 2020Equity and Risk Sharing Instruments European Structural and
Investment Funds
EU level (central management)
National/regional instruments (shared management) Off-the shelf FIs Tailor made FIs
Significant higher amounts than currently!
European Structural and Investment Funds
EU level (central management)
National/regional instruments (shared management) Off-the shelf FIs Tailor made FIs
Significant higher amounts than currently!
Competitiveness & SME (COSME)
Equity & guarantees
Competitiveness & SME (COSME)
Equity & guarantees
Connecting Europe Facility (CEF)Risk sharing (e.g. project bonds) and equity
instruments
Connecting Europe Facility (CEF)Risk sharing (e.g. project bonds) and equity
instruments
Employment and social innovation
(EaSI)
Employment and social innovation
(EaSI)
Creative EuropeGuarantee FacilityCreative EuropeGuarantee Facility
Erasmus+Guarantee Facility
Erasmus+Guarantee Facility
1.Shared Management with MS (Common Provisions Regulation)
2.Centrally managed by COM (Financial Regulation)
Research, Development Innovation
Growth, Jobs and Social Cohesion
Regional PolicyRegional Policy
MA contributing OP allocation to EU level instrument
EntrustedEntity
EntrustedEntity
Operational ProgrammeOperational Programme
Horizon 2020Equity and Risk
Sharing Instruments
Horizon 2020Equity and Risk
Sharing Instruments
Connecting Europe Facility
(CEF)Risk sharing (e.g.
project bonds) and equity instruments
Connecting Europe Facility
(CEF)Risk sharing (e.g.
project bonds) and equity instruments
Employment and social innovation
(EaSI)
Employment and social innovation
(EaSI)
Creative EuropeGuarantee
Facility
Creative EuropeGuarantee
Facility
Erasmus+Guarantee
Facility
Erasmus+Guarantee
Facility
Financial intermediaries
Financial intermediaries
Financial intermediaries
Financial intermediaries
Financial intermediarie
s
Financial intermediarie
s
Final recipientsFinal recipients Final recipientsFinal recipients
EU compartment
European CommissionEuropean Commission
Final recipientsFinal recipients
COSMEEquity & guarantees
COSMEEquity & guarantees
Regional compartment
Regional PolicyRegional Policy
Why to contribute with ESI Funds to a EU Level Joint FI?
Alignment with EU policy objectives
Reinforcement of EU funds and scale effect (investors interests)
Easy, no much of management (design, tendering, legal, financial, audit, reporting, administrative costs…)
High co-financing rate (up to 100% ESI Funds)
Early start maximise impact
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Regional PolicyRegional Policy
EU level instruments & consistency with the EU
objectives
Vladimir BilekEuropean Commission
DG Economic and Financial Affairs Financing of competitiveness, innovation and employment policies
Open Days, Brussels, 9 October 2013
Regional PolicyRegional Policy
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The main objectives of the Union are to promote peace, the Union's values and the well-being of its peoples.
These general objectives are supplemented by detailed objectives (in RED those already supported by EU Financial Instruments):
an area of freedom, security and justice without internal frontiers
an internal market where competition is free and undistorted;
sustainable development, based on balanced economic growth and price stability, a highly
competitive social market economy, aiming at full employment and social progress, and a high
level of protection and improvement of the quality of the environment;
the promotion of scientific and technological advance;
the combating of social exclusion and discrimination, and the promotion of social justice and
protection, equality between women and men, solidarity between generations and protection of the rights of
the child;
the promotion of economic, social and territorial cohesion, and solidarity among Member States.
Article I-3 of the Constitutional Treaty
EEU ObjectivesU Objectives
Regional PolicyRegional Policy
EU: Substantial Financing NeedsEU: Substantial Financing Needs EU RDI funding: should reach 3% of GDP (EU currently at 1.5%, but
US and Japan at approx. 3% of GDP) Continuing market gaps and deficiencies in debt and equity markets
for financing of enterprises, and especially SMEs 75% of SMEs dependent on external financing 'access to finance' the second most pressing problem for
Eurozone SMEs, right after getting customers venture capital fundraising and investment levels at one
quarter of 2006 levels
BUT BUT Limited Public ResourcesLimited Public Resources EU budget (and national budgets) unlikely to increase EU budget for 2014-2020 reduced by Council
Data: EC ex-ante assessment of the Connecting Europe Regulation, Access to Finance Surveys, EU 2020 Strategy
Regional PolicyRegional Policy
The EU's responseThe EU's response Responding to the Crisis: Assistance to countries in
difficulty, creation of new legislation and institutional infrastructure ("Six- Pack", "Two-Pack", Fiscal Compact, ESM, Single Supervisory Mechanism at the ECB)
Legislation supporting entrepreneurship (Small Business Act, new regime for venture capital)
Provision of financing through Grants
Greater use of EU FINANCIAL INSTRUMENTSGreater use of EU FINANCIAL INSTRUMENTSBased on market needs, partnership with the financial sector
Recognised political priority (Europe 2020 Strategy, Communication on a Budget for Europe 2020, plans for the next MFF)
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Regional PolicyRegional Policy
What are EU Financial Instruments?What are EU Financial Instruments?
Equity/risk capital: e.g. venture capital to SMEs with high growth potential or risk capital to infrastructure projects
Guarantees to financial intermediaries that provide lending to e.g. infrastructure projects, SMEs, persons at risk of social exclusion
Other risk-sharing arrangements with financial intermediaries in order to increase the leverage capacity of the EU funds
or a combination of the above with other forms of EU financial assistance in single instruments (e.g. grants)
Source: Financial regulation (EC) No 966/2012, Commission delegated regulation of 29.10.2012 on the rules of application17
Regional PolicyRegional Policy
1998-2013: Long and successful co-operation with 1998-2013: Long and successful co-operation with Financial IntermediariesFinancial Intermediaries
•Risk-sharing with financial intermediariesSME Guarantee Facility under CIP and predecessor programmes
1998-2006: EUR 436m of EU budget generated EUR 27.5bn of lending to 370,000 SMEs2007-2013: So far approx. EUR 460m of EU budget generated EUR 14.2bn of lending to 240,300
SMEs, volumes are increasing fast.
•Co-investments with private and public investorsHigh Growth and Innovative SME Facility under CIP and predecessor programmes
1998-2006: EUR 309m of EU resources generated EUR 1.9bn of total investment into 433 highly innovative SMEs.
2007-2013: So far, EUR 438m of EU resources generated EUR 2.3bn of total investment volume available, amounts growing fast. 312 highly innovative SMEs covered so far.
•Risk-sharing with the EIB Group and financial intermediariesRisk-Sharing Finance Facility (RSFF)
2007-2013: EUR 2bn of EU and EIB resources expected to generate over EUR 10bn of lending to RDI projects. By March 2013, EUR 10.5bn of lending agreements already signed with final beneficiaries. Dedicated RSI facility for SMEs implemented through the EIF.
•Combination of risk-sharing and co-investmentsEuropean Progress Microfinance Facility (EPMF)
2010- : By 2020, the EU contribution of EUR 100m is expected to have generated EUR 500m of micro-loans.
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Regional PolicyRegional Policy
Limited number of standardised instruments with critical mass
Demand-driven implementation through a cascade of financial intermediaries; applications to EIF and/or other implementing entity
All main types of beneficiaries and the full funding cycle covered:
Generalist SMEs: venture capital and guarantees for mainstream SMEs
Research, development and innovation: venture capital and guarantees for SMEs, Mid-caps, large corporates, universities, research infrastructures
Microfinance: microcredit and social investment
Sector-specific: guarantees for enterprises in the creative industries
Infrastructure promoters: project bonds or equity
Future Instruments: Main ElementsFuture Instruments: Main Elements
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Regional PolicyRegional Policy
Financial Instruments included in Financial Instruments included in proposals for 2014-2020 proposals for 2014-2020
Research, Development Innovation
Growth, Jobs and Social Cohesion
Infrastructure
Horizon 2020Equity and Risk Sharing Instruments
EUR 3.5bn
Horizon 2020Equity and Risk Sharing Instruments
EUR 3.5bnEuropean Structural and
Investment Funds
EU level
Off-the shelf instruments
Tailor made instruments
Significantly higher amounts than currently
European Structural and Investment Funds
EU level
Off-the shelf instruments
Tailor made instruments
Significantly higher amounts than currently
Competitiveness & SME (COSME)
Equity & guaranteesEUR 1.4bn
Competitiveness & SME (COSME)
Equity & guaranteesEUR 1.4bn
Connecting Europe Facility (CEF)Risk sharing (e.g. project bonds) and equity
instruments
Budget not yet decided
Connecting Europe Facility (CEF)Risk sharing (e.g. project bonds) and equity
instruments
Budget not yet decided
Employment and Social innovation
Micro-finance EUR 192m
Employment and Social innovation
Micro-finance EUR 192m
Creative EuropeGuarantee Facility
EUR 210m
Creative EuropeGuarantee Facility
EUR 210m
Erasmus +Guarantee Facility
EUR 881m
Erasmus +Guarantee Facility
EUR 881m
Shared ManagementCentrally managed by COM
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Regional PolicyRegional Policy
New SME Initiative: Objective
Increase the volume of lending to SMEs in the EU
Build on the proposals for COSME and Horizon 2020 and their ex-ante assessments, to pool resources with the European Structural Investment Funds in a Joint Instrument.
In addition, use EIB/EIF/National capacity.
Plug in to what we already have, act fast and achieve significant impact to stimulate SME financing and economic growth.
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Why?: To increase access to finance for SMEs by offering products to banks that are beneficial in terms of
liquidity to finance new SMEs loans number of SMEs supported, volume of SME financing capital relief, to the extent necessary to support SME loans.. more value added, more financing to SMEs
How?: The options considered include a combination of guarantees on newly originated portfolios of SME loans, securitisation of existing portfolios and securitisation of new portfolios
New SME Initiative: Proposal
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Regional PolicyRegional Policy
ConclusionsConclusionsFinancial instruments:
Well-tested, efficient and effective way of supporting growth, jobs and innovation. That is why we wish to build on our experience and use them more.
Can attract private funding for public policy objectives. This is particularly needed in times of limited public resources.
Can enhance the partnership between the financial service sector and public bodies and play a major role in helping Europe get out of the crisis.
Moreover: We are not only providing the financing – we also work on
the regulatory framework, both for within the Commission and for financial intermediaries.
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Regional PolicyRegional Policy
Overview of the EU Financial Instruments
European Commission DGs
Regional PolicyRegional Policy
Horizon 2020 Objectives (Market failure addressed)
Difficulties in obtaining funding to carry out research and innovation due to information asymmetries, high transaction costs, the credit crunch, and a low supply of venture capital in Europe
Alignment with Cohesion Policy Thematic ObjectivesResearch, development and innovation
Final recipients' eligibility Legal entities of all sizes, particularly SMEs and small midcaps with potential to carry out innovation and grow rapidly
ProductsLoans from EUR 25 000 to EUR 300 million; hybrid or mezzanine finance from EUR 7.5 million to EUR 25 million; early-stage equity investments
Financial characteristicsDirect loans; intermediated loans, direct and intermediated hybrid or mezzanine finance; guarantees or counter-guarantees; intermediated risk capital.
Timing for implementationFirst quarter of 2014 (2015 for technology transfer pilot)
Contact Jean-David Malo, [email protected]
•
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COSME Objectives: Ease access to finance for SMEs and reinforce EU
Venture Capital industry
Alignment with the Cohesion Policy Thematic Objectives: Enhance SME competitiveness
Final recipients' eligibility: SMEs according to EU definition, COSME participating countries
Financial products offered: Direct and counter guarantees, securitisation / direct investments in risk capital funds and funds-of-funds (later)
Financial characteristics of the product: guarantees are capped on a portfolio basis and according to expected cumulated losses. Free of charge.
Timing for implementation: depends on negotiations with entrusted entity (EIF), in principle, continuity with existing CIP instruments.
Contact for more information: [email protected]
Links for more information: http://europa.eu/youreurope/business/finance-support/access-to-finance/ ; http://www.eif.org/ ;
•
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Objectives: Market gaps in debt finance, barriers to develop and strengthen the market for social finance
Alignment with the Cohesion Policy: Thematic Objectives 8 and 9
Final recipients' eligibility: Vulnerable persons in a disadvantaged position and social enterprises
Product: Guarantees or funded instruments (e.g. loans)•Financial characteristics of the products: Microloans up to EUR 25.000 (M) - Investment of up to EUR 500.000 (SE)
Timing for implementation: Q1 2014 (guarantees) - Q2 2014 (funded instruments)
Contact for more information: [email protected] – [email protected]
Links for more information: •http://ec.europa.eu/social/main.jsp?langId=en&catId=836&newsId=1093&furtherNews=yes
•
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Microfinance and social enterprise support under the programme for employment and social
innovation
Regional PolicyRegional Policy
CEF for broadband networks Objectives: Sub-optimal levels of investment in the roll-out of
broadband networks, especially with respect to fast and ultra-fast connections, and bottlenecks in access to bank and capital market financing for long-term telecom infrastructure.
Alignment with the Cohesion Policy Thematic Objectives: Enhancing access to, and use and quality of ICT; also: (i) competitiveness of SMEs, (ii) research, technological development and innovation (iii) efficient public administration
Final recipients' eligibility (CEF regulation and guidelines for trans-European telecoms networks)
Open to wide range of promoters: Telecom network operators, utility companies, public entities (including when considering PPP structures), etc.
Projects must make a significant contribution to the broadband targets of the Digital Agenda for Europe
Need to focus intervention on innovative and/or replicable business models 28
Regional PolicyRegional Policy
CEF for broadband networks Product: what financial product(s) is (are) offered? What are
its (their) characteristics? Choice of financial instruments (debt, e. g. loans, guarantees,
continuation of project bonds, or equity) and design subject to ex-ante assessment to be carried out in 2014;
Targeted (and limited) technical assistance: helps all groups of promoters (private/public) to improve the maturity of project proposals for broadband deployment, independently of whether CEF financing is involved.
CEF broadband instrument(s) will be open for additional allocations from national or regional sources which will be ring-fenced and invested on behalf of and in the region of origin
Links and contact: Anna Krzyzanowska, [email protected], T:+32 2 29 87246
Digital Agenda: http://ec.europa.eu/digital-agenda/ Projects bonds pilot – EIB:
http://www.eib.org/products/project-bonds/index.htm•
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CEF for trans-European energy networks Objectives: To achieve high economic, social and environmental
benefits by completing the internal energy market, major investments in energy infrastructure are needed. These are likely to exceed the financing possibilities of transmission system operators. With social and political limits to increase network tariffs, the Connecting Europe Facility can ease and accelerate the necessary infrastructure investments and help to overcome the funding gap.
Alignment with the Cohesion Policy Thematic Objectives: Facilitate cross-border connections, contribute to a more competitive social market economy and combat climate change.
Final recipients' eligibility: Being a project of common interest falling under the categories set out in Annex II.1, 2 and 4 of Regulation (EU) No 347/2013.
Product: what financial product(s) is (are) offered? Grants for studies and financial instruments and under certain conditions also grants for works.
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CEF for trans-European energy networks Financial characteristics of the product: Union financial aid shall
in general not exceed 50% of the eligible cost in regards to grants for studies and/or works. Financial instruments may be equity or debt instruments and the overall contribution to financial instruments shall not exceed 10% of the financial envelope of CEF (EUR 29.3bn for the period 2014 to 2020).
Timing for implementation: Financial envelope for the energy sector is EUR 5.126bn for the period 2014 to 2020. The Commission will adopt multiannual and annual work programmes and decide on the amount of financial aid to be granted to projects selected.
Contact for more information: Catharina Sikow-Magny, [email protected] , T: +32-2-296.21.25 and Links for more information: http://ec.europa.eu/energy/mff/facility/connecting_europe_en.htm 31
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CEF TEN-T (Transport)
Objective: Insufficient public and private financing for infrastructure investment in Europe, in particular on the TEN-T network. Restriction of public investment programmes, reluctance of bank lending for long-term/risky projects, scarce involvement of capital market in the financing of infrastructure.
Alignment with the Cohesion Policy Thematic Objectives Thematic objective: sustainable transport, in line with the revised TEN-T guidelines. Strong up-front coordination between DG MOVE and DG REGIO of the Operational Plans and Partnership Agreements submitted by the States in order to assess the States' priorities and the eligibility of projects under the CEF
Final recipients' eligibility: (Regulation on the CEF and Regulation on the TEN-T)
Grants for works: most projects must be in the list of pre-identified projects in the Annex I of the CEF Regulation
Financial Instruments: all projects eligible under the TEN-T guidelines can receive support from financial instruments if they are adapted to their use.
•
Regional PolicyRegional Policy
CEF TEN-T (Transport) What financial products are offered? Debt instruments in the form of the Loan Guarantees and
Project Bonds for TEN-T infrastructure projects; Targeted Technical Assistance: for the Cohesion Member States
to enhance the capacity of the procuring authorities to prepare the applications for projects under the CEF
Financial characteristics of the products: (expected) Guarantees provided by the EIB up to 30% of the senior debt to
the project promoters, with EU taking parts of the risk Loan Guarantee: secure the revenues of the projects, for
instance in case of the drop in revenues generated from the traffic (LGTT)
Project Bonds: enhance credit rating of the investment to attract long-term institutional investors (e.g. Pension Funds)
Links and Contact for more information: Mr Stéphane Ouaki, [email protected],T: +32 2 29 67 286Project Bonds (current pilot phase) EIB: http://www.eib.org/products/project-bonds/index.htm
•
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Erasmus+ Student Loan Guarantee Facility Increasing access to affordable finance for cross-border higher
education studies
Aligned with the Cohesion Policy Thematic Objective of investing in education, skills and lifelong learning
Final recipients: mobile masters students, undertaking a full Masters-level degree programme in another Erasmus+ programme country
Capped guarantee instrument providing up to 90% of first losses up to a ceiling of 18% of the loan portfolio in the event of student default
Approx. 500m€ EU contribution (3.5% of the Erasmus+ programme) with a projected leverage of 6.17x (>3bn€ for student loans)
The guarantee instrument will be established in 2014 and the first loans will be available to students via banks/student loan bodies in Member States in time for the 2014/5 academic year
Contact for more information: [email protected] (DG Education and Culture)
•
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Cultural and Creative Sectors Guarantee Facility
Facilitate access to finance and strengthen the financial capacity of SMEs in the cultural and creative sectors (CCS)
Aligned with the Cohesion Policy Thematic Objective of improving competitiveness of SME in creative industries
Final recipients: SMEs active in CCS/ wanting to develop CCS project
Capped guarantee instrument offering up to 70% on first losses (with a cap of 25% on loan portfolio). Guarantee bundled with Capacity Building Scheme (CBS) targeted towards financial intermediaries.
Indicatively 121mEUR, with a projected leverage of 5,7x (>690mEUR for SME in CCS)
Launch of CBS in 2015, guarantee facility as from 2016 More information: [email protected]
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Conclusions and practical next steps
António GonçalvesFinancial instruments and IFI Relations
Directorate-General for Regional and Urban Policy
Regional PolicyRegional Policy
Conclusions and next steps
Partnership agreement and operational programme preparation
Ex-ante assessment for ESI Funds programmes are starting
EU level instrument term sheets and characteristics are under preparation
Designation of entrusted entities for EU level instrument asap
Time for consultation and cooperation between Managing Authorities and Stakeholders
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Thank you for your attention!
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