Financial Engineering Instruments in 2014 – 2020 ETC 10 th European Week of Regions and Cities Brussels, 10 October 2012

Content 1)Why Financial Engineering Instruments in European Territorial Cooperation programmes 2)Types of Financial Engineering Instruments 3)Decision tree and phases in establishing and operating Financial Engineering Instruments 4)Governance of Financial Engineering Instruments in European Territorial Cooperation 5)Opportunities and threats of establishing Financial Engineering Instruments in European Territorial Cooperation 2

Why FEI in 2014 – 2020 ETC? Lessons learnt from ETC –Private partners and State aid –Sustainability of project results How to reach Europe 2020’s objectives? Strengths of ETC programmes –Stability of governance structure –Multi-country scope –Multi-stakeholders involvement

4 Financial Engineering Instruments grid and what can be suitable for ETC Purpose Instrument LoanMezzanineEquityGuarantee SME ✔✔✔✔ Urban Development ✔✔✔✔ Energy saving/ renewable energy use ✔✔✔✔ Types of Financial Engineering Instruments

5 Financial Engineering Instrument Singular Fund Managing Authority Public Financial Institution Private Financial Institution Holding Fund Financial Engineering Instrument Decision Tree What kind of Fund should ETC set up? Who should set up and manage the fund? How do you need to proceed? Do it yourselfAward contract Call for tender

Phases in establishing and operating FEI 6 Ex-ante Assessment Identify market failures or sub-optimal investment situations, and investment Avoid any crowding out of the private sector Planning and Design Financial Instrument Financial Engineering Instrument State Aid Implementation invest in the capital of existing or newly created legal entities entrust implementation tasks to EIB-Group, International Finance Institution, public or private body Undertake implementation directly Carrying Out Ex-post Evaluation

Governance of FEI in ETC Fund management team –Business plan and investment strategy –Funding agreement Investment strategy –Aligned with ETC programme’s objectives –Designed and monitored by programme’s stakeholders (MC, MA) –Investors’ advisory board and investment committee Transnationality –Internationalisation of SMEs –Further development of specific finance markets (that are currently national or regional) towards a single-market such as SME financing or VC-financing –Twin- or multi-regions territorial projects such as rural or urban development projects that tackle similar issues and can save resources through cooperation

Opportunities Revolving character of funds Greater catalytic effect and impact Possibility of involving private partners Force more efficient, business oriented use of funds Sustainability of project results Greater capital volume available with no threat of State aid Access to ‘smart money’ Can be combined with grants to provide tailored assistance reflecting specific needs of an ETC programme Critical mass Administrative and regulatory complexity in design and implementation: Cannot ‘do it by yourself’ Lower incentives compared to grants Higher management costs Potential for tension between complex programme goals and profit oriented focus of financial institutions Not 100% clear how FEI fits ETC context Threats FEI in ETC