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A new chapter in European development policy has just begun

September 28,2016 13:00

Joint op-ed by Federica Mogherini, High Representative for Foreign Affairs and Security Policy/Vice-President of the European Commission; Vice-President of the European Commission Kristalina Georgieva and Vice-President of the European Commission Jyrki Katainen

Challenging times call for us to rise to meet them with new thinking. With innovation. With vision. We have to foster our internal growth and the wellbeing of our citizens. And we have to cooperate with our neighbouring countries to support their own growth, stability and wellbeing. This challenge we can only meet with a choral work, involving the public and the private sectors, the financial institutions and civil society. As European Union we are now setting an example. At a time of growing needs and shrinking resources, the European Union has had to come up with new ways to make public funding stretch further. We have done so again almost a week ago. We presented an overall review of the EU budget that frees up an additional €6.3 billion in financing for priority areas by 2020, makes the use of the budget more flexible and cuts red tape for small and medium enterprises (SMEs) and non-governmental organisations. Most importantly, we have extended one guarantee fund for job-creating investments in Europe, and we are launching a new one to foster growth and stability in our neighbourhood and in Africa.

The Investment Plan for Europe – or Juncker Plan as it is often known – and its European Fund for Strategic Investments have been a turning point in our collective response to the economic crisis. Faced with tough financial constraints, public funding was not going to be enough to boost the economy and create jobs for our people. There was no shortage of private cash available, but it needed to be released. Together with international financial institutions, the new fund has provided a guarantee to private investments in key sectors and directly supports our SMEs.

We had used financial instruments before, but it had been more like dipping a toe in the water. This was jumping in at the deep end: a €16 billion guarantee from the European Union’s budget, complemented by €5 billion of the European Investment Bank’s capital in turn, to trigger more than 315 billion of investment in Europe.

The plan has proven to be a success story. In just one year it is expected to reach over 200,000 SMEs. Because it is a smart way of investing our funds we are now committed to doubling the EFSI inside Europe, in terms of duration and financial capacity. For now, we are proposing to deliver at least half a trillion euros in mobilised investments in 5 years with a bigger focus on sustainable investments and cross-border projects. And we can reach the goal of doubling the fund to €630 billion even faster if Member States chip in.

Just as importantly, we are applying the same principle outside our continent, launching a new External Investment Plan.

If we look at Europe’s neighbourhood, we can see regions with huge potential that are being held back by war, poverty, lack of infrastructure and weak governance. Millions of young people are looking for better opportunities. In their quest to realise them, many risk their lives making perilous journeys to get to Europe. Others become easy targets for the propaganda of terrorist groups.

The European Union can disrupt these negative trends by stimulating growth and creating jobs in our wider region. European firms employ hundreds of thousands of people around the world, provide many with an opportunity to succeed in their home country, and contribute to addressing one of the root causes of migration.

These investments are sound foreign policy. But for private firms to move to a new country or expand an existing activity, they need security and protection from financial and legal risks, as well as from instability.

This is where the External Investment Plan comes in. Based on a €1.4 billion guarantee from the EU budget, it aims to leverage more than €40 billion in investment in our neighbourhood. That is more than the European Union currently invests in aid worldwide every year. And it could be doubled if our Member States match the EU budget contribution.

The European Fund for Sustainable Development (EFSD) will guarantee private investors against the risk they face when they start a business in developing countries. This guarantee will not only promote single projects but also larger “investment windows” in strategic regions or sectors.

A “one stop shop” will encourage private and institutional investors, from both Europe and our partner countries, to channel their proposals and to gather information on the incentives. The External Investment Plan will provide technical assistance to enhance the quality, the number and the sustainability of projects. The European Commission, the European Investment Bank and other international financial institutions – with the specialist advice of private operators – will work hand in hand to deliver a swift and business-oriented screening of projects.

Implementation on the ground will come with strong backing from the EU and its partners. The European Union can provide global assistance and work to improve the overall business environment in each specific country. Investment will be accompanied by policy dialogues and capacity-building activities. Our action will be coordinated and joined-up, in the spirit of our Global Strategy for foreign and security policy.

The External Investment Plan takes our aid policies to the next level.  As we step up our financial commitment to sustainable development we need the private sector to get on board. We already agreed to do this when we helped broker the Addis Ababa Action Agenda and the Sustainable Development Goals. Together with our partners in Africa and in our neighbourhood we can help young people achieve their potential, while creating new opportunities for European firms. A new chapter in European development policy has just begun, as part of a wider drive to make best use of EU funds, at home and abroad.

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