Tackling Europe’s infrastructure needs: the European Fund for Strategic Investments

Abstract This paper focuses on Europe's response to the slow pace of recovery following the 2008 economic crisis. There was a 15% decline in investment in key economic sectors, including strategic infrastructure. Potentially good but higher risk projects were struggling to find investment. Money was available in the system, but economic uncertainty was stopping investors from taking risk. To address this market failure, the European Union (EU) developed an Investment Plan for Europe (IPE), popularly referred to as the Juncker Plan.1 The IPE comprises a three-pronged strategy the key pillar of which is the establishment of a guarantee fund, the European Fund for Strategic Investment (EFSI). EFSI is designed to overcome the perceived market failure by mitigating project risk and mobilising private investment to address market gaps.2 It is a simple but powerful financial instrument that seeks to put investment capital back to work and exploit the opportunity to address Europe's infrastructure needs while borrowing costs are low and liquidity relatively plentiful for eligible projects. The paper discusses the theory behind the policy, how it contributes to delivery of the EU's commitment to sustainable development as embodied in its 2020 Strategy, and whether it is supported by academic economic consensus.