8. EU aid and incentives

8.1. European Investment Bank (EIB)

The European Investment Bank (EIB) grants funding with a threefold objective: to boost Europe’s potential for growth and employment, to support measures aimed at mitigating climate change, and to foster EU policies in other countries.

On these bases, the EIB funds projects that promote the development of less favored regions and those of common interest to several Member States or benefiting the EU as a whole. They are focused mainly on the following four areas: (i) innovation; (ii) small businesses; (iii) infrastructures, and (iv) climate and the environment.

Additional to the foregoing are projects aiming at promoting and modernizing infrastructure in the health and education sectors may also qualify for EIB support.

The EIB is jointly owned by the EU countries and borrows money on the capital markets. For this reason, the loans it grants for projects that support EU objectives are not considered funded with money coming from the Union budget.

According to information published by the EIB, the total amount of funding contributed by the EIB group in 2019 was €72.2 billion (€63.25 billion from the EIB and €10.23 billion  from the European Investment Fund).⁵

Specifically, the €72.2 billion were allocated to the following objectives:

It is to be noted, in particular, that financing from the EIB in Spain during 2019 amounted to €8.966 billion, making it the country which received the second largest amount of funding from the EIB Group⁶.

Source: EIB

On these bases, the EIB has been offering two types of loans:

8.1.1. Global loans (“Intermediated loans”)

Global loans are similar to the credit lines granted to financial institutions, which subsequently lend the funds to the final beneficiaries, so that they can make small or medium-scale investments meeting the criteria set by the EIB itself.

This is the main instrument with which the EIB provides support for SMEs and MID-CAPs since, by granting loans to banks or other intermediaries, access to funding is provided indirectly to small and medium-scale business initiatives (although there is no reason why loans of this type should not ultimately benefit large companies, local and national authorities and other public sector entities).

The loans are granted by the EIB to banks or other financial institutions in all the Member States, which act as intermediaries. These financial intermediaries conduct an analysis of the investment, and of the economic, technical and financial viability of each of the projects. They are responsible for granting the loans for small and medium-scale investments and for the administration of such loans.

Specifically in Spain, global loans are routed mainly through, inter alia, Instituto de Crédito Oficial (ICO), Banco Bilbao-Vizcaya Argentaria (BBVA), Santander, Bankinter, Sabadell, Banco Cooperativo, Kutxabank, Banca March, Laboral Kutxa, La Caixa, Unicaja, Bankia and Banco Popular.

There are many different types of loans and credits, with varying maturities, amounts and interest rates, but their general terms can be summarized as follows:

• Coverage of up to 50% of the overall investment costs and, in certain cases, up to 100% of the investment with a guarantee from the intermediary bank.
• Grace period: Up to three years.
• Repayment period: To be determined by the financial institution acting as intermediary and the EIB, although it tends to fluctuate between 2 and 15 years.
• Beneficiaries: Local authorities, SMEs (for these purposes, SMEs are deemed to be companies that have less than 250 workers) or MID-CAPs (which have up to 3,000 workers).
• The amount awarded under a global loan may not exceed €12.5 million, including the possibility of working-capital financing.
• Free of fees and other charges, except for minor administrative expenses.

Applications must be filed with financial institutions or other intermediaries.

8.1.2. Loans for individual projects (“Project loans”)

The EIB also grants loans for individual projects with a total investment cost above €25 million.

Although the loans can cover up to 50% of the total cost, on average, they tend to cover approximately only a third.

In general, the following are the main characteristics of these loans:

• Public or private investment projects made mainly in the infrastructure, energy efficiency/renewable energies, transport and urban renewal sectors are considered eligible. Nevertheless, research and innovation programs and , in certain cases, medium -capitalization companies with a maximum of 3,000 employees, can also benefit from this form of loan.
• The projects for which an application for financing is presented must fulfil the objectives set by the EIB and be viable from the economic, financial, technical and environmental perspectives. The terms of the financing depend on the type of investment and on the guarantees provided by third parties (banks or banking consortia, other financial institutions or the parent company).
• The loans may cover up to 50% of the total cost of the fundable project; in general, however, the average of the loans granted tend to cover only a third of such cost.
• The interest rate may be fixed, variable, reviewable or convertible (meaning that the calculation formula may be changed during the term of the loan, on certain pre-established dates).
• In some cases, the EIB can apply project evaluation or legal analysis fees, and commitment or non-use fees.
• Most of the loans made by the Bank are denominated in euros (EUR), although they can also operate in other currencies, such as GBP, USD, JPY, SEK, DKK, CHF, PLN, CZK and HUF, among others.
• As a general rule, these loans are repaid in half-yearly or yearly instalments. Grace periods may be granted with respect to the repayment of principal throughout the construction period of the project.
• Operating scheme:
  
  Source: https://www.eib.org/en/projects/cycle/index.htm

Lastly, an essential role is being played by the EIB in starting up the European Fund for Strategic Investments (EFSI).

The EFSI was created by the European Commission to help meet the objective of mobilizing at least €315 billion in new investments during the 2015-2017 period. Nevertheless, in September 2016, the European Council began to work on a new proposal aimed at extending the EFSI, so as to increase its funding, and bringing the total investment to €500 billion. In fact, Given the success of the EFSI, President Juncker, in his 2016 State of the Union speech, presented a proposal to extend its term and its capacity as an additional boost to investment through the so-called “EFSI 2.0”. Regulations (EU) 2017/2392 and (EU) 2015/1017 were approved for such purpose, referring to the extension of the term of the European Fund For Strategic Investments and the introduction of better techniques for this Fund and for the European Investment Advisory Hub, with an investment goal of €500,000 million and an extension of the initial period (2015-2017) for a further three years, i.e., through 2020.

The objectives pursued with this extension and enhancement of the EFSI were: (i) to offer greater transparency; (ii) to use most of the financing for sustainable projects; (iii) to pay greater attention to small projects; (iv) to improve technical support at local level; and (v) to enhance the business environment of the European Union.

In order to meet the objectives pursued with the extension and enhancement of the EFSI, the Commission promoted the creation of the figure of the national development bank so that, together with the European Investment Bank and private investors, such banks make an effort, based on their supplementary nature, which makes it possible to reach the objective of the European Investment Plan. In this connection, Spain made available to the ICO, as the as the Spanish national development bank, €1.5 billion for projects that receive financing from the EFSI⁷.

In Spain the total funding from the European Fund for Strategic Investments (EFSI) amounts to €10.4 billion  and is expected to generate additional investments for an amount of €51.1 billion⁸.

More than 111 infrastructure and innovation projects have been approved, funded by the European Investment Bank with the backing of the EFSI.

In connection with small and medium-sized enterprises, 31 agreements have been executed with intermediary banks, funded by the EIF with the backing of the EFSI.

In this context and with a view to preparing the new Community budgetary framework (2021-2017), the Commission is proposing to build on the success of the EFSI model and benefitting from economies of scale by merging all instruments currently available to foster investment in the EU.

In fact, in June 2018 it proposed creating the “InvestEU” programme to bring EU budget financing in the form of loans and guarantees under one roof.⁹

According to the proposal, the EU budget would provide a €38 billion guarantee to support strategically important projects across the EU. By crowding in public and private investments, the Commission expects the “InvestEU” Fund to trigger more than €650 billion in additional investment across the EU between 2021 and 2027.

InvestEU is intended to support four policy areas:

• Sustainable infrastructure.
• Research, innovation and digitalization.
• Small and medium-sized businesses.
• Social investment and skills.

Lastly, in order to confront the serious economic consequences caused for EU Member States by the paralysis of activity due to the COVIC-19 public health crisis, the EIB Group (made up of the EIB and the European Investment Fund –or EIF, to which we refer below-) has established a €25 billion guarantee fund to deploy new investments with which to respond rapidly to this situation.¹⁰