Danish comments on the Europe 2020 Project Bond Initiative

Denmark supports the effort to seek alternative ways to leverage and make mostefficient use of the EU budget so as to achieve more value for money. Certainly ina time where public budgets face constraints it makes good sense to exploit otherpossible ways of financing EU projects as an alternative to pure budget financing.Denmark therefore welcomes the Commission’s reflections.

Financial instrument in general

The Danish Government has two main reflections in relation to new financialinstruments. Firstly, the new financial instruments should in general helpreplacepart of the financing of the coming budgets and notsupplementthese. Second, newfinancial instruments should not unnecessarily expose public funds to risks – in-cluding funds from the EU budget. Risk exposure should always be limited to aminimum.Any new financial instruments - including the Project Bond Initiative – should beassessed in this context.In light of the discussion concerning financial instruments Denmark welcomes theCommission’s general principles for financial instruments and projects below.Only projects that have undergone an analysis which clearly point at a sub-optional investment situation – such as market failure, high innovation risk –should be considered.Projects financed through EU financial instruments must ensure EU valueadded and be clearly motivated as opposed to an intervention at na-tional/regional level.EU financial instruments shall create a multiplying effect by mobilising in-vestments several times the EU commitment.Financial instrument operations – such as procedures for budgeting, awardingfunds, implementation etc – shall be fully transparent.A legislative or delegated act shall insure harmonization and simplification ofall financial instruments.Financial instruments with great similarities in their targeted policy area andproduct shall be integrated.The EU will ensure to restrict risk exposure by preventing that liabilities –generated by the financial instrument – exceed the limit of the budget contri-bution.Financial instruments shall be flexible so that they can respond to market con-ditions.The management and implementation of financial instruments will in generalbe delegated to the EIB Group, other international financial institutions orpublic financial institutions.

Denmark does not support the approach, where generated revenues from the in-vestments (reflows) are reused for further investments. Denmark believes thatsuch an approach blur the transparency (as it becomes complicated for memberstates to follow how revenues are invested).Denmark supports the idea of replacing EU intervention – in cases where the pri-vate sector is direct beneficiary and in infrastructure projects with a user paymentschemes – with financial instruments. Denmark finds it important to continuedeveloping this idea to extend it to include other sectors.

Streamlining financial instruments

There is currently a certain fragmentation of instruments with considerable over-laps in regards of projects and beneficiary groups targeted. Before any new meas-ures or instruments are introduced it is relevant to examine whether existing in-struments can be adjusted to cover new identified needs, and – if need be -whether a possible new initiative can replace some of the already existing instru-ments.Denmark therefore calls for a thorough examination, which must form the basisof a concentrated effort to eliminate overlaps, so as to use possible new instru-ments such as Project Bonds as a substitute to existing financial instrumentsrather than a complement.

Specifics on Project Bonds

Specifically concerning Project Bonds, Denmark remains however sceptical to-wards a number of elements:Denmark believes that the initiative shall be used as a means of replacing budgetinterventions and shall not contribute to an increased infrastructure budget. Thisalso means that a project which cannot attract the expected financing throughproject bonds do not automatically have access to other financing.The risks taken by EU and EIB shall be clearly identified and fenced. Denmarkfinds it crucial that the EU budget is not exposed to greater risks than what haspolitically been estimated to be appropriate. Based on this a more detailed estima-tion over risk evaluations are called for including more details about diversifica-tion and other measures of reducing risks.It is essential to Denmark that the Project Bond initiative as well as other financialinstruments are fully transparent to all member states, making it possible for themto follow the further development of the instrument. In addition the administra-tive cost for the Commission and the user should be clearly and transparently de-fined and kept at a level comparable to the actual leverage impactIn regard to the Commission’s estimated infrastructure investment needs (be-tween 1500 and 2000 billion euro) Denmark calls for a more detailed analysis andprioritization of these needs.