PROJECTS

JEREMIE, JESSICA CONFERENCE

JEREMIE & JESSICA: Innovative financial instruments in EU Cohesion Policy
Brussels, 22 October 2009

Ladies and Gentlemen,
Dear colleagues,

A conference such as this is, I think, a great opportunity. An opportunity to learn, to compare, to improve and strengthen our support to EU Cohesion policy. It is therefore my great pleasure to welcome you here today to the JEREMIE and JESSICA conference.

Since last year’s conference in Bratislava much has happened. The year was driven by a global financial crisis and economic constraints to which we have responded with the European Economic Recovery Plan and diverse measures at national and regional levels, supported by a considerable increase of the Bank’s lending volume and a considerable increase of JASPERS activities by DG REGIO and EIB. JASPERS is not on the agenda today, a shareholder conference recently took place in Cracow.

The EIB is the Bank of the European Union with its 27 shareholders. The European Investment Bank and its subsidiary, the European Investment Fund, are large providers of financial support for the EU regional and cohesion policies. I will focus today on two of the four initiatives that we have developed with DG Regio seeking to improve the quality and effectiveness of regional support by moving away from traditional grant-based financing towards innovative ways of combining grants and loans.

As you know, the structural fund regulation for the 2007-2013 programming period encourages greater strategic coherence amongst the partners involved in the process, enhanced decentralisation, focus on administrative capacity; and a broader EIB role. Such a role is well in line with the efforts undertaken by the European Commission – our traditional interlocutor - in addition to those by the European Parliament, the Economic and Social Committee, the Committee of Regions, which all have focused their attention on the need to improve the effective functioning of financial aspects of regional policy.

The new structural fund model offers new opportunities for the EIB to deepen its policy-driven approach and to act beyond the scope of traditional bank lending, increasingly serving as a centre of expertise and taking a proactive role in providing technical assistance and innovative financial instruments geared to national and regional authorities.

During the current programming period the importance of operational coordination and management has been widely acknowledged and over the last few years the EIB has developed the “Structured Programme Lending” approach - that is co-financing of entire Operational Programmes, as defined at a Regional or National Level and approved by the Commission. This approach has allowed the EIB to work in close cooperation with the Commission and the Member States to complement the more traditional co-financing approval of individual “large investments”. Last year EIB lending to convergence regions comprised EUR 20.7bn and the figure will increase this year significantly.

Since the launch of the new regulation approach, the EIB group has, together with the Commission, developed a number of initiatives that seek to improve the effectiveness and the quality of the support provided to Member States.  There are four of such J initiatives: JASPERS (Joint Assistance to Support Projects in European Regions), JEREMIE (Joint European Resources for Micro to Medium Enterprises Initiative), JESSICA (Joint European Support for Sustainable Investment in City Areas) and finally JASMINE (Joint Action to Support Micro-Finance Institutions in Europe). The fundamental reason why these four initiatives have been developed is that we realise that the effectiveness of EU interventions in support of regional cohesion could be increased significantly and that it was not just an issue of the amount of money available but also how to put the available money to better use. The four initiatives try to provide smart answers to specific problems that were identified as a clear barrier to a most effective use of funds ear-marked for regional support.

Let me dwell briefly on the JEREMIE and JESSICA initiatives which are the focus of this conference. Both of our “beautiful children” as we nicknamed them are financial engineering instruments in the 2007-2013 programming period which have now become a reality. Both initiatives have now moved into operational mode and are increasingly being incorporated into the operations of the Structural Funds in many Member States. We envisage to see in this financial perspective 50 funds in different regions or states of the EU.

JEREMIE

JEREMIE allows Regional and National Authorities to work with the EIB group, here the EIF, in setting up Holding Fund structures which then channel funding through Financial Intermediaries to micro, Small and Medium sized Enterprises.

But what is the real advantage of JEREMIE? Why have we set up these sophisticated Holding Funds channelling finance through Financial Intermediaries in the regions?

The answer is simple: Through JEREMIE Holding Funds, which may start as a separate account of structural funds, the EIF can offer a balanced mix of tailor made products and services benefiting SMEs - products including loans, guarantees and equity, and services such as  management guidance and project advice. 

In fact, the Holding Fund model provides greater product flexibility therefore allowing regions to re-allocate JEREMIE resources, depending on the actual demand and needs in the regions over the next 7 years. It is to be noted that during this period any proceeds can be reinvested, expanding the number of financial intermediaries receiving structural funds support and consequently providing access to finance to more SMEs. After these 7 years, the idea is such that it is transformed in a revolving fund and the reinvestment continues.

I would even go as far as to say that JEREMIE is revolutionising the whole concept of Structural Funds supported SMEs access to finance: Moving away from grant dependency now means that support for SMEs will have a revolving nature, therefore bringing a more sustainable approach to SME financing. And for the regions which have gone ahead with creating a JEREMIE Fund and managing the structure themselves, the EIF acts as an adviser, providing a wide range of services including due diligence evaluation, second opinions and setting-up of financial vehicles.

JEREMIE allows the EIF to provide a comprehensive fund administration toolkit which helps to facilitate growth, competitiveness, jobs and innovation needed to contribute to reducing disparities across the EU and supporting an effective cohesion policy in the regions.

State of play

So what is the current state of play for JEREMIE? You might remember from last year that the European Investment Fund had signed Memoranda of Understanding with a number of member states and regions (Including Slovakia, Greece, Romania, Bulgaria, Cyprus, French, Spanish and Italian regions). The first JEREMIE Funding Agreements had been signed between the EIF and the governments of Greece, Romania, Latvia and Lithuania.

The EIF has been busy this year. Following the Bratislava Conference in 2008, we signed a Framework agreement in Slovakia and a Funding agreement with Languedoc Roussillon in France and the Italian region of Campania. In addition this year we have already signed two further agreements in Bulgaria and Cyprus.

This means that the European Investment Fund has signed over 1 billion euros worth of agreements with EU regions and members states, helping regional development from the Baltic to Cyprus. Nevertheless in parallel a lot of details and developments of the legal background and interpretation of rules had to be done with a considerable effort and I think this might continue to be work intense also in the future.

So what does this week’s conference seek to achieve: key JEREMIE features and the work don’t stop here. After carrying out over 50 gap analyses to understand market needs across Europe, we are now fully engaged in the implementation stage of the JEREMIE process and we have successfully launched expressions of interest covering a broad variety of products ranging from funded risk sharing to venture capital, tech transfer, business angel networks and guarantees.  I am pleased to say that disbursements are now imminent.

Tomorrow you will hear (market) feedback from Latvian Financial intermediaries who will start making their first investments before the end of this year. The North East of England will also share their thoughts on working with the EIF as an advisor to their JEREMIE structure. In fact, the EIB was able to partly co-finance JEREMIE holding funds thanks to the EIB and the EIF joint effort to structure these holding funds particularly in the UK.

I understand that due to the financial crisis, demand for JEREMIE has increased dramatically. Regions and member states who previously had not signed up to the JEREMIE initiative are coming back and asking us to help. We welcome this interest and the fact that demand is increasing clearly demonstrates the timely benefits JEREMIE can bring to SMEs across the European Union in the wake of the financial crisis. We are fully aware of the effects of the financial crisis on SME financing and will try our best to continue to serve the needs of the regions. However we must underline the importance of designing, implementing and monitoring effective tailor made JEREMIE structures which will add value to the SME finance landscape throughout the European Union.

JESSICA

JESSICA is at the crossroads between two European agendas. The urban agenda, specifically endorsed by the Leipzig Charter on Sustainable Urban Development in 2007, on the one hand - and the development of innovative financial engineering instruments on the other, in order to reinforce the effectiveness of Structural Funds in support of European Cohesion policy. With JESSICA in particular, reimbursable contributions can be used for the first time to support urban projects.   

Cities should be seen not only – as it is often said – as “engines of growth and innovation” for the European economy, but also as policy delivery mechanisms. JESSICA aims to support urban transformation investment in innovative ways, in compliance with European cohesion objectives this is what lies behind the word “sustainable investment in city areas”.

Cities play an important role in the current recession and recovery process. Many have been severely hit, some as financial centres, some as manufacturing area, and in certain cases the recession has affected the inhabitants of deprived districts, which are significant even in wealthier conurbations. City investment can have a central role in the recovery, and accelerate the exit from the recession and into a sound long-term development path. Green investment in cities, which meets the sustainable city agenda in the Leipzig Charter in the long term and may assist in tackling the short to medium-term employment impacts of the recession, is an obvious candidate for support.

The EIB has contributed to the success of JESSICA in many ways. To date, 40 Evaluation Studies have been launched in 18 Member States, 23 of which are now completed. Requests for further studies are anticipated in 2009-2010, with the majority expected to be finalised by 2011. As a result of the above work, interest in adopting JESSICA has grown, with an increasing number of MAs expressing interest in establishing Holding Funds and appointing the Bank for this purpose, as foreseen in the Community regulations. So far, this interest has resulted in the signature of the first six Holding Fund mandates, totalling about EUR 650m, with a further four Holding Fund mandates expected prior to the year end, bringing the total volume of funds under management to more than EUR 1bn.

Prospects for increased asset management volumes and requests for new advisory services are reinforced by the expectation that in the future a higher proportion of European structural funds could be channelled into financial engineering mechanisms such as JESSICA, a possible outcome of the mid-term review of the current structural fund programming period (expected in 2010) and the formulation of the 2014-2020 financial perspectives.

The future of JESSICA is thus moving in the direction of assisting European cohesion objectives by exploiting expertise for urban sustainable development with revolving funds.

Tomorrow you will be able to discuss practical illustrations of JESSICA structures. First seminar will show how concrete JESSICA architectures – with or without Holding Fund - can be implemented, with examples from Portugal, Poland and Germany. The other seminar will deal with JESSICA as a tool for delivering sustainable urban development & energy efficiency and how some of these instruments have been structured in Lithuania, Estonia and the UK (London).

To find ways out of the crisis the implementation of the structural funds money plays a key-role for the New Member States as it provides with roughly 2% GDP each year a significant anti-crisis programme. As we see now the danger that structural funds might not be fully spent, some “JESSICA light” models focussed on Energy Efficiency may help to increase the share of spent funds and the share of sustainable investments. Similar considerations may be valid also for JEREMIE in an appropriate form.

To close my words of introduction, I would like to stress again the EIB’s full commitment to supporting EU regional policy. The emphasis in today and tomorrow’s event is on networking and partnership, on the importance of establishing and maintaining platforms for  learning and exchange of best practice examples, as they emerge while we and our partners strive to meet the challenges of implementing in practice new instruments in a European context. We believe this is a central objective for the EIB Group and for our ability to fulfil – in addition to our long-established functions as providers of long-term finance - the role of a “knowledge bank” for Europe. We do bring to the table financial expertise and sectoral know-how that can certainly be put to good use to enhance the effectiveness of regional policy initiatives.

Ladies and gentlemen - thank you very much for your attention. I wish you a rewarding conference and enriching workshops tomorrow.