POLICY
The use of innovative financial instruments offers an alternative to the traditional grant funding associated with the EU budget and can provide an important new financing stream for strategic investments. A key advantage of innovative financial instruments is that they create a multiplier effect for the EU budget by facilitating and attracting other public and private financing of projects of EU interest.
For projects with commercial potential, EU funds can be used in partnership with the private and banking sectors, particularly via the European Investment Bank (EIB), in order to help overcome market imperfections in the financing of projects and activities of strategic interest to the EU and its citizens.
There is potential for the greater use of such instruments to be deployed in support of a wide range of policies. For more than ten years, the EU budget has been using financial instruments such as guarantees and equity investment for SMEs. In the current financial framework, a new generation of financial instruments was put in place in cooperation with the EIB, such as the Risk-Sharing Finance Facility (RSFF) under the 7th R&D Framework Programme or the Loan Guarantee Instrument for TEN-T projects (LGTT). For activities outside the EU, the Global Energy Efficiency and Renewable Energy Fund was set up to provide equity investments in developing countries. In the area of structural funds, financial instruments have been set up to support enterprises, urban development and energy efficiency through revolving funds.
These instruments have been successful but they have been developed in an experimental way. Therefore, as part of the future financial framework, the Commission proposes to introduce a more streamlined and standardised approach to the use of innovative financial instruments, helping to ensure that EU funds are used most effectively to support the policies of the EU.

INSTRUMENTS
A rationalisation of the existing financial instruments is proposed to provide common rules for equity and debt instruments, so that there is an integrated vision of the use of financial instruments at EU and at national/regional level. They will streamline relations with financing partners, in particular the EIB and international financial institutions. They will provide transparency vis-à-vis the markets on how the EU intervenes with equity and debt instruments, ensuring higher visibility of the EU’s interventions.
The Commission proposes a new type of instrument, i.e. the EU project bond initiative which would be used as a means of securing investment resources for infrastructure projects of key strategic European interest. A contribution from the EU budget will be used to support projects through enhancing their credit rating, and thereby attract financing by the EIB, other financial institutions, and private capital market investors. Financial instruments do not imply more risk than grants, as the risk for the EU budget is in all cases strictly limited to the budgetary contribution. The EU budget cannot run a deficit.
In the external field, a specific EU platform for external cooperation and development is under development, combining the respective strengths of the Commission, Member States and European bilateral and multilateral financial institutions (notably the EIB) active in the external cooperation and development field, . The platform will contribute to fostering EU coherence, effectiveness, efficiency and visibility in external financing, while taking account of the specificities of the EU’s external partners.

IMPLEMENTATION
Financial instruments will form part of EU budget interventions in a variety of policy areas, in particular those pursuing the following objectives:
(1)
To foster the capacity of the private sector to deliver growth, job creation and/or innovation: support to start-ups, SMEs, mid-caps, micro-enterprises, knowledge transfer, investment in intellectual property.
(2)
To build infrastructures by making use of Public Private Partnership schemes to reinforce EU competitiveness and sustainability in the transport, energy and ICT sectors.
(3)
To support mechanisms that mobilise private investments to deliver public goods, such as climate and environment protection, in other areas.
The design of the instruments will be guided by the following principles:
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Robust governance arrangements: the debt and equity platforms will have robust governance structures in place to ensure that the EU has effective oversight of the financial operations and investments as well as the achievement of policy objectives.
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Financing through different budget lines: there will not be a specific envelope in the budget for financing such instruments; instead, the financial instruments will be financed through budget lines from the specific policy areas, combined in appropriate instruments providing equity or debt.
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Established as part of the Financial Regulation: the key principles of the two platforms will be embedded in the Financial Regulation, which is currently under review in the Council and the European Parliament. This will contribute significantly to streamlining and standardisation.
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Use of the common rules for equity and debt will be mandatory for internal policies and apply horizontally to instruments across these policy areas. Existing innovative financial instruments will be aligned to the common rules. In the case of cohesion policy, the principle of shared management with Member States will be respected and therefore the EU models will be offered as optional best practice models, coupled with strong incentives for Member States to follow the EU level approach. In external action, a greater share of EU grants (where appropriate through regional investment facilities) will be blended with loans or used in equity or risk-sharing instruments; This will help to mobilise additional funding – including from the private sector – in support of EU priorities and to cover the investment needs of our partner countries. This will be facilitated by the entry into force of the proposed new provisions in the Financial Regulation on financial instruments, and with the establishment of common principles for such instruments to the degree appropriate to the environment of external actions.
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Management by financial institutions: the management and implementation of financial instruments would in general be delegated to the EIB Group, other international financial institutions or public financial institutions where at least one Member State is a shareholder. Management could also be delivered through an investment vehicle structure set up under national law and pooling resources from different public and private sector sources. Further delegation to private financial actors would also be possible.