Episode 1: Simplification

This is Calling the tune, a new fi-compass podcast series on financial instruments under the new Common Provisions Regulation. My name is Chiara Continenza, from the fi-compass team at EIB. “The height of sophistication is simplicity” wrote playwright and diplomat, Clare Boothe Luce in the 1930s. Simplicity or simplification is a key feature of the new CPR. Today, I am joined by Oana Dordain, and Ieva Zālīte from DG REGIO to discuss the new regulation and how it affects financial instruments. Oana, Ieva welcome.

Oana: We are very pleased to be here.

Ieva: Hello to our listeners!

So, Oana, in the introduction to the new Regulation, it is stated that “administrative simplification is a key objective“. Why is simplification so important and how has it been achieved in your opinion? Is the new Regulation really making things easier in relation to financial instruments?

Oana: Yes, the simplification is very important. It is important because the funds, the public support, has to arrive quickly in the real economy. For financial instruments, it is even more important because we need to attract private investors to co-invest along our funds. So the simplification was the purpose of this legislative framework. Even if the Commission speaks each time about simplification, I think that this time we really made it. We tried to entrust more the National Authorities to choose the best options for the use of their funds. In the legislative process, from the beginning, we have been listening all the time to the external stakeholders to be able to take on board their concerns and to issue a real simplification in the legal framework.

And, Oana, the Regulation is certainly less detailed in terms of its requirements. Was this deliberate? Do you intend to supplement the Regulation with additional delegated legislation and guidance?

Oana: It was deliberate to have less legal requirements. We wanted to just set the general framework and to give freedom to the National Authorities to set up the financial instruments, which are best suited for their regional or national needs. We were told during the legislative process that it is too nice to be true, and that for sure the Commission had hid something in the legislative provisions.

We tried to reassure the Member States, but we did not manage, because some of the provisions, which are in the current legal framework, came back into the legislative process. We are not intending to issue any delegated legislation and we do not intend to issue guidance, but we are happy to help Member States and to provide bilateral support, and to reply to questions.

That is very interesting indeed, and I am sure our listeners will find it useful to reach out to you in case they have further questions on this. Now, Ieva, what do you think are the most important features of the new Regulation that were simplified?

Ieva: The most important simplification is that we have a more streamlined ex-ante assessment with fewer requirements, but that at the same time focuses on developing the investment strategy for financial instruments. Even more, Managing Authorities have this possibility to update or use existing ex-ante assessments so they do not have to start this exercise all over again for the next programming period. I think there are also more flexibilities and more possibilities for combination of grants and financial instruments in one financial instruments operation, which also follow financial instruments rules. Payments from the Commission to the Managing Authorities are significantly simplified. We will only have one advance and subsequent payment claims will be based on eligible expenditure. I think also that provisions on eligibility are much shorter and much clearer. We also did a big effort in relation to the reporting requirements, which are now much more streamlined and simplified with those of grants. 

Now, Ieva this is really interesting and I’m sure our listeners will find this entire podcast series which touches upon many of the topics you just mentioned, very useful. And now, another new feature in 2021, Ieva is InvestEU. It is clearly an important consideration for managing authorities that are developing their programmes right now. How do you see InvestEU and shared management funds financial instruments working together?

Ieva: From our perspective, here in DG REGIO, we see that the market for repayable support is large enough to accommodate both InvestEU and shared management financial instruments. Our financial instruments can be used to design more tailored solutions, whereas support under InvestEU may intervene and channel more generic support. For example, where there is a lack for general financing for SMEs. InvestEU and shared management financial instruments intervene in the same policy areas which is good news, and they are almost 100% identical. We see a lot of complementarity for the two forms of support.
In short, we wish that the Member States continue with shared management financial instruments and they consider also a contribution to InvestEU. 

Well, we are all looking forward to more use of financial instruments in the next programming period for sure. Oana, I know you are currently negotiating the programmes with Member States? What has been the impact of the parallel implementation of the Recovery and Resilience Facility, the so-called RRF? What role will financial instruments’ play in the 2021-2027 programming period?

Oana: Financial instruments are an affective mechanism to implement the EU budget, and at each programming period, the Commission expects to use more and more financial instruments, and we expect the same for the future. I would like to give you some evidence from the current programming period. We were afraid that financial instruments would be crowded out by easier grants, as it was possible in the context of the crisis to give grants for working capital, and we are very pleased to see that the opposite happened. The share of financial instruments in the allocations for the current programmes increased from 7% to 8%, which for this late stage of the period, given that most of the operations had already been selected, is really impressive. We also saw that the support in the form of financial instruments is more than double than what it is to be spent for grants. It amounts to EUR 4.7 billion, compared to EUR 2.3 billion for grants. So this proves that financial instruments are an effective mechanism also in crisis times. 

Finally, a question to both of you: what would be your one piece of advice to our listeners about using financial instruments under the new rules? 

Ieva: My advice would be not to be afraid of financial instruments. They are a smart way of using public resources when implementing our programmes and delivering policy objectives. They are also an opportunity to benefit from the private sector competence and I think they offer the possibility to venture into sectors, which are traditionally intended for grants support. 

Oana: My advice would be to start now to set up financial instruments for tomorrow. It is possible to do it now, even with funds from ReactEU or from normal programming and you will have the legal basis to continue these financial instruments with the new budget in the new programming period.