COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(93) 577 final 
Brusels, 16 November 1993 
Proposal for a 
COUNCIL DECISION 
on the provision of Community interest subsidies on loans for SMEs 
extended by the ElB under its temporary lending facility 
(presented by the Commission) 
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EXPLANATORY MEMORANDUM 
A INTRODUCTION 
The European Council in Copenhagen decided on a number of imporum measures to be 
launched in the context of the promotion of economic growth and competitiveness and the 
fight against unemployment Some of these measures are destined to produce their effects in 
the short term, notably the EIB temporary lending facility decided in Edinburgh, which is now 
to be extended to SMEs with the added benefit of interest subsidies. The present 
communication outlines the objectives and the functioning of this extension The Council is 
invited to adopt the decision proposed at annex 
B. DESCRIPTION 
The European Council in Edinburgh in December 1992 invited the European Investment Bank 
to establish a temporary lending facility of ECU 5 billion, notably for transeuropean network 
projects. In contrast to the EIB's usual lending ceiling, which limits its involvement to 50% 
of total project cost, projects financed under this facility can borrow up to 75% of their 
financing requirements from the Bank. In view of the large take-up of EIB loans under this 
window (more than ECU 3.45 billion approved so far), the European Council in Copenhagen 
decided to raise the ceiling to ECU 8 billion and extend its duration beyond 1994. 
The benefit of the Edinburgh Facility has now also been extended to SMEs, as ECU I billion 
of the total increase will be allocated in their favour In addition, the Ecofin Council is invited 
to examine how the SME loans could benefit from interest rate subsidies up to a maximum 
of 3% over 5 years; this subsidy would be linked to the creation of employment; the European 
Council also indicated its intention to review the SME ceiling at its meeting in December in 
the light of its utiljjfjie:^ The European Council held in Brussels on 29 October called upon 
thpj7'^*'~ ^rCûfîci 1 to ensure that the interest subsidy mechanism for SMEs is set up in 
.-vurdance with the guidelines adopted by the Copenhagen European Council 
c IMPLEMENTATION /•' 
Both the Commission and the E?P 'tvill take the necessary steps to implement the SME facility 
as soon as possible. Ar/'ar as the Bank is concerned, the necessary measures will have to be 
approved by its Boarri-of Directors before subsequent submission to its Board of Governors 
The SME facility decided in Copenhagen (ECU 1 billion of loans, subsidized up to 3% over 
a period of 5 years) will be financed by 3 budgetary appropriations (1994, 1995, 1996) of 
ECU 45.5 million each (on the basis of the discounted value of the interest rebates) within the 
ceilings of the new financial perspectives. First loan contracts under the facility could be 
entered into already in early 1994, once the necessary legal base exists, while the facility 
could be largely taken up in the course of 1994 The Facility would be managed by the LIB 
under a cooperation agreement with the Commission. 
A specific legal base (see the annexed proposal for a Council Decision) will be required uno 
Article 235 for the extension of interest subsidies to SME loans Budgetary cover for i' 
interest subsidies on ECU i billion of loans will be provided from provisions IU'JLI cat ego 
HI of the financial perspectives. Coherence with other Community instruments will be ensur*-
D. THE ROLE OF FINANCIAL INTERMEDIARIES 
A.s the EIB loans to SMEs are handled via financial intermediaries through global lendiet-
mechanisms, the EIB's already existing network with these institutions will be used ae a 
channel for the Community's support, without excluding other intermediaries specialized in 
SME financing Besides the appraisal and monitoring of the loans, the role of these institutions 
is also typically to provide complementary funds (i.e. the part of project cost which is not 
covered by the EIB) as well as cover for the repayment risk associated with the funds 
provided by the EIB. 
Financial intermediaries thus have a key role to play in the operation of the Facility, whose 
objective consists in stimulating investment by SMEs through this substantial reduction in their 
cost of funds. Through specific agreements with the intermediaries as well as by the 
competitive environment resulting from the wide availability of the SME facility, the 
Commission and EIB will ensure that the benefit of the Community subsidies entirely flows 
to the intended beneficiaries, i.e. the SMEs. 
E. THE CREATION OF EMPLOYMENT 
The link with the création of employment constitutes an important component of the SME 
facility. The criteria to be used will be decided in agreement between the Commission and the 
EIB. An administrative follow-up oo the observance of employment creation and other leading 
conditions will be necessary. 
Proposal for a 
COUNCIL DECISION 
on the provision of Community interest subsidies on loans for SMEs 
extended by the EIB under its temporary lending facility 
THE COUNCIL OF THE EUROPEAN UNION, 
Having regard to the Treaty establishing the European Community, and in particular 
Article 235 thereof, 
Having regard to the proposal by the Commission"\ 
Having regard to the opinion of the Parliament^, 
Whereas the European Council meeting on 11 and 12 December 1992 in Edinburgh invited 
the European Investment Bank (EIB) to give urgent and sympathetic consideration to the 
establishment of a new, temporary lending facility of ECU 5 billion within the EIB, in order 
to accelerate the financing of capital infrastructure projects notably connected with trans-
European networks (TENs), and whereas the Board of Governors of the EIB decided to create 
this facility on 10 February 1993; 
Whereas the European Council meeting on 21 and 22 June 1993 in Copenhagen invited the 
EIB to increase this facility by ECU 3 billion and to extend its duration beyond 1994, and 
whereas ECU 1 billion of this increase will be allocated for the strengthening of the 
competitiveness of European small and medium-sized enterprises (the SME Facility); 
Whereas the European Council meeting in Copenhagen also invited the Council (ECO/FIN) 
to examine how the part available for SMEs could benefit from interest rate subsidies up to 
a maximum of 3 percentage points over 5 years, while the interest subsidy would be linked 
to employment creation and would be funded within existing financial perspectives; and 
whereas the European Council meeting in Brussels on 29 October 1993 called upon the Ecofin 
Council to ensure that an interest rate subsidy mechanism for SMEs is set up in accordance 
with the guidelines adopted by the Copenhagen European Council; 
Whereas the present action would be part of the Community intiative to stimulate economic 
growth, and whereas the Edinburgh European Council has recognized the importance of SMEs 
for creating employment and stimulating growth; 
Whereas on 28 July 1989 the Council adopted Decision 89/490/EEC on the improvement of 
the business environment and the promotion of the development of enterprises, and in 
particular small and medium-sized enterprises, in the Community (3), and whereas that 
Decision has been revised by Decision 91/3 I9/EEC<4); 
(i) 
(2) 
0) OJ No L 239, 16.8.1989, p. 33. 
(4) OJ NoL 175, 4.7.1991, p. 32. 
Whereas, by resolution of 17 June I992(5), the Council recommended that ihe Commissi->!: 
pursue the necessary action contributing \o a favourable business environment, notably for 
SMEs; 
Whereas on 14 June 1993 the Council adopted Decision 93/379/EEC on a multiannuai 
programme of Community measures to intensify the priority areas and to ensure the continuity 
and consolidation of policy for enterprise, in particular SMFX in the Community'0', 
Whereas the SME Facility should be made available throughout the Community and be 
implemented as soon as possible; 
Whereas the SME Facility should be used, where appropriate, in conjunction with other 
relevant Community financial instruments; 
Whereas the EIB has indicated its willingness to participate in the implementation of this 
Decision; 
Whereas the EIB and the Commission should enter into a cooperation agreement on the 
implementation of the facility; 
Whereas the Treaty does not provide specific powers of action for the adoption of this 
Decision other than those contained in Article 235, 
HAS DECIDED AS FOLLOWS: 
Article 1 
The Community shall provide subsidies for the purpose of lowering the interest rate on EIB 
loans to SMEs in the Community for a total amount of ECU 1 billion in principal These 
loans shall be extended by the Bank under the terms and conditions applying to the loans 
stemming from the temporary facility, which was originally established by the Board of 
Governors of the Bank on 10 February 1993 and further extended by the Board on ... The 
benefit of these subsidies shall be restricted to investment projects involving the creation of 
employment. 
The Community interest subsidies shall be fixed at 300 basis points and shall be extended to 
the beneficiaries of the loans for a maximum period of 5 years 
Article 2 
The SME Facility shall be administered by the EIB on behalf of the Community, whilst 
exercising the same diligence as for the operations carried out with its own resources The 
detailed rules concerning the implementation of this Decision shall be set out in a cooperation 
agreement between the Commission and the EIB. 
(5) OJ NoC 178, 15.7.1992, p. 8. 
(6) OJ No L 161, 2.7.1993, p. 68. 
Article 3 
The Commission shall inform the Council and the Parliament annually on the implementation 
of this Decision, indicating the overall utilization of the SME Facility in the Community as 
well as the impact on the creation of employment and on the interest rates for the investments 
by SMEs covered by the SME Facility, on the basis of the necessary information made 
available by the EIB. A first report shall be presented before 10 December 1993. 
Done at Brusels, For the Council 
The President 
FINANCIAL STATEMENT 
1. TITLE OF OPERATION 
The SME Facility. 
2. BUDGET HEADING INVOLVED 
Section III (Commission), Part B (Operating appropriations), 
Article B5 - 322 
This line is to be created 
3. LEGAL BASIS 
To be created by the proposed Decision, on the basis of Article 235 of the Treaty 
4. DESCRIPTION OF OPERATION 
4.1 Specific objectives of operation: the European Council in Copenhagen decided on the 
extension of interest subsidies on EIB loans to SMEs, to be extended under its temporary 
lending facility. 
4.2 Duration: ECU I billion of EIB loans, subsidized as a result of this Decision, will be 
made available until fully taken up. The interest subsidies will be paid to the final 
beneficiaries for up to five years, while the total budgetary cover will be allocated over 
three budgetary years. 
5. CLASSIFICATION OF EXPENDITURE 
5.1 Non-compulsory expenditure 
5.2 Differentiated appropriations 
5 3 Type of revenue involved: none 
6. TYPE OF EXPENDITURE OR REVENUES 
The expenditure will take the form of interest subsidies, corresponding to 300 basis points, 
on ECU I billion of loans extended by the EIB to SMEs. 
7. FINANCIAL IMPACT 
7.1 Method of calculating total cost 
Total cost is estimated at ECU 136.5 million (taking account of the fact that the 
interest subsidy payments will be transferred to the Bank on a present value basis) 
"I 2 Distribution of costs (in current appropriations) 
Interest 
subsidies Budget 1994 
ECU 45.5 
million Budget 1995 
ECU 45.5 
million Budget 1996 
ECU 45.5 
million Total 
ECU 136.5 
million 
7.3 Indicative schedule of appropriations 
7.3.1 Schedule for proposed new action 
Appropriations 
for 
commitments 
Appropriations 
for payments 1994 
45.5 
45.5 1995 
455 
45.5 1996 
45.5 
45.5 Total 
136.5 
136.5 
(current appropriations; in ECU million) 
8. ANTI-FRAUD MEASURES 
Both the appraisal, monitoring and administration of the loans will be carried out by 
financial intermediaries under supervision of the EIB. The intermediaries have an interest 
in the succesful conclusion of the lending operation as they cover the repayment risk of 
the loans provided by the EIB In addition, an administrative follow-up will be 
implemented so as to verify the conditions regarding the creation of employment by the 
beneficiary of the loan (and of the subsidy). 
9. ELEMENTS OF COST-EFFECTIVENESS ANALYSIS 
9.1 Specific objectives 
The proposed operation will foster and accelerate the implementation of investment 
programmes by SMEs because of the availability of a substantial volume of financial 
resources at favourable interest rates. These investments will strengthen the 
competitivenes and profitability prospects of SMEs and contribute to economic 
growth. In addition, the proposed action will be targeted towards investment 
programmes leading to the creation of employment; 
Target population: SMEs creating employment. 
9.2 Justification of the action 
By lowering the cost of funding through budgetary support, an important incentive 
is provided to SMEs to consider additional investments, specifically when linked to 
the creation of jobs. In view of the declining growth perspectives within the 
Community, renewed impetus in the field of productive investment, notably by 
SMEs, is of primary importance 
Choice of modalities: the extension of interest subsidies by the Community will be 
linked to the global lending mechanisms of the EIB. This not only offers the 
advantage of channelling Community aid through a well-established mechanism of 
proven value, but also allows for close cooperation with the financial intermediaries 
throughout the Community 
9.3 Monitoring and evaluation of the operation 
The following elements will be considered when evaluating the overall effectiveness 
of the proposed action: 
the overall take-up of the SME Facility; 
the aggregate volume of investment realized in the context of the present action 
(the individual loans provided by the EIB in the context of the SME facility will 
only cover part of the total project cost of each investment, other funds being 
provided by the financial intermediary or by the project promotor himself); 
the overall amount of employment created as a result of the facility; 
etc. 
These elements will be made available regularly to the budget authority. Possible 
extensions of the action will be examined in the light of the results achieved (see. 
Copenhagen conclusions). 
10. ADMINISTRATIVE EXPENDITURE 
The proposed operation will not involve any increase in the number of Commission staff or 
administrative expenditure as the management of the SME Facility will be done by the EIB 
under a cooperation agreement with the Commission. 
ISSN 0254-1475 
COM(93) 577 final 
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