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
Date: 1993-10-16
Institutions: European Commission
Subjects: European Investment Bank, aid to undertakings, competitiveness, interest rate subsidy, job creation, small and medium-sized enterprises

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  N oC  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) 

Budget  1994 

Budget  1995 

Budget  1996 

Total 

Interest 
subsidies 

ECU  45.5 
million 

ECU  45.5 
million 

ECU  45.5 
million 

ECU  136.5 
million 

7.3  Indicative  schedule  of  appropriations 

7.3.1 

Schedule  for  proposed  new  action 

1994 

1995 

1996 

Total 

Appropriations 
for 
commitments 

Appropriations 
for  payments 

45.5 

45.5 

455 

45.5 

45.5 

45.5 

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 
In  addition,  an  administrative  follow-up  will  be 
the  loans  provided  by  the  EIB 
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 
In  view  of  the  declining  growth  perspectives  within  the 
the  creation  of  jobs. 
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 

DOCUMENTS 

EN 

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Catalogue number  : CB-CO-93-615-EN-C 

ISBN 92-77-61521-4 

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