CELEX: 51993PC0577
Language: en
Date: 1993-10-16
Title: 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

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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 ---pagebreak---                                  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
   thpj 7 '^*'~ ^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.
 ---pagebreak--- 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.
 ---pagebreak---                                         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.
 ---pagebreak--- 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 o C 178, 15.7.1992, p. 8.
(6)
     OJ No L 161, 2.7.1993, p. 68.
 ---pagebreak---                                            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
 ---pagebreak---                                 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)
 ---pagebreak---      "I 2 Distribution of costs (in current appropriations)
                     Budget 1994        Budget 1995        Budget 1996          Total
  Interest           ECU 45.5           ECU 45.5           ECU 45.5          ECU 136.5
  subsidies          million            million            million           million
     7.3 Indicative schedule of appropriations
          7.3.1    Schedule for proposed new action
                          1994               1995               1996             Total
   Appropriations
  for
  commitments             45.5               455                45.5            136.5
   Appropriations
  for payments            45.5               45.5               45.5            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.
 ---pagebreak---     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.
 ---pagebreak---                                                                      ISSN 0254-1475
                                                              COM(93) 577 final
                                                      DOCUMENTS
EN                                                                         10 oi
                                 Catalogue number : CB-CO-93-615-EN-C
                                                             ISBN 92-77-61521-4
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