The ESPON 2020 Cooperation Programme has recently finalised an applied research project on financial instruments. The ESPON European Grouping of Territorial Cooperation (EGTC) which is responsible for the programme's implementation has released a final report on financial instruments and territorial cohesion. The report features a territorial analysis of the impacts of ESIF financial instruments, primarily in 2007-2013 and includes a synthesis report, a main report and scientific annex and five case studies.
The report describes how the evidence suggests that financial instruments can add value and complement grants in a variety of ways, including:
• generating a legacy that can be re-used in the region; in some countries that have used ESIF financial instruments in the 2000-2006 programming period, this legacy is still being recycled;
• helping generate better quality projects than grants alone, partly because the project promoter or entrepreneur shares the risk;
• addressing a ‘subsidy culture‘ among businesses. Reflecting this, a number of countries are moving away from domestic grant support for SME development;
• providing an important signal to the private sector and sometimes triggering private sector investment that would not have happened otherwise;
• helping develop regional capital markets and business angels; and
• in the specific context of the crisis, financial instruments were valuable in sustaining investment in businesses that could no longer access bank finance.
The analysis of the data in the report highlights the substantial territorial variations in the use of co-financed financial instruments in different countries during the 2007-2013 programming period. Regions within Italy, Belgium, Denmark, the UK and Greece were found to have invested the largest share of Structural Funds in the form of financial instruments.
The study also provided insights from the operation of financial instruments in five case study areas: Lombardia, Mellersta Norrland, Andalucía, Wielkopolskie and Norway (an instrument funded by national resources that was featured to provide a non-EU perspective). The study concludes that in most cases, the financial instruments generated a positive impact in terms of diversification of sources of financing both for enterprises and for urban projects, especially in those regions that suffered from strong financial constraints during the financial crisis. Other positive outcomes observed included the generation of an innovative and entrepreneurial culture in the territory and know-how transfer among the actors involved.
Looking ahead, the study highlights how the use of an ex-ante assessment has been an important innovation that has generally been welcomed by domestic policymakers for giving greater clarity to policy objectives and better insights into funding requirements. However, the report recommends that care should be taken to ensure that regulatory requirements do not undermine policy objectives. For example, managing authorities must balance the need to ensure funds are disbursed through ‘shovel ready’ projects with the need to ensure financial instruments can also support riskier investments that contribute to their wider policy objectives.
Amongst the policy recommendations in the report is a recognition of the importance of policy learning, experience and progressing from simple to more sophisticated financial products. The development of the fi-compass platform is one measure the report notes, that has made significant efforts to increase capacity within the field of financial instruments.
The synthesis of the report concludes by noting that the relationship between financial instruments and territorial cohesion is very much on the current policy agenda. The report observes that managing authorities have broadly welcomed the European Commission’s proposals for financial instruments in 2021-2027 which do not substantially alter the framework for cohesion policy financial instruments and tend in the direction of simplification and continuity.