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Are the European Union’s public investment funds helpful to small businesses—or are they a hindrance? This article takes a look.

In recent years, the world economy has been suffering from low levels of investment. Small- to medium-sized businesses (SME’s) in the European Union have struggled to fully recover. Accordingly, there has been a persistent lack of long-term investment.


The Vienna Institute for International Economic Studies reports that a significant reason for slow growth in the EU economy is that the public sector is “limiting itself.”

In other words, the lack of an expansive economic policy weakens Europe’s weight in the global economy. The European Commission recognized that only a major effort would put Europe on the path to economic recovery. In response, they implemented an Investment Plan to help remedy the “investment gap.”

This plan now boosts public funds investments (PFI). According to the European Investment Bank (EIB), this is a three-pillar strategy. It includes a European Fund Strategic Investment (EFSI). It also improves regulations and supports investment through the European Investment Advisory Hub and the EU Investment Project Portal.

What Is the EFSI?

Europe’s Investment Plan has transformed the economic fortunes of thousands of small businesses across the continent since 2015.

The principal investment vehicle is the European Fund for Strategic Investments (EFSI). Its purpose is to support higher-risk, higher-return projects that would otherwise struggle to find financing.

With an overall goal to boost competitive markets that support long-term economic growth, the fund aims at spurring public funding with a view toward mobilizing private investment over a wide range of projects from all over the globe.

Investors engaging with the EFSI are given a safeguard, because the EIB supports riskier ventures. However, a spokesperson for the EIB explained the guarantee does not apply to the entire portfolio, but only to “what could go bust,” which is typically a minimal amount.

Common Issues with Public Funding

Although the EFSI has reportedly benefited close to 100,000 SME’s, the challenges are much broader than financing investments.

Key constraints are dependent on how governments manage public funding. The second and third pillars of the Investment Plan deal with regulatory environments. These have been slow to keep up with investment funds in the public sector.

As a result, there is still a high level of uncertainty around public investment funds. One of the reasons for this is that PFI’s don’t have the same measure of protection as private investments, which value an asset at more or less than the expected value.

Treating risk on a small percentage of a portfolio typically results in an overvaluation of assets, whereby private investors yield higher returns.

The EU Foreign Investment Screening Regulation passed in 2019 and will become effective on October 11, 2020. This new regulation creates a mandatory requirement to share information between the Member States and comment on foreign investments.

While the screening regime strengthens foreign investment, it makes registration and tax complications so difficult for small business owners to navigate that predicting the timing of transactions is a challenge.

Seeking Legal Specialists

It is clear that public resources are best leveraged by providing investment opportunities in the public sector worldwide. However, common issues with PFI pose problems that threaten to hinder economic growth.

Business owners and investors looking for opportunities within the EFIS framework should consult legal specialists who are experienced with handling public funding investments.

The complications erected by regulation are required to prevent fraudulent activity and protect economic growth. However, at the same time, they can hinder parties looking to take advantage of the benefits proposed by Europe’s Investment Plan.