Fears about the Eurozone crisis were at the forefront of minds when industry professionals gathered one year ago at Infrastructure Investor’s European fund management roundtable. “The fact that there is an open discussion that countries could leave the Eurozone is very difficult. If Italy and Spain leave, there is a serious problem,” was a typically downbeat assessment of a Eurozone still apparently at risk of impending doom.
At this week’s equivalent event one year on, it was therefore striking how much optimism there was that the Eurozone now has a relatively solid basis on which to proceed (see p.16). Citing such developments as the establishment of the European Stability Mechanism, the European Central Bank’s bond-buying initiative and the move to create a full banking union within the Eurozone, words heard around the table this year included “firm footing” and “growth”. Last year, the more popular words included “contagion” and “rescue”.
This positive sentiment – as long as it’s effectively transmitted around the globe – is useful to European infrastructure fund managers on the fundraising trail. After all, we’ve heard the tales about North American and Asian investors being scared off by the perceived level of political risk in Europe. Perhaps some of this anxiety will slowly but surely begin to dissipate.
Another reason why Europe’s infrastructure investment community should be celebrating signs of a shift from crisis to growth is that infrastructure is seen by the powers-that-be as a way to help kick-start recovery. One indicator of this is the €230 million that the European Commission (EC) has committed to a project bond credit-enhancement initiative with the European Investment Bank (EIB), designed to catalyse up to €4.4 billion worth of infrastructure deals.
The celebrations may have become a little muted recently, however, as UK Prime Minister David Cameron said bluntly that the European Union (EU) budget for the years 2014 to 2020 should be frozen at current levels or even reduced – a far cry from EC proposals for a €100 billion increase.
Those in favour of such a freeze or cut would point out, not necessarily unreasonably, that more should be done to address the EU’s central administration costs before any extra cash is stumped up to bankroll grand schemes. But what greenfield investors fear is that one of the first victims of any budgetary pressure will be cash for infrastructure projects – support for which may turn out to be rather more fragile than it appears at first glance.
Indeed, there was cause for investor unease as the pilot phase for the EC/EIB project bond initiative was launched in early November. EIB officials seemed very keen to stress that, unless the scheme shows results over the next 18 months, it is probable that the planned full roll-out of the scheme in 2014 will not materialise. Given that any subsequent money would come from the EU’s “Connecting Europe Facility”, and forms part of the EU budget, it’s no surprise that this note of caution is now being sounded.
Trimming the EU budget may sound like a good idea to some. To Europe’s infrastructure investors, hoping the likes of the EC/EIB push will help stimulate flagging deal flow, it probably sounds more like a threat.