This chapter is devoted to the various financing opportunities offered from European financial resources, widely known as ”European Funds”. The funding made available by the various European Institutions is always allocated under a European policy, and the funds represent de facto the actual instruments aimed at implementing the relevant policy by providing the necessary financial resources for the accomplishment of the policy objectives.
The overarching policy which lays the foundation for allocation of financial resources at the level of the European Union is the EU Cohesion Policy. The Cohesion policy contributes to strengthening economic, social and territorial cohesion in the European Union. It aims to correct imbalances between countries and regions.
The objective of the Cohesion Policy is to support the member states of the European Union in promoting economic development, reducing unemployment and improving the competitiveness of national territories and the European Union as a whole.
In line with the Cohesion Policy’s objectives, a complex architecture of European policies has been defined – such as the Regional Development Policy, European Social Policy, Digital Policy, Sustainable Development Policy (Energy, Environment and Transport fields) Common Agricultural Policy and others, with their corresponding instruments – the Regional Fund, Cohesion Fund, Social Fund and so on. All the aid distributed through European Funds to beneficiary countries is provided by way of non-reimbursable funds (grants). However, co-financing and pre-financing by recipient countries is a requirement.
Even though the European funds are non-reimbursable, the Member States receiving them may disburse them by way of grants, reimbursable financing schemes or by a mix of the two.
The focus of the European Commission has changed from an initial approach encouraging disbursement of the funds by Member States by way of grants to moving to increased emphasis on distribution by way of reimbursable aid i.e. financial instruments.
There are various types of financial instrument:
For example, EU funds can be used to provide loans to businesses of all types for investment in research and innovation. Member States may also use EU funds to provide guarantees to help beneficiaries to obtain loans more easily or under better conditions from banks and other lenders. Member State governments may also financially participate in a project by owning parts of it. Financial instruments can also be combined with grants.
Financial instruments are implemented in partnership with public and private institutions such as banks, venture capitalists or angel investors. These financial institutions determine the exact financing conditions – the amount, duration, interest rates and fees.
Financial instruments can be provided by the EU through financial intermediaries in Member States to support the EU’s policies and programmes. Start-ups, micro companies, and larger businesses can all benefit from this type of funding.
Funding under NextGenerationEU
As a direct consequence of the negative impact of the COVID 19 pandemic on public health, supply chains and the overall economy, the institutions of the European Union decided to establish a complex package of interventions aimed at alleviating the negative effects specifically and to boost economic recovery generally: NextGenerationEU.
Under NextGenerationEU – the temporary recovery instrument worth €806.9 billion (in current prices) and a novelty in the 2021-2027 EU budget – funds are managed directly by the European Commission, but implemented through Member States. To raise the necessary funds for NextGenerationEU, the Commission borrows on the capital markets on behalf of the EU.
The majority of funds from NextGenerationEU are spent through the Recovery and Resilience Facility (RRF) programme. A total of €723.8 billion in loans and grants (in current prices) have been made available for Member States, initially to mitigate the economic and social impact of the pandemic, but also to make European economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions. Member States are working on their National Recovery and Resilience Plans to access the funds under the Recovery and Resilience Facility. The plans should effectively address challenges identified in the European Semester, particularly the country-specific recommendations adopted by the Council.
The allocation for Romania under the RRF based on its National Recovery and Resilience Plan (in Romanian Planul National de Redresare si Rezilienta - PNRR) is a mix between non-reimbursable aid amounting to some 12 billion euros and reimbursable aid exceeding 14 billion euros.
Main funding opportunities for Romania
It is widely acknowledged that the main engine for economic and social development for Romania is the financial resources provided by the EU through European Funds. Absorption of the funds has allowed Romania to register one of the highest rates of economic growth in Europe since its accession to the EU in 2007.
The main funding mechanisms available for Romania can be summarized as follows:
The RRF and the PNRR have been explained above.
The Multiannual Financial Framework 2021 -2027 is de facto a continuation of the programming exercises since Romania’s accession to the EU: 2007 – 2013, 2014 – 2020, which have funded numerous economic, social and local programmes (known as Operational, Sectoral and Local programmes). The amount allocated for the Multiannual Financial Framework 2021 -2027 is around 30 billion euros for the entire period.
The Modernisation Fund is a programme from the European Union to support 10 Member States in meeting 2030 energy targets by helping to modernise energy systems and improve energy efficiency. The Modernisation Fund complements other European funding instruments such as the cohesion policy and the Just Transition Fund. The Fund mobilises significant resources, which can help beneficiary Member States support investments in line with the REPowerEU Plan and the Fit For 55 package.
One of the most important funding mechanisms is the InvestEU Fund.
The InvestEU Fund mobilises more than €372 billion of public and private investment through an EU budget guarantee of €26.2 billion; it combines thirteen centrally managed EU financial instruments and the European Fund for Strategic Investments (EFSI) into one instrument. The InvestEU Programme builds on the successful model of the Investment Plan for Europe, also known as the Juncker Plan.
The main partner is the European Investment Bank Group, which has successfully implemented and managed the EFSI since its launch in 2015, and is responsible for the implementation of 75% of the EU Guarantee. A guarantee agreement with the EIB Group was signed in March 2022 so that companies and project promoters can start applying for financing. Guarantee agreements with other implementing partners will follow in the course of 2022.
Unfortunately, Romania has not succeeded in drawing any significant funding from this facility. A major obstacle in this respect is the failure to establishing a National Development Bank.
Improvement of the mechanisms for setting Romanian policies and strategies and inclusion of financial instruments:
One of the critical steps in increasing the financing available for both the business environment and public infrastructure is the establishment of a National Development Bank (NDB). The NDB should target the numerous and persistent market gaps, by providing financial resources to projects developed by city halls, local administrations as well as SMEs and other local entities to develop infrastructure, support exports etc.
The current government has repeatedly stated that it intends to set up a National Development Bank, but very little progress has been registered so far.