The EU program is ambitious and requires huge investments. This poses difficulties at a juncture where resources are scarce. Significant public resources are unlikely to be forthcoming, especially in countries that have developed high levels of public debt due to counter-cyclical policies or the realization of past liabilities. Private resources are also limited because commercial banks have drastically reduced infrastructure investments over the last years.
Thus, two main solutions are being considered:
• Involvement of institutional investors (pension funds, insurance companies, mutual funds, sovereign wealth funds);
• Issuance of project bonds.24
Involving institutional investors may be useful because their liabilities are long term. Hence, they may buy and hold investments in long-dated productive assets, acting in a counter-cyclical manner. The EU would work as a catalyst for these investors. In October 2011, the Connecting Europe Facility (CEF) was launched to fund €50 billion of investments in the trans-European networks for energy as well as transport and digital services between 2014 and 2020. The CEF is meant to use many financial instruments as alternatives to traditional grant funding, including special lending, guarantees, and equity investments.
More than institutional investors, project bonds are viewed as the main EU financing instrument for the trans-European networks for energy, transport, and digital services. A pilot phase was launched in 2012. The idea is that PPPs would be created for specific projects. However, rather than relying on bank loans, these companies would issue long-term well-rated bonds. To mitigate the risk, at least to some extent, the European Commission and the European Investment Bank (rather than the single states) would participate in the projects.
This strategy seems to be supported by the following logic. As the concerned projects are essentially trans-European rather than national, they are huge and involve risks that encompass several countries at once. In addition, capital is to be attracted from as many countries as possible. Simultaneously, risks are to be shared as widely as possible across participating countries-the private sector is still destined to be involved. However, the PPP companies responsible for specific projects will share risks with the public sector, with guarantees made at the EU level more than at the country level. This puts greater premium on ensuring the standardization of public finance data across countries.