Both the European Recovery & Resilience Fund and the Recovery and Resilience Facility mechanism were set up to upgrade the production model of the EU member-countries. Addressing at the same time the challenges posed by pandemic Covid-19 response measures.
It is certain that the rapid provision of financing from this fund to productive investments will fill the investment gap that exists in the economies of the member countries and which was caused by the economic crisis.
However, the financing will be determined by the way the investment plans are utilized and implemented. The European Recovery and Resilience Fund consists of two parts:
1. Grants and subsidies and
2. Low-interest loans.
How these resources are utilized will determine the extent to which they affect the economies. Other important parameters for the successful completion of the use of these resources are:
- the degree of investment consistency
- the regulatory framework of the Recovery and Resilience Fund
- the domestic strategy and political direction of each member-country.
The participation criteria
The extraction of specific resources will be based on the evaluation of specific and critical parameters.
- The minimum financing reaches 30% of the total cost of the investment plan.
- A positive assessment of the project operator’s ability to borrow on bank terms is primarily required, which means that the investor should have accepted the creditworthiness test.
- Examination of the consistency of the investment plan under the Recovery and Resilience Fund regulation. Key parameter is that the project to be compatible in terms of its compliance with the principle of “Do Not Significant Harm”. This means control and evaluation of investment plans in terms of not burdening environmental objectives during the implementation and operation of these investment plans.
Investment plans must comply with EU law and the legislation of the member-country on the environment. While their activities should not be excluded due to the effects they will have on the environment [Annex V to Regulation 2051/523 (InvestEU)].
The way of evaluation
- Possible activities that are excluded from the Recovery and Resilience Fund regulation, for example, investment in fossil fuels, gaming services, defense activities, etc.
- Examination of the type of expenditure in order to investigate the degree of their eligibility. This will be determined by the degree of the investment plan in terms of its contribution to the six main pillars of the Recovery & Resilience Fund. This six main pillars are: green growth, digital transformation, innovation-research and development, development of economies of scale through partnerships, acquisitions and mergers, extroversion.
- One of the basic principles for approving the Recovery & Resilience Fund funding states that: 38% of capital loans should be directed to activities in support of Green Energy-Climate Change. The minimum percentage of 20% capital loans to finance investment projects to support the digital transition.
In this way, the above constraints of the Recovery & Resilience Fund in combination with the costs of each investment project will determine the degree of participation of the Fund in the financial scheme.
The degree of compatibility of funding
In order to finance an investment project, it will be checked whether the funding from the recovery fund is considered state aid. In this test will be considered:
- The requested interest rate of the Fund
- The creditworthiness of the investor
- Control of any other aid received by the investor from other financial institutions of the member-country in which it operates.
If the above steps are achieved by advocating a positive evaluation for each stage of the examination, the receipt of the loan financing from the Recovery & Resilience Fund will be approved.
In order to speed up the process, the parameters that affect the process and the mode of operation of the Recovery and Resilience Fund should be effectively maximized.
The degree of absorption of loans
At this stage to optimize the degree of absorption of capital loans, the procedures of the mechanisms of the banking institutions concerned should be sensitized:
- the mission
- the receiving
- and the processing of the applications for financing of investment projects, but also the imposition of a strict short schedule regarding the procedures for evaluating the approval or rejection of the application.
In addition, for the greater degree of successful appeal of an investment plan will increase the chances of success parameters such as:
- the size of the investor’s equity used to finance the investment project.
- the possibility of combining the loan funds of the Recovery & Resilience Fund with other financial resources.
If each of the above stages achieves the optimal degree of efficiency then the financed investment projects will accelerate the demand for investments by optimizing each time the production model of each member country.
