How the EU External Action Guarantee Will Change European Development Finance

The EU Council has approved amendments to the External Action Guarantee. Here is what this technical change actually means for European development finance and the Global Gateway initiative.

The Council of the European Union's approval of targeted amendments to the External Action Guarantee — confirmed in the March 30 Mayer Brown Europe Daily News briefing as aimed at 'enhancing efficiency and flexibility' — represents a specific but significant improvement to the mechanism through which EU development finance reaches projects in developing and neighbouring countries.

The External Action Guarantee is the risk management backbone of the European Fund for Sustainable Development Plus (EFSD+) — the instrument through which Global Gateway, the EU's infrastructure investment initiative, channels EU public funds to leverage private investment in developing country projects. It provides guarantees to financial institutions that make loans or investments in projects that private capital would otherwise consider too risky — allowing the EU's risk appetite to catalyse commercial investment at multiples of the guarantee's face value.

The amendments approved by the Council address specific operational bottlenecks that have slowed project implementation: the approval processes for extending guarantee coverage to new financial intermediaries, the conditions under which guarantee coverage can be flexibly adjusted when project parameters change during implementation, and the reporting requirements for guarantee beneficiaries that have been disproportionate to the complexity of some smaller project applications.

For Global Gateway's stated objective of mobilising €300 billion in infrastructure investment by 2027 — the headline figure that the EU set in deliberate competition with China's Belt and Road Initiative — the efficiency improvements matter at the margin. Every week shaved off approval processes for guarantee applications represents projects that can begin construction sooner, investors that receive returns earlier, and developing country infrastructure that becomes operational before the competition can fill the same gap.

The Vietnam forum, the Turkmenistan business forum, and the amended External Action Guarantee are all part of the same package: the EU's effort to translate its development finance ambitions into a Global Gateway programme that is functionally competitive with Chinese infrastructure financing rather than merely aspirationally competitive.