European Union leaders will unveil a plan on Monday to use EU funds to back private-sector bonds for large infrastructure projects, in the hope of kick-starting more funding for transport and energy programmes that they fear are being crippled by austerity measures.

According to a draft “working paper” obtained by the Financial Times, officials at the European Commission, the EU’s executive branch, believe private financing has dried up for trans-European road, rail and electricity projects during the economic crisis and needs government backing to return.

“Given the distressed state of many member states’ budgets, it will be essential to mobilise additional sources of private finance if the EU’s infrastructure needs are to be met,” the document states.

Officials involved in the plan said the draft did not represent a firm proposal from the Commission, whichhas the task of initiating all EU legislation. Instead, it was a “consultation paper” intended to solicit views from potential investors and other stakeholders.

Still, the document for the first time outlines how EU officials believe EU funds could be used to support new infrastructure projects.

According to the paper, the EU and the European Investment Bank would provide either guarantees that private debt issued for a new project would be repaid, using EU funds if necessary, or a direct loan at a subordinated level, making it more likely that more senior private debt would be repaid.

“By providing support at the subordinated level, the initiative would absorb much of the risk of insufficient cash being available to service the senior debt, thereby raising its credit quality,” the paper states. “During the construction period, the credit line could be called upon to meet funding shortfalls and thus ensure that projects will reach operating period.”

The plan, which the paper calls “Europe 2020 Project Bond Initiative”, is expected to be unveiled on Monday by Olli Rehn, the European Commission’s economic chief, and Philippe Maystadt, head of the EIB.

According to preliminary estimates by EU officials, the bloc needs €1,500bn ($2,100bn) to €2,000bn in infrastructure investments over the next decade to remain competitive, including €500bn on transport links and €1,100bn on energy projects such as new electricity transmission networks and generating plants.

As much as €268bn is also needed to give most EU citizens access to broadband internet connection, which European heads of government have set as a goal.

The project bonds plan faces significant hurdles, including resistance in some member states to using EU money even as loan guarantees.

In addition, the document makes clear that EU officials remain unsure whether the guarantees would spur new investment. In a section labelled “questions”, the document raises doubts about whether the system is “likely to attract private sector institutional investors” to the large infrastructure projects.

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