Brussels, 27/02/2002 (Agence Europe) - The European Commission finally chose the option of a Euro-Mediterranean Bank (EMB) as an EIB subsidiarity in the report to the Council it adopted on Wednesday. The College is not in 100% agreement on the type of bank to be set up to solder the partnership on either side of the Mediterranean and stimulate economic development in the south (see yesterday's EUROPE, p.8). Commenting on the choice, Romano Prodi said that strengthening Euro-Med co-operation was one of this Commission's priorities and referring to the criticisms that in recent years the EU had almost exclusively focussed on the northern rim, the President of the European Commission implicitly recognised their accuracy by saying that it was necessary to return to a policy of supporting the southern side of the Mediterranean in order to contribute to its development and the stability of the region.
The report to be adopted on Wednesday is a response to the Laeken European Council's invitation to the Commission to examine the setting up of a Euro-Mediterranean Bank to deal with the bad economic results of the southern Mediterranean countries and their potential social and political consequences. They have performed disappointingly in economic terms over the last decade and the situation has worsened since September 11. Average annual GDP growth over the period 1990-2000 was 2% in the Maghreb and 3.6% in the Mashreq, but the Commission estimates that growth for all Middle East and Northern Africa countries need to be at least 7% per annum to absorb the fast growing labour force. The report notes that "Overall the current level of growth is far below that needed to ensure sustainable development and a reduction in poverty, and there is a risk that the socio-economic balance could be disrupted". This is why the Commission believes it is urgent to shift towards a strong private sector driven economy which can only take place if the "appropriate legal and institutional framework" exist and it is "therefore extremely important that they shod become full partners and members of any new institutional setting promoting the region's development".
The report covers a wide range of options from creating a "facility" or a Fund to creating a fully-fledged Bank. The College opted for the later on the grounds that this would "allow for a wide membership and ownership from the partner countries, a significant leverage on capital raised, and would provide the full range of financial products needed for the development of the private sector in partner countries, including those specifically tailored to post conflict situations". The EMB would focus on areas that have been bottlenccks to the Mediterranean partner countries' development to date "and add instruments which have so far been absent or under-utilised. Its core mandate should be to foster the development of the private sector, sound and competitive financial intermediaries channelling finance to local SMEs, and project attracting foreign investment. Support to infrastructure projects would privilege areas where liberalisation policies are being implemented and infrastructure with a trans-regional dimension. The EMB would provide loans and equity investment, either directly or, where possible, through local and regional financial intermediaries. It would thereby also support the development of sound and competitive local private banks and match its hard currency resources with local ones… The setting up of a risk insurance instrument should be examined… The EMB should pursue sound banking practices. So as to provide additional rather than diverted finance, its interest rates could progressively be adjusted to reflect its full cost of capital including the risk component associated with the development of private sector activities in partner countries. Concessional finance would only be provided in a selected number of areas, such as environment projects, for which EIB loans already currently benefit form interest rate subsidies form the EC budget, or to complement loan finance for well targeted initiatives such as technical assistance or performance fees for developing SME finance through the local banking system".
The Commission recommends the new bank being an EIB majority-owned subsidiary which, given important economies of scale, would lead to lower operating costs and form part of the EIB's structure. Areas like personnel management, accounting, commitment management and legal expertise could be largely dealt with by the EIB as part of its main activities in the EU. The new bank could initially at least concentrate on managing operations which would lead to low operating costs and put the subsidiary in the position to offer very competitive interest rates.
Although the Commission has come out in favour of the above option, it has not closed the door to other options, noting "a final choice will have to be made following a dialogue with partner countries", which probably explains why the report won the backing of all members of the College. "The Commission report recognises that a number of very important operational issues have to be further analysed and debated and therefore does not make specific proposals at this stage with regard to the amount of share capital of the EMB, the precise structure of its shareholding base, etc. All these issues have to be further debated together with partner countries once the first set of principles have been decided by the European Council… which is expected to examine the Commission report along with a report on the same issue being prepared by the ECOFIN Council".
CDU MEP Werner Langen has issued a press release in which he says that a new European bank for the Mediterranean would be "superfluous and completely useless" and calls on Jose Maria Aznar to abandon this prestigious object in favour of recognising the EIB's work in the Mediterranean partner countries.