The EIB and risk taking. The European Investment Bank has chosen to intensify its participation in EU policy supporting African countries and contribute to the success of the Lisbon strategy. This is how I interpret the decisions and orientations announced by its president Philippe Maystadt for initially setting up, together with the European Commission, a Trust Fund to support infrastructure development in Africa and then by demonstrating to the Economy and Finance Council its project for funding the Lisbon strategy research chapter. Having been confirmed as president of the EIB for another six years, Mr Maystadt obviously considers that he can now commit the institution to new medium-term initiatives.
These initiatives have a common characteristic: greater commitment to risk taking. It's an old argument. Some of the lenders (real or potential), certain MEPs and services of the Commission criticised the EIB of being too cool and for only financing operations presenting no risk. We know the reply: the EIB (which had to first of all gain the trust of the banking world, which greeted its birth rather coolly) has to monitor consolidation of its “Triple A”, which enables it to borrow in optimum conditions. Losing this notation would mean its financing would be affected to the detriment of all its customers. Its two new initiatives combine partly resorting to its reserves and interventions made from the Union budget with risk taking with financial credibility to the advantage of two European priority policies - research and development aid - by confirming that the fundamental orientation is not maximising profits but supporting EU action and policies.
An additional 10 billion for research. The “research” initiative, as described in the above perspective, is significant (I'll return to the African imitative tomorrow). The relaunch of research is one of the pillars of the Lisbon Strategy, the objective of the EU being to allocate 3% of European GDP to this area. However, this objective is being compromised by budget restrictions: the financial perspectives for 2007-13 established by Heads of government have significantly reduced funding proposed by the Commission and requested by the European Parliament. Some tinkering is still possible in the final negotiation that is still going on but financial reasons (national budget deficits) and policies (refusal by several Member States to effectively increase European spending) makes any hope of obtaining the Commission and EP figures, unrealistic. In this context, the EIB announced its willingness to intervene. We already know that it is involved in the Lisbon Strategy to the tune of EUR 50 billion for the period 2000/10, 35 billion of which has already been made into loans (energy efficiency, research, SME support, infrastructure). The new initiative will involve it committing an additional 10 billion for the 2007/13 period, specifically for projects that involve some risk or where it would not normally have intervened (research results are, by definition, never known in advance).
Conditions for success. How should risk and guarantees by combined? Via ad hoc financial cover of potential “risks of loss”. The EIB has calculated 2 billion euros in costs for this cover.: a billion will be provided by EIB profits over the same period and a billion should be available to the European Commission as part of the new “research programme”. Therefore, a billion from the budget would help go towards the investments of 10 billion, and perhaps even more, in projects the EIB does not normally take part in.
The success of the operation (which the Ecofin Council gave a positive in principle welcome) is subject to three conditions: a) that the new financial perspectives and the new European research programme are definitively approved; b) that the Commission, which manages the research programme, confirms its willingness to reserve approximately 1 billion (which can possibly be refunded) to this operation; c) that the private sector is involved in this operation. This final point is obviously essential. European research's lagging behind, particularly behind the US, which is mainly because of the lack of private investment. Companies that are still announcing record profits this year cannot continue to reserve them for their shareholders and managers by neglecting investment and calling for public funding for research. A certain balance has to be re-established. From this point of view the EIB project is practically a test piece.
(F.R.)