There's no point saying that the European Investment Bank (EIB) should be an instrument for facilitating Community policies. It is rather the evolution of the concept and its being put into practice that is of more interest. The debates and initial distrust of some private banks at the competition they were wary about belong to a bygone age. The EIB has won its place in the world financial panorama and its specific supporting role to EU activity has been clarified and accentuated under the presidency of Philippe Maystadt. The president's press conference last Friday, comprehensively resumed the same day by Olivier Leroy (EUROPE 9362), deserves a number of comments.
1. Expanding range. The extension of EIB activities involves the number of European policies it supports and the instruments that are used. Every time the Community institutions define new objectives, they almost automatically allocate the EIB with a specific role in helping achieve them. When direct funding from the EU budget is less than that initially envisaged, increased EIB participation follows. This is the case, for example, with the Trans-European Transport Networks: the EIB increased the volume of its commitments and implemented a range of financial instruments, specially devised to prevent budget funding cuts having a negative effect on setting up these networks.
2. More risks. Some operators are critical of the EIB for intervening in projects that are so safe that funding was not even needed from the EIB. In their opinion, the financial guarantee of the EU should provide the EIB with greater flexibility. This criticism ignores two considerations: a) if public money is at stake, precautions should be increased, not reduced; b) to borrow at more favourable rates on the markets (to the benefit of the projects being financed), the “Triple A” rating needs to be earned and maintained. Governors of the EIB (who, as we know, are finance ministers from member states) have only estimated what is contained in the reserves, €30bn, and other conditions needed for the bank to develop its risk operations.
“Immaterial” financing can particularly be increased (research, innovation, training, education), as well as loans to small and medium-sized enterprises (by improving partnerships with intermediary financial institutions and risk sharing). This development began in 2005 and continued in 2006. Mr Maystadt announced that it was going to be highlighted in 2007. A technical note provides stakeholders with details about the EIB's new “risk policy”. Rating systems for loans and price setting for risks have been revised by lowering minimum rating demands, extending periods for loans and reducing demands in terms of financial securities etc. (EUROPE 9364 for details). The innovations already mentioned go in the same direction: new financial instruments for transport infrastructure, provisions for developing both loans to small and medium-sized enterprises (SMEs) and improving cooperation with the European banking sector, as well as risk capital participation through the provision of the European Investment Funds (EIF, a specialist EIB subsidiary ). An increase in EIF capital was announced at the same time.
3. Priority on quality. Previous considerations should not be interpreted as an indication of any swelling in the volume of operations. EIB governors asked for the priority to be on quality of projects rather than quantity, which explains the slight fall in the volume of loans in 2006 (€39.8bn) compared to 2005 (42bn). Governors' instructions go in the direction of a stabilisation of the overall volume, with stress being put on efficiency of support for European policies. In this connection, certain funding categories will even experience an expansion in volume. The president explicitly cited loans in Central and Eastern European member states and funding in the energy sector (see the two points that follow).
4. Temporary brake on expansion in Central and Eastern Europe. In member states in this zone, loans increased in 2006 but not as much as would have been wished. Mr Maystadt gave two reasons for this: political instability in several of the countries in question (involving the frequent change of the EIB's interlocutors) and limits on the capacity of absorption, namely the difficulty for the authorities in these countries to set out a valid project package corresponding with European criteria. This is why the EIB co-finances with the European Commission at the same time; the Jaspers initiative, which offers free technical assistance in identifying infrastructure projects in member states in Central and Eastern Europe that are likely to be funded out of the EU's Structural Funds. This technical assistance does not involve any obligation of EIB co-funding but helps prepare projects so that they can benefit from loans. If political stability improves, EIB loans in this zone will increase again, given the accession, it should be added, of Bulgaria and Romania.
For several years and even now, partly, EIB funding was largely concentrated in big countries like Italy, Spain, France, and after reunification, in Germany.
Maystadt explained that this concentration was inevitable because the main objective was economic and social cohesion, namely, support to efforts in less developed regions to help them catch up with the average level in the Union. Zones covered by this policy have now been drastically reduced in the “older” member states. Economic and social cohesion is still the number one priority of the EIB, but geographical distribution has radically changed in favour of Central and Eastern Europe.
5. Energy projects are a priority, but…Mr Maystadt indicated that the EIB's objective in the energy sector is to reach a lending volume this year of €4bn (600 to 800 million for renewable energies) compared to a total of 3bn in 2006. Five priorities have been maintained by the Board of Governors: renewable energies; energy efficiency; research/development and innovation; diversification and security of internal supply (networks, storage installations, electricity plants); security of external supply (including support for setting up a pan-European energy community). These definitions are sufficiently broad to cover a wide range of projects. Innovative instruments developed for other sectors are transferable to energy, which also includes high risk investments and possibilities for combining EIB financing with EU subsidies.
As an example of the vast scale of its operations, the EIB cites: a) participation in the funding of a gas pipeline linking Greek and Turkish gas networks. A project of European interest because it makes the transit of gas from Turkey to other European countries possible; b) the Andasol Solar Plant in Spain, important from a technological point of view (new generation of solar panels).
In his oral presentation, Mr Maystadt was obliged to explain some of the absences from energy sector operations. Last Friday, demands for Community funding from the Baltic Sea gas pipeline were still fresh (including the request by Gerhard Schröder). The EIB president pointed out that funding outside Union territory (which is the case for the project in question) has to be approved by the governors at unanimity, whereas several of them are explicitly opposed to it. This is why the instruction for funding has not even begun. For other projects, like the Nabucco gas pipeline, nothing has yet been decided. In the context of the nuclear plants within the EU, EIB participation has so far equalled “zero” due to lack of requests; if requests are forthcoming, they will be examined according to the usual criteria.
6. Projects in Africa and conditionality. Mr Maystadt confirmed that certain projects in ACP countries in Africa, for which EIB loans were being examined, had received definitive financing from Chinese banks. In principle, needs are such that it is better that sources of funding increase. The problem that arises is that of “conditionality”: Chinese banks do not make any demands relating to the environment, the social sphere or the profitability of projects.
Maystadt acknowledges that Europeans have perhaps exaggerated by sometimes creating the impression of wanting to impose a “one size fits all” mould for all the different projects. Nonetheless, a certain conditionality is, in his opinion, opportune in the very interest of the beneficiary country because: environmental standards provide protection against ecological disasters; minimum social standards encourage reforms; economic standards guarantee the viability of projects and prevent wasting resources and reopening the infernal circle of excessive debt. Good governance is always positive for those who practise it. Maystadt calls for a dialogue with the African authorities, Chinese banks and international financial institutions to discuss the matter. Europe could correct some excesses, other protagonists should avoid too much of the anything goes variety. Caution prevailed, Mr Maystadt did not raise the question of corruption.
7. Third country criteria. In general, EIB activity in third countries follows the same trend indicated in point 3 for internal activities: respect for objectives, quality and efficiency prevailing over quantity. Authorised donations are on the rise. In Russia, the EIB focuses on transporting energy and environmental protection, in effective cooperation with the EBRD. In Latin America and Asia, the EIB essentially accompanies the efforts made by European enterprise in investing on the ground, with, nevertheless, the possibility of participating in projects that are “positive for humanity” (environment, energy) even if the EU is not directly involved.
(F.R.)