The European Investment Bank (EIB) might be the most important public lender in the world. After all, it approved almost €60 billion in loans in 2008, well over twice the volume of the World Bank. It operates in key sectors of the global economy – in 2006, 58% of all support from international financial institutions (IFIs) to the oil and gas sectors came from the EIB, according to Bank Information Center figures – and its approval of €6.2 billion worth of loans outside the EU in 2008 makes the EIB one of the biggest public players in the developing world: the de facto development-finance institution for the European Union.

In November 2008, the European Court of Justice (ECJ) annulled the EIB’s main mandate to lend outside the EU, ruling that any new mandate should be based on a section of the Treaty establishing the European Community (EC Treaty) that requires “the sustainable economic and social development of the developing countries, and more particularly the most disadvantaged among them … the campaign against poverty in developing countries … consolidating democracy and the rule of law… [and] respecting human rights and fundamental freedoms.”

The explicit developmental responsibilities, which have never before been so clearly appended to the lending practices of a major development bank, include:

  • the sustainable economic and social development of the developing countries
  • the campaign against poverty in the developing countries
  • the general objective of developing and consolidating democracy and the rule of law
  • the general objective of respecting human rights and fundamental freedoms

Anders Lustgarten, a Counter Balance coalition member, said: “Yet the EIB is alone among International Financial Institutions (IFIs) in having neither binding operational standards nor an independent accountability mechanism for people affected by its policies. The result is that the EIB has supported a string of disastrous projects that other IFIs either will not touch or have pulled out of: examples include the Tenke Fungurume mine in the Democratic Republic of Congo, the Chad-Cameroon oil pipeline, the Gibel Gibe dam in Ethiopia, all of whose primary beneficiaries are major Western conglomerates rather than local businesses.”

The ECJ also gave the European Parliament the right to co-decide the new mandate alongside the European Commission, citing “the fundamental democratic principle that the people should participate in the exercise of power through the intermediary of a representative assembly.

Anders Lustgarten continued: “Both the Commission and the Parliament seem determined to undermine the ECJ’s assertion that democracy and development criteria should be core elements of the EIB’s lending policy. The Commission has wasted little time since November’s judgment in putting forward precisely the same mandate as that which was explicitly annulled by the Court – and, according to sharp comments from the chair of the European Parliament’s budgets committee in a public session three weeks ago, it and the EIB itself have exerted intense pressure on the Parliament to put this legally and socially unacceptable lending framework back into law. While this undermining of EU policies on human rights and the environment is disgraceful, it is hardly unexpected, given its provenance.”

The Parliament’s reaction, however, has not been much better. Its initial version of a new mandate, the Seppanen report, made no explicit reference to development criteria – an extraordinary omission given the clarity of the ECJ’s request. While the vote in the budgets committee last month approved a small number of amendments that go some way towards making up this shortfall, most of the thrust of the ECJ judgment has gone missing.

In Summary

What the European Commission (EC) did:
The European Commission initial proposal for renewal of the community guarantee against losses for the EIB had at least three fundamental shortcomings:

  1. It overlooks the development objectives of EIB operations outside of the EU, which are clearly defined in the ECJ decision.
  2. It proposes the renewal until 2013 of the same Decision that has already been annulled by the ECJ, while the ECJ judgment clearly requires that the new mandate for EIB operations outside of the EU is democratically co-decided by Parliament and Council.
  3. It does not provide for a clear compliance mechanism that will ensure the conformity with the implementation of EU development objectives.

What the European Parliament did:
The MEPs took advantage of their new co-decision power to request the EC to present a new proposal for EIB guarantee by April 2010 taking into account the work of the current mid-term review of external lending mandate which ends in June 2010; and to introduce the development cooperation objectives as part as the External lending mandate of the EIB.

Counter Balance is supporting the work of the MEP’s in providing critical overview of the EIB annual operations. In the current Parliament’s report on the EIB and EBRD annual operations, the European Parliament reiterates the need for increased democratic control on EIB’s operations and specifically concentrates on its contributions to the EU and United Nations goals (such as the Kyoto protocol) in developing countries.

The report further requests strengthening of the bank’s anti-corruption policies; requests that EIB’s allocates sufficient resources to actually implement their new Environmental and Social Statement, and to ensure real benefits and “value for money” when supporting public-private partnerships projects (PPPs).