It’s time EU Member States made the European Investment Bank (EIB) step up and make riskier investments - but only for the common good by investing in quality public services.
When the EIB makes a loan, it assesses how much income the project could generate and the likelihood of that loan being repaid in full. In financial terms, this is known as ‘risk’, with low risk loans more likely to be repaid than higher risk ones.
By taking more risk, the bank can use the same amount of capital it receives from EU taxpayers to generate more investments - something the EIB fails to do with the ultra-conservative approach it currently takes. Our Things Have to Change report shows the EIB evaluates projects in a similar way to a commercial bank and makes €2.5 billion profits a year.
The European Commission recently floated the idea for the EIB to make riskier loans. Yet the Commission wants the bank to make these loans - which are less commercially attractive and require more reserves to be set aside to cover potential losses - to the private sector for projects it deems ‘innovative’. These include projects extracting raw materials, so-called ‘green’ technologies and biotechnology.
Expanding the EIB’s mandate to increase support for the defence sector has also been suggested - using public money to finance big companies to produce bullets, tanks and other military equipment which can destroy lives in conflicts all over the world. Financing corporate interests to fuel conflict rather than sustainable, equitable societies would be a gross abdication of the bank’s public duty to finance the public good.
In short, the Commission’s goal is to take more risks to make private sector investments more profitable. Instead, the EIB’s unused potential should be harnessed to invest in public services which may not be immediately profitable, but have long-term economic viability and huge, positive social and environmental impact.
Encouraging the EIB to make riskier loans in support of corporate pipe dreams or technological quick-fixes to climate problems would only waste public money protecting the profits of businesses - regardless of how successful corporate projects actually were. It’s economic protection for the rich, at everyone else’s expense.
Taking more risks for the private sector in the hope it magically finds solutions to the multitude of crises we currently face is especially problematic considering the state of public services like housing, energy and healthcare across Europe. These services have endured decades of underinvestment, especially in impoverished areas and marginalised communities.
This could get worse. The EU’s requirement to repay recovery funds, coupled with the reintroduction of EU spending rules at the end of this year, is threatening people in Europe with austerity 2.0. Governments could dismantle crucial public services even more in order to pay off these debts and abide by EU public financing limits. Germany has already slashed 34% off its healthcare budget, and national climate investments across EU countries may not fare much better. Research by the New Economics Foundation has shown only four EU countries will be able to reach their climate targets once fiscal rules are reintroduced.
As already mentioned, the EIB is making €2.5 billion in profits a year. It is a public bank, so these profits are ostensibly made in the name of the public. It should be willing to decrease the amount of profit it makes in order to fund long-term, economically viable projects which have clear environmental and social benefits - like public services under threat from a new wave of austerity. This should be done regardless of whether the returns the bank would make are below what could be made through more commercial loans.
The EIB cannot do it alone
Revolutionising public finance will only create the quality housing, accessible public transport and healthcare which the public deserve if combined with other fiscal interventions. For example, EU governments also need to tax capital through wealth taxes to raise the finances needed to provide these services.
This is not merely a matter of improving the quality of life for people in Europe. Investing in public services is essential in getting public buy-in for the changes we need to make to thrive within climate boundaries. The public are more likely to support these changes if they are clearly beneficial - such as by providing climate and environmentally friendly public transport operated to meet their needs first.
The EIB and wider EU is currently giving carrots to big corporations yet leaving nothing but sticks for the public by allowing the housing, schools, hospitals and public transport which households rely on to deteriorate. EU Member States must reverse this by expanding the EIB’s mandate to prioritise support for quality European public services - not defence or private sector investments.