The European Investment Bank – the European Union’s house bank – should lend more responsibly and more transparently, said the European Parliament on Thursday while assessing the bank’s annual activity report. But the capital increase at the EIB called for by the same European Parliament would hardly allow an already over-stretched institution to make such improvements. The bank would be better advised to work on improving management of current resources before rushing into a capital expansion.

On March 28 the European Parliament passed an extensive resolution on the European Investment Bank’s 2010 annual report. The resolution is an important tool for exercising democratic control over the EIB as it allows MEPs to assess past lending and indicate future directions for the bank created especially to further the goals of the EU.

Concerns about the EIB functioning expressed by the EP in its resolution indicate a level of opaqueness unacceptable for an institution with the impact and magnitude of the EIB. With a budget of EUR 61 billion in 2011, the financial arm of the EU is the world’s biggest public lender.

Lack of transparency of the bank’s operations emerged as one of the main concerns of MEPs.

The EP resolution called on the bank to make information more understandable and accessible to the wider public, to report more intensively on its investments to the parliament and to provide more details on the projects it promotes.

MEPs further demanded of the EIB to improve transparency as regards its loans through financial intermediaries. The EIB increasingly disburses loans through intermediary banks or funds when trying to reach SMEs. However, it is not clear whether these funds actually reach their intended beneficiaries. The EP requested that the EIB publishes a list with all beneficiaries of its loans, that it improves control mechanisms over intermediaries and that it avoids working with intermediaries linked to tax havens.

In November 2010 a Counter Balance report claimed that millions of euros of EIB loans in Africa did not reach SMEs but instead ended up in tax havens and in the hands of corrupt elites. Today Nigerian politician James Ibori proved to have personally made use of EIB funds has been found guilty of corruption, money laundering and the embezzlement of $ 250 million. Hopefully, implementing safeguards such as those demanded by the EP would prevent such shameful mistakes from happening in the future.

Besides transparency, another core concern of the EP regarding the EIB is its ability to contribute to overall EU climate change objectives. Despite significantly increasing its investments in renewable energy sources, the bank keeps pouring money into fossil fuels, in fact almost doubling such investments between 2007 and 2010, as a December 2011 Bankwatch report shows.

Perhaps no other area of operations of the bank is a better indication of the bank’s weaknesses than North Africa, where the EIB has been lending for decades and where it is set to expand its lending. Leaving aside that the EIB has been lending to countries such as Egypt and Tunisia regardless of the repressive nature of their governments, the loans had a particularly problematic structure.

In Egypt for example, 92% out of €1.87bn lent by the EIB between 2006 and 2010 was directed at energy projects – and four-fifths of this to promote fossil fuels. Of the €1.8bn lent to Tunisia in the same period, half went to energy projects, and 10% was invested in infrastructure for transporting gas to Italy. Now the EIB is expanding lending to the region without analysing the impact of its past lending, reassessing its priorities or waiting for a clarification of the political context in the countries.

This is representative of the bank’s management in general: throwing money at a problem without first checking past mistakes and taking measures to avoid their repetition. Interestingly, even an EP which seems to be very aware of the bank’s faults recommends a reckless expansion.

Part of the explanation of why the EP as well as the European Commission and Member States, which also have a say in how the bank is run, would go for a capital increase regardless of the risks is that the EIB is an attractive tool for politicians: guaranteed by public funds, it nevertheless raises money on the financial markets which gives a sense that budget resources are not squandered in times of crisis.

But in fact, if the bank and EU politicians do not take concrete steps to improve the bank’s practices before any capital increase, we are wasting a lot, we are guaranteeing with our public resources lending that we cannot have any control over, lending that the bank cannot ensure safeguards our environment, lending whose consequences we may later have to fix. As the financial crisis has showed, letting quantity prevail over quality can be very risky.

What should be done instead of a capital increase is clearly outlined in the EP resolution:

”The EIB’s role should be more focused, selective, effective and results-oriented”. In other words, the bank should do better with less.

By Desislava Stoyanova