Why the EIB is not ready for a capital increase

Caught in the narrow debate between growth and austerity, the EIB is put forward by some policy makers as one of the few alternatives to budget cuts and fiscal orthodoxy. Meanwhile the real question of whether the bank is actually able to lead the EU out of the current crisis and into a sustainable – economic, social and environmental – future remains unanswered.

Based on our extensive experience in monitoring the EIB, Bankwatch and Counter Balance believe that under current conditions the EIB falls short on all three of the above sustainability aspects. Nevertheless they absolutely need to be taken into account in every project if the EIB wants to offer a long term solution to the crisis European citizens are currently facing.

Following the outbreak of the current crisis in autumn 2008, the EIB was quickly given a ramped up investment role by EU decision-makers. An additional EUR 3.5 billion in both 2009 and 2010 for EIB investments to support European SMEs and “mid-cap” companies was mandated, with the lending to take place via on-lending from commercial banks. A “Clean transport facility”, aimed primarily at the European automotive industry, also included an extra EUR 6 billion worth of support in both 2009 and 2010 via the EIB. An extra EUR 2.5 billion in both 2009 and 2010 was also mandated via the EIB to benefit central and eastern European countries.

How this additional EIB crisis lending has worked out is open to question, although without it – its proponents argue rather tendentiously – things may have been worse than they are now. On vital SME lending provided by commercial banks via initial EIB funding, very little is known about how the EIB financing has benefited the European economy generally. With next to no information on specific beneficiaries – and what they have done – available, the EIB nonetheless notes that 105,000 SMEs received its support in 2009 and another 115,000 in 2010. It also provided some EUR 13 billion of finance to 120,000 SMEs in 2011.

Bankwatch's research[1] has shown meanwhile that EIB crisis loans to SMEs were more helpful to the commercial banks disbursing them than to the cash-strapped SMEs they were supposed to help. Bankwatch found that the EIB's 'global loans', designed to benefit SMEs via lending from commercial banks, had a very poor penetration rate of 0.001 percent of all SMEs in the central and eastern European countries that were surveyed in 2010.

A recent report from MEPs on the EIB's lending to SMEs has raised urgent concerns over the transparency of these loans that accounted for 18 percent of EIB lending in 2011[2]. The European Parliament report[3] points out that while the European Commission is obliged to publish a list of the beneficiaries of EU Funds, currently nothing is known publicly about where - and for what - these EIB SME loans are going.

More recently we have seen the EIB invest more in risk sharing facilities. This is a positive trend which we encourage as it meets the needs of many SMEs which were not even able to access loans before. The benefit the EIB offers is entirely passed on to the SMEs and does not stick in the banks as has been the case with intermediated loans.

In times of scarce financial means it is important to invest them where they are most needed. With unemployment at record high the EIB is said to have prioritised investments with employment potential. However when reading through the bank’s 2011 activity report tangible results and figures are lacking. The concrete link between EIB investments and jobs created is missing.

Clear performance indicators are indispensable in order to have a qualitative assessment of the bank’s activities. Attempts to link these to a potential capital increase have not gone further than Barroso’s statement that “targeted investments are needed”.

In its resolution on the bank’s 2010 annual report the European Parliament only recently stated that: “The EIB’s role should be more focused, selective, effective and results-oriented”[4]. But if these calls are not translated into concrete measurable targets, improvements are very unlikely to happen.

In the field of energy investments where results are more easily measurable, the consequences of the lack of ambitious policies and clear standards become immediately visible. While the bank has ‘climate action’ investments among its main priorities, Bankwatch calculated[5] that between 2007 and 2010 unsustainable energy investments remained the biggest chunk of the EIB’s energy portfolio.

While it is positive to note that in 2010 for the first time more money went to renewable and energy efficiency rather than fossil fuel energy investments, it is worrying that investments in unsustainable energy projects keep rising. Without a renewed policy or clear conditions a capital increase will only reinforce this negative trend.

The review of its energy policy which the EIB announced could be a positive step in the direction of a more sustainable energy portfolio if it proves to be ambitious enough. Alignment with the European Commission’s 2050 energy roadmap would be a good parameter. However, concrete commitments have not been made so far.

This lack of transparency makes it impossible to thoroughly assess past activities and to make well-considered decisions concerning the future direction of the bank. Bulgarian MEP Ilana Ivanova (EPP) and rapporteur of the report on the EIB’s 2010 annual report stated that: “We need clear objectives not only in terms of quantity but also in terms of quality in order to assess the efficiency and the effectiveness of the different programs. Therefore, I believe the bank needs to be lending better taking into account specific and measurable objectives.”

Nevertheless different policy makers, including MEPs keep calling for a capital increase. An obvious reason for that is that the EIB is an attractive tool for politicians: guaranteed by public funds, it raises money on the financial markets which gives a sense that budget resources are not being squandered in times of crisis.

Before discussing whether or not the EIB should do more we need a discussion on what the EIB should do. These targets should be accompanied by performance indicators and ambitious sectoral policies that can exclude unsustainable projects.

Only after the EIB can prove it is fit for the job a discussion on a capital increase makes sense. Until then the focus should be on how the EIB can improve the quality of its investments rather than the quantity. By avoiding this discussion EU policy makers not only put a heavier burden on the EIB, they also take away a crucial incentive to make it perform better.

[1] Missing in Action, Bankwatch: http://bankwatch.org/sites/def...
[2] EIB Activity report 2011 http://www.eib.org/about/publi...
[3] Resolution of the European Parliament on the 2010 Annual Report of the EIB: http://www.europarl.europa.eu/...
[4] idem
[5] Carbon Rising, Bankwatch: http://bankwatch.org/sites/def...