The European Guarantee Fund (EGF) is the main instrument which the European Investment Bank (EIB) implemented in response to the Covid-19 pandemic. The fund is made of €25 billion coming from European governments, with the aim of mobilising €200 billion from the private sector to support the European economy.

Counter Balance’s new briefing, ‘The European Guarantee Fund: The unknown tool of the European economic recovery package’, looks at the state of play more than a year after the EGF’s creation. It reveals that an utter lack of transparency around the fund has made it impossible to assess whether the EGF will actually benefit the European economy, or instead provide blank cheques to big banks and investment funds.

Our conclusions are:

  • The EGF lacks transparency: From who makes the decisions to who finally benefits, substantial volumes of public money are being disbursed in a secretive manner outside of public scrutiny. This secrecy reflects the EIB Group’s broader trends as the group’s intermediated operations remain for the most part a mystery;
  • The EGF could provide a blank cheque for big banks: The EIB Group is at risk of providing massive credit lines, guarantees and other complex financial instruments to big banks and investment funds with few strings attached, despite its purpose of supporting SMEs across Europe during the COVID-19 pandemic. This could happen behind closed doors with minimal transparency;
  • It is unclear how necessary the EGF is: There is little information and evidence in the public domain about how this instrument really makes a difference, and if similar results could not have been achieved without the use of public resources. Only the future can tell us if the EGF is a hidden bailout of the financial sector, or if it creates breathing space for small businesses across Europe;
  • The EGF supports risky financial engineering: It is noticeable that the use of questionable financial engineering, including asset-backed securities, has been rolled-out without a real public debate taking place and with limited publicity. The use of techniques that were part of the causes of the previous financial crisis to solve the new one should certainly be further discussed by democratically elected representatives.
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The European Guarantee Fund: The unknown tool of the European economic recovery package