May 2, 2012
The EU is facing its worst ever economic and financial crisis. Unemployment has reached intolerable levels. One in ten EU active citizens and one in four Spaniards are out of work.
To overcome the crisis Europe needs to step up productive investments, rapidly and without bureaucratic strings. Most governments are not willing or able to do so, fearing a negative impact on their public deficits and credit ratings.
In this desperate situation the European Investment Bank should be able to come to the rescue.
Being 100 per cent owned by the 27 member countries, its role is to support EU policies by offering favourable long-term project financing. To help the EU minimise the negative impact of the economic crisis it has substantially raised its lending, culminating in a volume of € 79 billion in 2009.
Its lending is focused on:
- Small and medium size companies, which are at heart of job creation.In 2011 some 120 000 MSEs benefited from € 13 billion low interest loans.
- Energy- and climate related projects;
- Investments linked to EU structural programmes.
Since 2009 the EIB has regrettably wound back its volume of lending to € 50 billion envisaged for 2012. This does not appear to be the right approach. The Bank should, on the contrary, go to the limits compatible with its AAA credit rating and step up annual lending to € 80-100 billion in order to boost innovation and employment.
To that end it should:
- Raise its capital basis from € 232 to 300 billion.Member states will be reluctant to take additional financial commitments. But they give in if there is sufficient political pressure. as the recent capital increase of the IMF has shown. The EU Heads of Government should therefore decide on a capital increase at the forthcoming European Council meeting devoted to EU economic growth in June.
- Leverage EU structural funds and invest them exclusively in productive projects which the EIB will co-finance.The EIB should take over from the Commission and member states the lead for assessment of all projects financed by EU structural funds. This would boost their economic impact
Such a deal would have several advantages:
- It would help fighting unemployment, without governments having to increase their budget deficits.
- The EIB lending, combined with the grants from the structural funds, would give a boost to productive investments in the weaker EU member countries, which should be the sole beneficiaries of such funding for the next seven years.
- SMEs willing to invest would obtain access to medium lending at favourable rates.
- The EU would enhance the efficiency of structural policy by designating the EIB as the main agent for implementation.
Under optimal conditions, these innovations might generate an additional productive investment of up to € 200 billion per year, € 80 from the EIB, € 40 billion from EU structural funds and € 80 from private banks and companies.This is a substantial amount, especially if the lending focuses on the poor and hard-hit EU countries.Author : Eberhard Rhein