European Investment Bank: the unseen rise of a cohesion giant

EIB building in Luxembourg. [Shutterstock/nitpicker]

This article is part of our special report The promises and challenges of repayable EU structural funds.

Having undergone a significant transformation that raised its public profile, the European Investment Bank (EIB) is set to occupy an increasing role in bridging development gaps between the EU’s regions while raising funds for greening, but public finance watchers warn  that hitting targets will not be easy.

The EIB is an often overlooked actor of European Cohesion, with roughly a third of its €70-80 billion yearly landing falling under its objective to decrease disparities between the bloc’s regions.

Between 2015-2019, the EIB provided €84.4 billion to projects in EU cohesion regions, and last year alone paid out €16.13 billion.

The institution has been a big promoter of using loans and guarantees to finance EU development.

“Of course, we all understand that there are still sectors which need grant support, but at the same time, we all know and understand the benefits of financial instruments, which provide more value for money and compared to grants offer a more sustainable way of financing, more specifically with their revolving effect,” EIB vice-president Lilyana Pavlova who oversees financing for social and economic cohesion told EURACTIV.

“Our advisory services played and will play an important role in supporting development of all these financing tools because the use of the financial instruments under shared management  [funds of cohesion policy] is timid,” she added.

The institution helps national development banks and authorities build up financial capacities — especially important in newer member states and less developed regions that often lack the financial know-how to set up and operate complex financial products.

The main way the bank contributes to the implementation of EU structural funds is providing loans for regions to make up the mandatory national contribution required to receive EU support.

Since 2007, the EIB has lent more than €31 billion to national and regional authorities to implement their structural programmes.

The lender, whose shareholders are the EU countries, has also acted as a fund manager for funds channelled to regions for cohesion, to the tune of €7.5 billion.

Besides helping less developed regions develop financial capacity, the Bank had to undergo significant changes itself in recent years.

Historically seen as a very risk-averse institution that preferred large infrastructure loans, much has changed after it became the main implementer of the Juncker Plan launched in 2015 that aimed to jump-start private investment into the ailing European economy following the Great recession and the eurozone crisis.

While hailed as a success by the European institutions for having mobilised around €500 billion, European auditors said the amounts may be overstated and pointed out that much of the funding went to bigger member states, forcing the Bank to defend itself by arguing that the picture is more balanced if the lending was adjusted to GDP per capita.

Quoting the EIB’s president Werner Hoyer, Pavlova said the Juncker Plan, formally known as the European Fund for Strategic Investments (EFSI), changed the DNA of the bank “because it has multiplied our ability to take more calculated risk and to focus on financing gaps in European economy.”

“So, I think that the bank has changed already a lot, and we do change every day to adapt to the new challenging environment, we are all living in,” she added.

Analysts say that the transition from big investments to riskier ventures was not easy for the bank.

The EIB was “worried to start going into the territories that were the real cohesion territories because of the risk of having bad loans, and the EIB didn’t have a culture of having bad loans to start with,” Jorge Núñez Ferrer is a Senior Research Fellow at CEPS said.

“And they started with some big projects, they were lending to things that were very good” in cohesion regions, a tendency that remains, according to Ferrer.

The analyst pointed out that the Juncker plan increased the profile of the bank but also meant that it had to give up some of its operational independence: “the EIB in the last years has suffered something very special: it has become a political tool.”

“This probably bothers the people that are in the operations of the bank. But for the guys that are the leadership of the bank, it makes the EIB more visible, it makes them more visible,” Ferrer added.

The researcher said that the bank has also become more important in cohesion.

On the one hand, “you will have more financial instruments used by regions that are learning to create their own instruments.”

On the other, “the EIB is learning to become the development bank and now, much to their regret probably, the climate bank,” which should create more access for all regions, including the ones that are more behind. “This is a healthy shift,” Ferrer added.

Last month, EU governments approved a €1 trillion green “roadmap” for the bloc’s lending arm that will see it stop financing fossil fuel projects and airport expansions, align the EIB with with goals of Paris agreement and have more than half of annual financing dedicated to green investment by 2025.

EU bank approves €1 trln green lending plan

European Union governments approved a €1 trillion green “roadmap” for the bloc’s lending arm on Wednesday (11 November) that will see it stop financing fossil fuel projects and airport expansions, though climate groups said it did not go far enough.

Anna Roggenbuck, policy officer at public finance watchdog Bankwatch said “it’s been really visible that this climate was really pushed very hard from inside of the bank, from its top management.”

Roggenbuck, welcomed the Bank’s green plans but cautioned that the roadmap could also pose a challenge as many of the cohesion regions have less developed economies and infrastructure that is often fossil fuel dependent.

“It poses challenges for cohesion because the EIB will have to really also support these regions in preparing projects that will be eligible for financing,” she said.

However, the campaigner said “it seems the EIB is aware of the challenge,” pointing to the fact that special attention has been given to existing technical assistance in the climate roadmap document.

EIB Vice-President Pavlova said the bank’s climate “commitment should not and is not made at the expense of our commitment to cohesion policy, just the opposite, we believe that the twin objectives are mutually supporting each other.”

At the same time, Pavlova agreed that national and regional authorities need more support, especially for environment and state aid compliance.

“There should be more invested in technical assistance to increase the quality of projects, the capacity of regional authorities specifically and to support the absorption [of funds],” Pavlova said.

She added that EU countries are simultaneously facing implementation of the new seven-year budget and the recovery fund, which has a more fast-paced timeline of implementation.

[Edited by Benjamin Fox]

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