Supporting the Modernization of the European Economy

By Mr Philippe de Fontaine Vive, Vice President of the European Investment Bank

The task of the European Investment Bank, the European Union’s financing institution, is to support the modernization of the economies of member countries as well as countries close to the Union. This work was well illustrated in 2006 by the group’s efforts to implement the qualitative strategy laid out by the Bank’s Governors (the finance ministers of the 27 EU Member States, the Bank’s shareholders), with the aim of:
– strengthening the leverage of EIB operations;
– concentrating financing within the 27-member Union on six European priorities: building economic and social cohesion; improving environmental protection; supporting SMEs (small and medium-sized enterprises); making EU firms more competitive; setting up trans-European infrastructures; diversifying the energy sector, and making it more efficient;
– fostering economic convergence between the European Union and its partner countries.
In 2006, the EIB lent 45.8 billion euros for projects promoting the Union’s policy objectives, most of it in private funds. The bulk of these loans went to operations in the 25 EU Member States (87%). More than one-hundred partner countries, starting with the Mediterranean countries participating in the Barcelona Partnership, also received six billion euros from the EIB as assistance in preparing to join the Union and as development assistance.
The EIB Group’s specialized arm for supporting SMEs -the European Investment Fund (EIF) – has increased its portfolio invested in capital funds to 3.8 billion euros, and has provided 2 billion euros in guarantees, in an effort to ease the financing restraints put on SMEs by commercial banks. In 2006, more than 209,000 SMEs and micro-enterprises received help from the EIB Group.
The EIB is self-financing, raising its resources on international capital markets without putting a direct burden on European taxpayers or nationals. The bank has raised 48.5 billion euros through 303 bond issues in 24 currencies, under first-class conditions that reflect its triple-A credit rating. This has enabled it to offer clients particularly attractive rates along with other financing advantages: long-term loans and financial engineering aligned to each investment’s financial profile. In addition to its benchmark role on the euro, pound and dollar markets, the EIB also plays a significant role on the currency markets for new EU Member States (the Slovak koruna, the Hungarian forint) and candidate countries (the new Bulgarian lev, the new Turkish pound). By issuing loans in the local currency, the EIB fosters the development of these countries’ domestic markets and helps eliminate exchange risk for projects funded by these loans.

A proactive approach to foster better use of European public funds and tackle the problem of risks.
The EIB Group is determined to be a key player and partner for economic development in the expanded 27-member European Union, by mobilizing financial resources to:
– help new Member States complete their economic transition;
– maintain a high level of investment in public services;
– help make the Union more competitive and strengthen its SMEs;
– meet the challenges in the European energy sector and address climate change;
– serve as a catalyst, through its operations, for operations by specialized national and international institutions.
The EIB Group’s proactive approach is illustrated in a handful of examples. First, the EIB has strengthened its means of cooperation with the European Commission by launching three new joint initiatives to help Member States make better use of European structural funds, which were increased significantly for the 2007-2013 period, reaching 308 billion euros. Structural funds can hence be used for financial engineering in areas that provide support to SMEs and micro-enterprises (the JEREMIE initiative) or foster urban social development (the JESSICA initiative). The third initiative (JASPERS) is being funded by the Commission, the EIB Group, and the EBRD (European Bank for Research and Development). It offers technical assistance, free of charge, in identifying and implementing infrastructure projects in new Member States.
The EIB has already invested nearly 100 billion euros in Trans-European Networks (TENs) since 1994. It has joined forces with the Commission to accelerate the implementation of the ambitious second TEN-Transport and TEN-Energy program. The two institutions have set up a structured finance facility and a guarantee fund for TENs, which should attract greater private funding for projects with a high risk profile. These two instruments should act as a catalyst in bringing in up to 20 billion euros of additional funding.
The Bank already makes over 23 billion euros in loans to foster innovation and research and development inside the Union. To further bolster these efforts, the EIB and the Commission are creating a new one billion euro “Research Facility,” cofinanced by the Bank and the 7th European R&D Framework Program. This instrument was requested by the December 2005 European Council, and could leverage up to 10 billion euros in additional funds over the 2007-2013 period.
At the same time, the EIF is preparing to give SMEs a fresh boost. It is gearing up for an increase in capital, and will make an additional 1.1 billion euros available under the “Competitiveness and Innovation Framework Program (2007-2013)” for deploying innovative financial products for SMEs that are just starting up.
Finally, there has been a substantial increase in EIB cooperation with other institutions, both in exchanging expertise and in sharing financial products. Some good examples of this are the headway made in 2006 towards achieving the Kyoto objectives (development of two carbon funds, one with the World Bank and the other with the EBRD), the operational ties forged with the EBRD in support of Eastern Europe, and numerous joint operations launched with national development institutions within the framework of the EDFI networks set up under the EIB.

Three areas of cooperation with non-EU countries, to foster convergence and respect for partner countries’ identities
In a globalized economy, characterized by the emergence of new players and ever-increasing political and social tensions, the European Union has become a beacon. Its core values of solidarity and respect for all cultures and identities are seen as a moderating influence that has become absolutely vital in the quest for more peaceful international relations.
The December 2006 European Council acknowledged the importance of the EIB’s contribution in implementing the financial aspects of the Union’s aid and cooperation policies towards its partner countries, and increased the Bank’s means of action outside the Union by more than a third, raising them to 27.8 billion euros for the 2007-2013 period.
Three “fields” of action have been identified, each with specific objectives.
– Helping future EU Member States prepare for accession, which each receiving 8.7 billion euros in loans. Over the five preceding years, the EIB loaned 10.2 billion euros to 12 future Member States, enabling them to make great headway in preparing to join the EU, especially in the transport sector, environmental protection, and restructuring their public services. In 2006, including loans to Bulgaria and Romania, the EIB provided 3.2 billion euros of financing to the enlargement countries (Turkey, Croatia, FYROM).
– Advancing the convergence process with the Unions neighbor’s, through a total of 12.4 billion euros in loans, is the biggest mandate ever given to the EIB. It is divided into two main parts: extending Europe’s transportation networks into surrounding countries; and supporting the private sector. 8.7 billion euros is being divided among the 9 Mediterranean partner countries, which is nearly double the support provided to the “Barcelona Partnership” countries.1 Russia and the EU’s eastern neighbors will receive 3.7 billion euros (a real challenge for a region in which the EIB loaned just 85 million euros in 2000-2006).
New institutions are being created to ensure the success of this buildup in operations. For the Mediterranean, the Union’s partner countries will be fully involved in a reinforced Euro-Mediterranean Investment and Partnership Facility (FEMIP)2, which will focus three main areas: operations, institutions, and dialogue through the “FEMIP conferences.” For Russia and the EU’s eastern neighbors, an operational agreement has been signed with the EBRD.
– Enhancing cooperation with other continents, to make the very most of the concerted actions taken by the Bank and other financial players. As for sub-Saharan Africa and the Caribbean and Pacific States, the EIB lent them 825 million euros in 2006, giving priority to support for SMEs and energy projects. It will continue these efforts over the 2007-2013 period, reserving a lending capacity of nearly 4 billion euros to this end.
It was also decided to make a major effort in support of operations in Latin America and Asia, raising the ceiling for this same period to 3.8 billion euros (here again, an increase of more than 30%). However, clear priority is being given to Latin America. 2.5 billion euros of the program budget have been earmarked to support private European initiatives in Latin American countries, as well as projects that protect the environment or enhance European energy security.

The EIB Group in Paris
The EIB opened a Representative Office in Paris in January 2004, to help strengthen ties between the EIB Group and French authorities working with the Bank. EIB representatives are also available to assist political leaders, public officials and economic players seeking information about the EIB’s activities.
The Paris Office promotes the Group’s operational objectives, in particular by supporting the Bank’s activities within the scope of the Barcelona Partnership, underscoring that the development of the Euro-Mediterranean is of great interest to southern and western EU countries.
Maintaining an office in Paris has also helped strengthen ties with international institutions and organizations based or represented in the French capital – starting with the World Bank Group, the OECD, the Council of Europe, and the United Nations – but also with other technical international organizations that share the same interests as the Bank and its financial arm, the European Investment Fund.