In the last days of November, while the dispute for the presidency of the European Investment Bank (EIB) between what will be its next boss, Nadia Calviño, and her main rival, Margrethe Vestager, captured all the attention, in Luxembourg, where headquarters of the entity, two key documents were published. Both explain where the bank’s strategy will go in the near future: one reviews and evaluates the roadmap that was approved in 2021 to ensure that four years later at least 50% of its credits finance activities aimed at avoiding climate change and promoting sustainable growth; the other deploys its role as a financial arm in the EU’s geopolitical plans. And there, time after time, the word appears Ukrainein whose reconstruction the EU and the EIB itself “will have a major challenge.”
Reading and studying these two papers will probably be one of Calviño’s tasks as head of the bank. She seems to have it clear. “It has to play a bigger role […] to achieve a fair technological, ecological and digital transition and protect our strategic autonomy in a context of geopolitical tensions,” explains the still first vice president of the Spanish Government in the letter she sent to the bank’s governors on August 10, when she presented her candidacy. She doesn’t say much more. There are three pages intended to defend her profile, although before she reveals these basic lines about her plan for an entity created in 1958 to finance the depressed south of Italy and that today gives loans in 170 countries.
European institutions quite like to boast that this community public bank is the largest multilateral bank in the world by volume of assets. These are close to 550 billion euros, much more than the 336 billion dollars (312 billion euros) of the World Bank. Although there is a fundamental difference: the first prominent client of the World Bank are African countries; On the other hand, almost 90% of the money lent by the European entity goes to countries or companies in the rich first world.
Spain stands out among the latter. It is the country that has the most outstanding loans granted, 75,000 million, an amount that far exceeds all the money that the EIB lent throughout 2022 (65 billion). The Hispanic relationship with the Luxembourg entity will become even closer, and not only because of Calviño. The recovery plan contemplates that this organization manages some 20,000 million euros to give credits to the autonomous communities.
When the race to succeed Germany’s Werner Hoyer was launched, all eyes looked to Berlin and Paris to find out which candidate they supported. The augurs scrutinized the words about the EIB from their finance ministers, Christian Lindner and Bruno Le Maire, respectively, to guess who they supported. They disappointed, although they made it clear what they asked of the applicants. The German, that the entity maintained the highest financial ratings in the markets, the so-called triple A. It also maintains solvency indicators that far exceed those of commercial banks, for example, the CET1 (the capital with the highest solvency) is 35%, well above the 10.7% that the ECB asks of the entities it supervises.
These ratings allow it to go to the markets to finance itself and do so at very low prices because those who buy its bonds understand that by doing so they risk very little. Added to this is that the EIB is non-profit and, therefore, applies low profit margins to its loans. In fact, its profits are low for the amount of assets it has: 2,366 million, a profitability of just 0.43%. The first consequence is that this bank can give cheap loans to boost development. And this would be a first advantage for its main clients, the EU Member States, which are also its main shareholders. There is another: by not distributing dividends and dedicating them to their own funds, their owners do not have to contribute much capital. They have only put in 22,190 million of the almost 250,000 they have subscribed.
But this string of numbers gives rise to, and at the same time explains, criticism of the entity’s management for excessive caution and not taking more risks in its activity. The projects you put money into have to be solid, very much so, as well as the various infrastructures you finance (hospitals, trains, railway lines, seasons, wind farms either pipes and water purifiers). This is the only way to explain why with such a low profitability margin there are always profits. “It is more of a pension fund than a bank,” ironically says a former European Commission official. “Triple A is an obsession,” another close observer of the EU’s financial institutions notes jokingly.
The entity knows that these criticisms are with it and tries to counteract them by giving examples of some projects it has financed, such as a loan granted in Sardinia for carbon dioxide liquefaction technology for later storage. He also likes to highlight that he gave loans for vaccines against covid-19. For example, a loan of 100 million for Biontechthe German company behind the Pfizer vaccine, and another 45 million for Hypra, the Spanish company.
The name of the EIB usually comes up in Brussels when crises arrive. It is thought of as a tool to be promoted to cushion the blow of a recession. Then, as so often, it dissolves. It was, for example, the first idea of some regarding the impact of covid-19. Later the Recovery Fund was created. Now, however, the entity is being considered for something much more appropriate to its purpose of financing economic development.
The conditions for the institution that the still Minister of Economy will preside over to play a leading role are already in place. The financing needs in the digital and energy transitions are going to be enormous. The European Commission estimates that the EU will need 620 billion a year. After citing the twin transitions, Spanish socialist MEP Jonás Fernández puts the duties on the EIB to support not only Ukraine, but also countries in which the continent must reinforce its strategic interests: “Its capacity can be used to further support neighboring countries, the southern Mediterranean, and Latin America,” he develops.
And these demands come at a time when governments will not be able to resort to public spending in spades as has happened during the three systemic crises suffered in the last 15 years (the financial one, the one caused by the pandemic and the energy crisis). A consequence of these is the mountain of accumulated public debt. “The financial room for maneuver of Member States is limited. The European Investment Bank therefore has a decisive role to play,” highlighted the Frenchman Le Maire in the message in which he congratulated his counterpart. Furthermore, interest rates are high. They will probably start to go down in spring or summer, allowing for inflation, but the years in which money was requested at 0% are gone. And that is where an opportunity opens up for the EIB and for the first woman to preside over it in its history.
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