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EIB: the bank that was born for southern Italy and is now looking to Ukraine

2023-12-10T05:02:02.454Z

Highlights: EIB: the bank that was born for southern Italy and is now looking to Ukraine. The entity that Calviño will preside over is expected to play a key role in the green transition and in the European geostrategy. The recovery plan envisages that this organisation will manage some 65,000 million euros to give loans to the autonomous communities. Spain is the country with the most outstanding loans granted, €75 billion, an amount that far exceeds all the money lent by the EIB.


The entity that Calviño will preside over is expected to play a key role in the green transition and in the European geostrategy


The Vice-President of the Government and Minister of Economy, Nadia Calviño, answers questions from journalists ahead of the Ecofin meeting on Friday. OLIVIER HOSLET (EFE)

In the last days of November, while the dispute for the presidency of the European Investment Bank (EIB) between its next head, Nadia Calviño, and her main rival, Margrethe Vestager, captured all the attention, in Luxembourg, where the institution is based, two key documents were published. Both explain where the bank's strategy will go in the near future: one reviews and evaluates the roadmap it approved in 2021 to ensure that four years later at least 50% of its loans finance activities aimed at avoiding climate change and boosting sustainable growth; the other plays its role as a financial arm in the EU's geopolitical plans. And there, again and again, the word Ukraine appears, in 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 at the head of the bank. She seems to be clear about it. "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 10 August, when she presented her candidacy. It doesn't say much else. There are three pages dedicated to defending his profile, although, first, he reveals these basic lines about his plan for an entity created in 1958 to finance the depressed south of Italy and that today gives loans in 170 countries.

The European institutions are quite fond of boasting that this public EU bank is the largest multilateral bank in the world by volume of assets. That's close to €550 billion, well above the World Bank's $000 billion. But there is a key difference: the World Bank's first major client is African countries; On the other hand, almost 336% 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 with the most outstanding loans granted, €75 billion, an amount that far exceeds all the money lent by the EIB throughout 000 (€2022 billion). The Hispanic relationship with the Luxembourg entity will be further strengthened, and not only because of Calviño. The recovery plan envisages that this organisation will manage some 65,000 million euros to give loans to the autonomous communities.

When the race to succeed Germany's Werner Hoyer was launched, all eyes were on Berlin and Paris to find out which candidate they supported. The augurs scrutinized the words about the EIB of their finance ministers, Christian Lindner and Bruno Le Maire, respectively, to guess who they supported. They disappointed, although they made it clear what they were asking of the candidates. The German said that the bank would maintain 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, CET1 (the capital with the highest solvency) is 35%, well above the 10.7% that the ECB asks of the institutions it supervises.

These ratings allow it to go to finance itself in the markets and to do so at very low prices because those who buy its bonds understand that doing so risks very little. In addition, the EIB is not for 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 return 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 customers, the EU Member States, which are also its main shareholders. There is another: since they do not distribute dividends and dedicate 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 way, and at the same time explains, the criticism of the management of the entity for excessive prudence and not taking more risks in its activity. The projects in which it puts money have to be solid, very solid, as well as the various infrastructures it finances (hospitals, trains, railway lines, stations, wind farms or water pipes and treatment plants). This is the only way to explain why with such a low profit margin you always make a profit. "It's more of a pension fund than a bank," says a former European Commission official. "Triple-A is an obsession," says another close observer of the EU's financial institutions.

The entity knows that these criticisms accompany it and tries to counter them by giving examples of some projects it has financed, such as a loan granted in Sardinia for a technology to liquefy carbon dioxide for later storage. He also likes to point out that he gave loans for COVID-19 vaccines. For example, a €100 million loan for Biontech, the German company behind the Pfizer vaccine, and another €45 million for Hypra, the Spanish company.

The name EIB is often mentioned in Brussels when crises strike. It is thought of as a tool to be leveraged to cushion the blow of a recession. Then, as so often, it is diluted. It was, for example, the first idea of some in the face of the impact of covid-19. This was followed by the creation of the Recovery Fund. Now, on the other hand, the entity is being thought of for something much more appropriate to its purpose of financing economic development.

The conditions are already in place for the institution that will be chaired by the still Minister of Economy to play a leading role. 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 gives the EIB the duty to support not only Ukraine, but also countries in which the continent must strengthen its strategic interests: "Its capacity can be used to support neighbouring countries, the southern Mediterranean, and Latin America more," Develops.

And these demands come at a time when governments will not be able to use public spending in spades, as has happened during the three systemic crises suffered in the last 15 years (the financial, the one caused by the pandemic and the energy crisis). One consequence of these is the mountain of accumulated public debt. "Member states' financial room for manoeuvre is limited. The European Investment Bank therefore has a decisive role to play," said Le Maire in his message congratulating his counterpart. In addition, interest rates are high. They will probably start to come down in the spring or summer, with the exception of inflation, but the years when people were asking for money at 0% are long 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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Source: elparis

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