The Vice President of the Government and Minister of Economy Nadia Calviño answers questions from journalists before the Ecofin meeting this Friday.OLIVIER HOSLET (EFE)
In the last days of November, the dispute over the presidency of the European Investment Bank (EIB) between its future boss Nadia Calviño and her main rival Margrethe Vestager in Luxembourg, the headquarters, attracted all the attention of the company, two important documents were published. Both explain where the bank's strategy will go in the near future: one reviews and evaluates the roadmap it adopted in 2021 to ensure that four years later at least 50% of its loans finance activities aimed at preventing climate change and aim to promote sustainable growth; the other plays its role as a financial arm in the EU's geopolitical plans. And the word Ukraine keeps cropping up there, and the EU and the EIB themselves “will have a big challenge” in rebuilding it.
Reading and studying these two papers will likely be part of Calviño's duties as head of the bank. She seems to have it figured out. “It has to play a bigger role […] “In order to achieve a fair technological, environmental and digital transition and to protect our strategic autonomy in the 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. It doesn't say much more. His profile is defended on three pages, whereby he first reveals the basic principles of his plan for a company founded in 1958 to finance the distressed south of Italy, which today grants loans in 170 countries.
European institutions like to boast that this public community bank is the largest multilateral bank in the world by assets. That's almost 550 billion euros, much more than the World Bank's 336 billion dollars (312 billion euros). However, there is a fundamental difference: the World Bank's first prominent clients are African countries; On the other hand, almost 90% of the money lent by the European institution 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, namely 75,000 million, an amount that far exceeds the total money lent by the EIB during 2022 (65,000 million). The Hispanic relationship with Luxembourg unity is becoming even closer, and not just because of Calviño. The recovery plan envisages that this organization will manage around 20,000 million euros to provide loans to the autonomous communities.
As the race to replace German Werner Hoyer began, all eyes turned to Berlin and Paris to find out which candidate they supported. The augurs examined the words of their finance ministers Christian Lindner and Bruno Le Maire about the EIB to guess who they supported. They disappointed, even though they made it clear what they wanted from applicants. The German claims that the company maintains the highest financial ratings in the markets, the so-called Triple A. In addition, it has solvency indicators well above those of commercial banks, for example the CET1 (the capital with the highest solvency) is 35%, well above the 10.7% that the ECB requires from the companies it supervises.
These ratings allow it to finance itself in the markets, and at very low prices, because those who buy its bonds know that they are taking on very little risk. In addition, the EIB is a non-profit organization and therefore sets low profit margins on its loans. In fact, his profits are low for the size of his assets: 2,366 million, which corresponds to a profitability of only 0.43%. The first consequence is that this bank can provide cheap loans to stimulate development. And this would be a first advantage for its main customers, the EU member states, which are also its main shareholders. And something else: by not paying out dividends and investing them in their own funds, their owners don't have to contribute a lot of capital. Of the almost 250,000 they subscribed, they only deposited 22,190 million.
However, this series of figures gives reason and at the same time explains the criticism of the company's management for exercising excessive caution in its activities and not taking major risks. The projects in which it invests money must be solid, as must the various infrastructures that it finances (hospitals, trains, railway lines, stations, wind farms or pipelines and water treatment plants). This is the only way to explain why there are always profits with such a low profitability margin. “It's more of a pension fund than a bank,” says, ironically, a former European Commission official. “Triple A is an obsession,” another close observer of the EU’s financial institutions jokes.
The company is aware of these criticisms and is trying to counter them by giving examples of some of the projects it has financed, such as a loan granted in Sardinia for technology to liquefy carbon dioxide for later storage. He also likes to emphasize that he has granted loans for vaccines against Covid-19. For example, a loan of 100 million for Biontech, the German company behind the Pfizer vaccine, and another of 45 million for Hypra, the Spanish company.
When crises occur, the name EIB is usually mentioned in Brussels. It is seen as a tool that should be promoted to cushion the effects of a recession. Then, as so often happens, it dissolves. For example, it was the first idea of some regarding the impact of Covid-19. Later, the recovery fund was established. However, it is now being considered that the company is doing a much better job of fulfilling its purpose of financing economic development.
The conditions are already in place for the institution headed by the current economics minister to play a leading role. The need for financing for the digital and energy transition will be enormous. The European Commission estimates that the EU will need 620 billion annually. Spanish Socialist MEP Jonás Fernández points to the two transitions and assigns the EIB the task of supporting not only Ukraine, but also countries where the continent needs to strengthen its strategic interests: “Its capacity can be used to support neighboring countries “To continue to support the South.” Mediterranean and Latin America,” he develops.
And these demands come at a time when governments will not be able to resort to enormous public spending, as happened during the three systemic crises of the last 15 years (the financial crisis, the crisis caused by the pandemic and the energy crisis ). . One consequence of this is the mountain of accumulated national debt. “The financial flexibility of the member states is limited. The European Investment Bank therefore has a crucial role to play,” emphasized Frenchman Le Maire in the congratulatory message to his counterpart. In addition, interest rates are high. They will probably start to decline in the spring or summer, taking inflation into account, but the years of demanding money at 0% are over. And here is an opportunity for the EIB and for the first woman to lead it in its history.
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