After years in the shade, EIB enters the spotlight

Date: 02/11/1995

By Tim Jones

THE European Investment Bank (EIB) has long felt itself a poor cousin of the EU's institutions.

Set up in 1958, in the early days of the European Communities, the Luxembourg-based bank is often forgotten when times are easy and even when issues of direct interest to it are decided.

Sir Brian Unwin would, ever so gently, like to put a stop to that. EIB president since April 1993, Unwin has decided to remind the Union's decision-makers that the bank is not a rubber-stamping machine.

“The bank has taken a very low profile over the years and banks are not here to get sexy headlines,” he admits. “But while decisions are taken in the last analysis by our political masters, the bank ought to make its advice and information known a little more strongly than it has been accustomed to in the past.”

The EIB is the Union's main long-term investment arm, responsible for loans worth approximately 18 billion ecu within the EU last year. Although it has its own legal personality and autonomy, its board of governors is the Council of Finance Ministers (Ecofin) and policy is guided by a 24-member strong board of directors.

Unwin obviously feels that the bank is sometimes left on the sidelines when decisions about its key areas of responsibility are made.

“If ministers want to consider ways of stimulating infrastructure investment or promoting investment by small- and medium-sized enterprises (SMEs), it ought to have the advice of the bank in taking those decisions. It's their advice to take, but it ought to be informed. And certainly, if they are going to take decisions that involve the bank, they ought to know in advance what the implications for the bank are.”

A recent example of this is the current debate within Ecofin over how to keep up its lending commitments outside the EU.

The Union's loan guarantee fund, which effectively puts a lid on external lending, will hit its ceiling as early as 1997 unless something is done. At a meeting last week, finance ministers decided the best way to provide extra room for lending abroad was to reduce the guarantees for EIB project lending.

Unwin points out the consequences. The EIB has been asked to lend to nearly 150 countries, many of which are high-risk because of political decisions made by ministers. That is why the Union budget and member states have provided guarantees in the past, allowing the EIB to win the cheapest possible terms from international lending markets for its borrowing.

“All I am concerned about is that the bank continues to have a solid guarantee from its shareholders,” he said.

It is even possible that the EIB could be over-cautious in its lending, particularly if guarantees are provided for projects rather than to insure against the risk of a country defaulting on its debts to the bank.

“If we are asked to operate in all these countries then, although we will apply all our own project appraisal techniques to projects that we agree to help finance, we expect a guarantee from the Community for our lending in those areas. If no such guarantee was forthcoming, then the bank would have to consider very carefully where it would be possible for it to operate.” Unwin says he made this “quite clear” to ministers when they met last week.

When former Commission President Jacques Delors decided to champion the idea of a web of trans-European networks (TENs) spanning the continent and giving a physical expression to the single market, the EIB was not the first port of call for expertise or finance.

The newspaper headlines were dominated at the December 1993 Brussels summit by a debate over whether the Commission should lead the work and be given the right to raise up to 8 billion ecu a year to help fund the TENs.

This was shot down by the UK and German governments, but it still took several months before anybody thought of approaching the EIB. When finance ministers finally did this, Unwin already had plans up his sleeve. He offered to open a 'TENs window' which would offer financing terms and conditions tailored to the particular needs of the 14 priority projects finally pinpointed at last December's Essen summit.

Did he resent the fact that the EIB was sidelined for so long in an area so obviously within its competence? After a short hesitation, Unwin was keen not to point any fingers of blame.

“Various thoughts were put forward by the Commission, by Mr Delors”, he said. “But then we played a very full part in all the discussions from the end of 1993. We made a very full input into the process leading up to the Essen summit.”

He welcomed the Commission and member state acknowledgement of the need to take a “strategic look” at infrastructure financing. “But frankly, we had been doing TENs for many years. It wasn't something new.”

He was reminded, he said, of Monsieur Jourdin, a character in Molière's Bourgeois Gentilhomme, who, at the age of 55, was delighted to find that throughout his life he had actually been speaking prose.

“Well, we had actually been doing TENs for many years, so we've got a lot of experience in it and I was anxious that that experience and our knowledge of the financing networks should be fully on the table and appreciated by all the parties.”

This extra responsibility shows the EIB's growing contribution to the EU's economic objectives generally, Unwin pointed out.

Back in 1992-1993, the bank was entrusted with key elements of the EU's 'growth initiative' to drag the economy out of recession.

Under the so-called 'Edinburgh facility', the bank accelerated the financing of more than 140 major projects and regional investment programmes, then went on to launch a

1-billion-ecu subsidised loan scheme for the creation of jobs and the development of SMEs.

“It seems to me certainly - having come into the bank in 1993 - that the role of the bank and the expectations of it have grown considerably over the last couple of years,” he said.

The next great challenge will be the Union's enlargement to the east.

Already the EIB has a mandate to lend up to 3 billion ecu to 11 Central and Eastern European countries, but this expires next year.

Ecofin must decide soon whether to continue this, Unwin says.

“We need to know so we can do proper medium-term planning, but I would expect them to ask the bank to continue at least the present annual rate of about a billion ecu a year,” he says.

Since his arrival at the bank, Unwin had left the internal structure of the EIB all but intact. However, this year he decided to end the separation of the teams of engineers and economists. This month, they were merged into a single projects directorate.

“We've done this because I think the priceless asset of this bank is its project appraisal expertise and I think this will have the effect of rationalising that expertise with multi-disciplinary teams. Instead of having economists doing one job and engineers another, we'll have a single set of technical experts appraising the projects,” he said.

“It may not sound very radical, but it does break a very long tradition in the bank of having separate cores of experts.”

This all leaves little time for Unwin to indulge his real passions: birdwatching and cricket.

Fortunately for him, his end-of-terrace office looks out over a small garden with a bird-bath where, on a typical morning, he can spot up to 35 different species.

As for cricket, this former fast bowler for the Kingswood Village Club in Surrey may soon have to hang up his sweater. Asked to open the bowling in August, Unwin tore a hamstring and was forced to retire. “I think I have to recognise that the years are taking their toll,” says the 50-year old banker.

Nevertheless, with four more years to serve in his largely sedentary task at the bank, Unwin will continue to promote EIB as one of the emerging players in the Union's hierarchy.