The European Investment Bank makes an annual profit of 2.5 billion euros

EU finance ministers met on 15 September to discuss who should become the new president of the European Investment Bank (EIB) – the world’s largest multilateral development bank.

Anyone taking on this position will bear the enormous responsibility of implementing meaningful reforms and delivering results for its primary owners – the citizens and households of the EU.

The EIB’s subscribed capital of 249 billion euros comes from taxes paid by member states. However, the bank has failed to meet our most urgent needs, such as access to housing or energy, because it follows the EU’s current economic strategy, which seeks to restore a low-growth economy that is working less and less for our benefit.

The European Investment Bank does this by financing large infrastructure projects, investing in technological innovation, and supporting the competitiveness of EU industry and businesses, with half of the bank’s loans allocated to the transport and energy sectors. This public money is often received by large companies that are already making high profits themselves.

In recent years, the focus has shifted to green, digital and, more recently, dual-use military technologies. The idea that investments will be directed to other sectors and create jobs and prosperity is a good one, but... in practice, we are not seeing it.

Rising energy prices and food price inflation have hit low- and middle-income households across Europe hard. Essential costs – housing, utilities, food and transport – take up an increasing share of our already limited budgets. Basic services, such as healthcare, education, social care and social infrastructure, are also increasingly underfunded because tax revenues are insufficient, leading to staff shortages in healthcare and education.

At a time when our electricity bills were soaring, the EIB funded a few clean technology projects implemented by polluting energy companies, which, among other things, increased their profits by raising prices. There is no evidence that the EIB is acting radically enough to support programmes that would help households access public services at affordable prices.

The new bank president must understand: if we want to stay within planetary boundaries, Europe needs an economy that uses fewer resources and supports biodiversity and ecosystem restoration.

The European Green Deal Industrial Plan is currently more focused on subsidising profitable car manufacturers to maintain electric vehicle production in Europe than on reducing vehicle mileage. This means that climate criteria are being lowered for fossil fuel companies to support more “green” projects.

We are already facing the destruction caused by climate change – from forest fires and floods to the closure of polluting industries without decent compensation or alternatives offered to workers and communities. Despite this, Europe continues to delay the changes needed in both industry and lifestyle to address the environmental crisis.

Improving household living standards is a trade-off required to win public consent for necessary major changes. To achieve this, access to affordable housing, energy, food, transport, healthcare and education must be considered a basic public service. Providing these must become an absolute priority.

A fundamental transformation is needed

To secure resources for a common future, financial inequality must be reduced through tax fairness. The EIB can play an important role here. Currently, the bank operates much like an ordinary European commercial bank. It uses the same project appraisal mechanisms, clearly avoids taking risks and makes a 2.5 billion euro profit annually, even though profit-making is not among its mandates.

Other public banks, such as the European Bank for Reconstruction and Development or the German public investment bank Kreditanstalt für Wiederaufbau, take much higher risks while still retaining a triple-A credit rating. The European Commission also admits in its latest strategic foresight report that the EIB could take more risks, but it wants it to do so in the field of technological innovation.

This trend will not create decent jobs, will not sufficiently reduce the environmental impact of the economy, and will not help households that need it to access affordable housing or energy. Instead, the new EIB president should overhaul the bank’s operations.

The bank can maximise its impact on people by lowering profit levels, applying strict social and environmental conditions, and prioritising state-owned and local non-profit projects and structures in vital sectors that comply with environmental constraints and have long-term social and economic viability.

To achieve this, the new head of the EU’s “house bank” should close fewer deals with private banks, work more with national and regional public investment banks, and adapt the bank’s services to make it easier for local authorities to access funds.

However, the EIB president cannot change the European Union’s economic paradigm alone. To ensure the public services we all need, fiscal resources and a more effective wealth tax are required. The bank should refrain from supporting any company that avoids paying its fair share of taxes or that has sufficient resources to fund these projects itself.

Over the past 10 years, the importance of the EIB as an economic and political player in Europe has grown significantly. It is high time it worked for its true owners – the households and workers who pay the taxes upon which the bank depends.

Authors:
Frank Vanaerschot is the director of “Counter Balance”, an organisation monitoring EU public finances.

Jan Willem Goudriaan is the General Secretary of the European Federation of Public Service Unions (EPSU).
https://euobserver.com/opinion/157421