IEP Lunch Debate with Dr. Werner Hoyer: “The Role of the EIB in Supporting Innovation, Growth and Employment in Europe”

Diskussion

Dr. Werner Hoyer, President of the Luxembourg-based European Investment Bank (EIB) and former Minister of State at the Federal Foreign Office, discussed “The Role of the EIB in Supporting Innovation, Growth and Employment in Europe” on 26 February 2015 at the Representation of Saarland in Berlin. The event was moderated by Dr. Mathias Jopp, Director of the Institute for European Politics.

The aftermath of the financial and economic crisis in Europe, which had negative effects on the monetary area as well as on the real economy, calls for measures to strengthen innovation, growth and employment in Europe. Hoyer stated that this is a matter of growing importance, as the EU is in danger of becoming too short-cyclical in its approach. Long-term strategies and solutions must be implemented to counteract the EU’s weakening competitiveness in comparison to emerging economies.  A 20% reduction in investment activity since 2007 by business and government (especially in education, research and innovation), low capital stock, regulatory barriers, and high youth unemployment (with its humanitarian, social and economic dimensions) have all contributed to the EU’s flagging competitiveness. This situation must be remedied to prevent the financial crisis from becoming an investment crisis.

Jean-Claude Juncker’s investment package (November 2014) can provide a targeted plan to strengthen Europe’s competitiveness and maximize its economic potential.  The first pillar of the investment program stipulates the improvement of the institutional and structural environment on both the European and national levels; the second is the introduction of an advisory platform for public administration and project managers; and the third, a € 315 billion European Fund for Strategic Investment (EFSI). The goal is to generate more competitiveness, sustainability and value in order to encourage investment in areas where a hands-off approach has not resulted in sufficient investment (e.g., the Netherlands) and to encourage the availability of credit for small- and medium-sized businesses. There are particular needs for investment in the areas of infrastructure, the energy network, traffic networks, digitalization and the environment. Legislation of the new mechanisms, which should be simple, clear and transparent, will be ambitiously pursued, with the goal that the EU finalizes the measures in March 2015.

In order to best utilize the available liquidity and to counteract the current risk-averse tendency towards investment in research and development, investors’ confidence must be strengthened. Along with better credit availability to small- and medium-sized businesses, a paradigm shift is necessary: from grants and subsidies to loan guarantees. This shift will appeal to prospective investors by lowering their risk. Hoyer foresees possible difficulties here if there is disagreement between the EIB, the EC and member states regarding the allocation of the guarantee sums and the reduction of grants (e.g., Horizon 2020). Sums of € 5 billion from the EIB, combined with € 8–16 billion from the EU, will be allocated to the fund for strategic investment, with the desired effect of a 15-fold leverage.

Hoyer recommended that the European Parliament establish an investment committee to undertake risk assessment and perform due diligence, evaluating the approximately 2000 projects supported by ECOFIN in regards to technical and economic responsibility and the mandatory aspect of additionality. Furthermore, a steering board including shareholders must be established. It is of essential importance to protect neutrality during these reviews and to avoid any politicization of these processes.

Governance presents another challenge, according to Hoyer. There is a conflict between the intergovernmental nature of the EIB and the communitarian nature of the European Commission regarding the regulation of financial relationships. In addition to the initiatives of the Juncker Plan, efforts must be undertaken at the national level in each member state towards budgetary discipline, structural reforms, and targeted growth efforts.

The subsequent lively discussion with the audience began with a question about the political independence of the EIB and a discussion on the importance of modifying the current legal system in order to integrate public bodies, which have traditionally been reliant on grants, into the new system. In response to a question about the EIB’s support of small- and medium-sized businesses, Hoyer again referred to the importance of thorough risk analysis. Regarding the contrast between approaches of austerity policy (as in Greece) and Juncker’s anticyclical investment program, Hoyer stressed the added value of a combination of both tactics: budgetary discipline combined with stimulus provided by private investment activity.

By Josefa Glass and Anthony Baumann


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