Aimed at furthering the European Union's policy objectives, the European Investment Bank's lending activity is concentrated on areas designated as high priority by its shareholders, the Member States. Current priority objectives are promotion of regional development in the EU, reinforcement of the European economy's capacity for innovation, underpinned by the widespread application of information technologies, environmental protection and enhancement, preparation of the Accession Countries for Union membership and support for EU development aid and cooperation policy, particularly in the Mediterranean region and the Balkans. Other focal points are assistance for SMEs and development of Trans-European Networks for Transport and Communication including their extension into the Central and Eastern European countries as well as modernisation of health and education infrastructure.
The EIB is endeavouring to limit growth in lending in the EU (in 2001: approximately EUR 31.2 billion) to some 5% a year on average by concentrating on priorities and giving precedence to capital projects stimulating economic development. This is in keeping with the policy of making more funds available outside the EU, notably in the Accession Countries (in 2001: approximately EUR 5.6 billion, of which EUR 2.7 billion in the Accession Countries).
Under its Statute, the EIB can extend loans up to 2.5 times its subscribed capital (the subscribers being the EU Member States). With subscribed capital currently standing at EUR 100 billion (of which EUR 6 billion are paid in) and loans of EUR 221 billion outstanding (at end of 2001), the Bank is now approaching this ceiling. It is therefore seeking a capital increase of EUR 50 billion. The customary paid-in portion of some 6% can be financed from the EIB's reserves so that the proposed capital increase would not represent any financial burden for the Member States.
In Germany, the EIB cooperates very closely with the banking sector through a network of 25 partners - public and private banks with which the EIB conducts the bulk of its direct lending business. At the same time, the intermediary banks use EIB global loans to onlend funds for SMEs and smaller-scale local-authority schemes, up to a maximum of EUR 12.5 million. Competition between the intermediaries ensures that the favourable terms and conditions of EIB global loans are passed on to final beneficiaries, giving them the benefit of lower-cost funds. At present, the EIB is preparing new facilities to further improve SME financing.
During the period 1990 to 2001, the EIB advanced loans totalling EUR 37 billion in Germany, including 6.05 billion in 2001. Special emphasis was placed on the new Länder, which all rank as Objective 1 areas under Europe's regional development policy. Although the new Länder have received substantial financial aid from the Federal Government and from the German system of public-authority revenue equalisation, roughly half of aggregate EIB lending in Germany over the past eleven years (EUR 19.6 billion) went to this region, for modernisation of the energy and telecommunications sectors, environmental protection, industrial start-ups and, more recently, for urban renewal and upgrading of health and education infrastructure. Since 1999, some EUR 1.5 billion have been provided for construction and modernisation of schools, universities and hospitals alone, EUR 1.3 billion of which for projects in Berlin and the new Länder.
Germany is the leading target area in Europe for the EIB's "Innovation 2000 Initiative" for strengthening the innovative capacity of the European economy through investment in research and development, improvement of communications networks and application of information technologies including audiovisual training aids. This initiative was launched in response to the Lisbon European Council's (2000) decisions on fostering innovation. The Bank, for example, is financing the Heidelberg molecular biology laboratory; the European Investment Fund (EIF), the EIB's venture-capital subsidiary, has taken a stake in the "Heidelberg Innovation Venture Capital Fund" and the European Commission is also backing a series of research projects. This concerted action by the EIB, the EIF, the Commission and, of course, the regional government is geared towards developing the Heidelberg region into one of Europe's foremost hubs for biotechnology and related enterprises. Similar projects are being implemented in the new Länder (Leipzig, Dresden) in collaboration with leading research institutes and regional governments.
Germany is trailing behind many other European countries in private financing of infrastructure, but strained public finances and foreign examples of success with private and public/private partnerships for infrastructure construction and operation have resulted in a "re-think" and search for new forms of financing. The "Flughafen München Terminal 2" is the first project in Europe where an airport is to be jointly planned, built, financed and operated by an airport company and an airline. The road tunnel under the Warnow river in Rostock is a further prime example. The German Government is currently discussing amendments to the hitherto restrictive legislation on private-sector participation in infrastructure projects (law on private-sector financing of trunk road construction; introduction of road tolls for HGVs above 12 t, privately financed widening to 6 lanes and operation of 12 priority motorway sections). The EIB is anticipating that these initiatives will give a fillip to capital investment.
In Central and Eastern Europe, the EIB's task is to contribute to the Accession Countries' integration into the EU. With loans of EUR 17 billion since 1990, the EIB is the foremost provider of finance for the Accession Countries. Loans totalling at least EUR 17.2 billion are envisaged for the period up to 2006, representing an annual lending volume of EUR 3.5 to 4 billion.
EIB financing was previously centred on upgrading and expanding transport infrastructure (both road and rail) and the telecommunications sector with a view to connecting and integrating the Central and Eastern European Countries (CEECs) more closely with the EU market. More recently, greater emphasis has been placed on environmental investment in order to help the CEECs meet the EU's environmental standards. The Bank now attaches key importance to financing foreign direct investment in the region in order to enhance the competitiveness of the local economy. Foreign direct investment is the best way forward as it infuses not only capital into the CEECs but also the technical know-how and expertise of the western markets (for example, the Volkswagen AG Bratislava plant, which generates a considerable proportion of the Slovak Republic's export income; E.ON AG - replacement of an obsolete polluting power plant in Debrecen, Hungary, by a state-of-the-art combined heat and power plant)
As enlargement approaches, the EIB expects that the interest of EU enterprises in investing in the CEECs will continue grow. The Accession Countries can offer well-trained workforces at lower wage levels and an increasingly stable legal environment.
The EIB is also stepping up its presence on the capital markets of the region, borrowing in local currencies (so far in Hungary, the Czech Republic and Poland) and providing savers in the CEECs with an opportunity to invest their capital in a top-rated bond issuer. This allows the Bank to offer organisations such as municipal authorities loans in domestic currencies with longer terms than have been generally available up to now, eliminating the exchange risk and minimising the financing risk. The propensity to invest is thereby boosted.
Accession of the CEECs will mean a surge in activity for the EIB, as full integration and the economic catching-up process will call for a considerable investment effort.
The EIB is also establishing itself as the leading source of banking finance for infrastructural investment in South-Eastern Europe (Western Balkans). In line with the decisions of the Second Regional Funding Conference of the Stability Pact for South-Eastern Europe (October 2001), the Bank is extending loans for modernisation and expansion of transport, energy and environmental infrastructure. The "Infrastructure Steering Group" (European Commission, European Investment Bank, World Bank, European Bank for Reconstruction and Development, Council of Europe) agreed on a preliminary list of some 30 projects. Total costs are estimated at EUR 2.4 billion, of which one third is to be financed by the EIB. In order to mobilise private investment, the Bank will also provide global loans to the local banking sector for financing SMEs (2 global loans have already been arranged in Macedonia and Croatia). In its activities in the Balkans, the EIB has recourse to the "Quick Start Package" for infrastructure schemes, launched by the First Regional Funding Conference (March 2000), under which the Bank was mandated to appraise 11 projects and conduct project studies. Up to now, it has advanced EUR 500 million for 9 projects.
The EIB is the foremost multilateral lender in the non-EU Mediterranean countries, with operations over the past 5 years totalling some EUR 1 billion a year, the upper limit set by its Board of Governors, Last year, it established a Mediterranean Partnership Facility, under which it is to lend an additional EUR 1 billion over a period of 6 years at the Bank's sole risk. In 2001, its lending volume in the Mediterranean Partner Countries amounted to EUR 1.4 billion. Its activities in this area are geared to three objectives: (1) liberalising the economy by strengthening the private sector and modernising the banking system, (2) promoting sustainable economic development by investing in infrastructure and environmental protection, and (3) building up cross-border infrastructure to further cooperation between the countries of the region. Despite its considerable achievements, the Mediterranean Partnership agreed in Barcelona in 1995 needs to be revitalised. The Spanish Presidency of the Union has made this a top priority, proposing inter alia the creation of a Mediterranean Bank.
The European Investment Fund (EIF), an EIB Group subsidiary, has during the past three years invested over EUR 1 billion in stakes in venture capital funds, indirectly bolstering young businesses in the hi-tech sector and contributing to job creation. It has thus established itself as a leading player on the European venture capital market. With the downturn in this sector and the wariness of private investors, the EIF finds itself in even greater demand. It is planning to invest some EUR 800 million a year up to 2004 in selected venture capital funds, 10% of which in the Accession Countries. The EIF is currently the main investor in the early stage market in Europe, representing a segment where the risks are highest, the resources scare and the strategic needs of the EU most evident.