Keynote speech delivered by President Werner Hoyer at the Frankfurt Finance Summit, 22nd June 2020
Check against delivery
Ladies and Gentlemen,
Thank you very much for having me. I am delighted to be here.
70 years ago this month Robert Schuman was proposing the formation of the European Coal and Steel Community to post-war European leaders. The ECSC was agreed as part of the Paris Treaty in 1951, paving the way for development of the European Union.
The ECSC recognised coal as a driver of post-war economic recovery – and a single market in coal and steel as a cornerstone of the international world order after World War 2, to prevent future wars.
In hindsight, the post-war order was successful; it prevented large-scale European conflict, and the ECSC, for its part, ushered in a period of unprecedented growth and prosperity for the European continent.
The ECSC expired after its 50-year term in 2002.
I would like to make three points:
First, the coronavirus pandemic is an enormous challenge for all of us, but it is also a chance for a new beginning.
70 years after the ECSC, this crisis offers us the possibility to re-define our priorities for the coming years.
Second, the reason for this opportunity is, of course, the enormous amounts of resources that are needed to lift our economies out of the crisis.
Rather than supporting structures of the past, we must use these resources now wisely to invest into our common future.
Third, the areas that I see most fruitful in this respect are: sustainability, digitalisation and innovation.
The world has changed dramatically in the last four months. Thousands of people have lost their lives to the pandemic; many more have lost a relative, friend or colleague.
Economic activity has slowed significantly. In 2020, we will most probably experience the worst recession since the Great Depression, with global economic output expected to shrink by about 3% this year.
For the USA, the world's largest economy, the IMF expects a minus of 5.9%. The economy of the Eurozone is expected to shrink by 7.5%, Germany's economic output by 7%.
The situation looks worse in countries that have been particularly hard hit by the virus, such as Italy and Spain. There, the IMF expects a decline of 9.1 and 8% for these two countries, respectively.
There are tangible consequences behind these figures. The ECB currently expects that one in three companies will fail in the coming years.
In Spain, almost a million jobs were lost in less than three weeks; much more than in the worst 100 days of the great recession of 2008-09!
To avoid our economies spiralling out of control, Member States have reacted swiftly and put together crisis packages at so far unprecedented levels...
The Brussels-based think tank Bruegel calculates, for example, that the immediate policy measures taken in Germany – that is, before the recently announced stimulus package – add up to more than 50% of GDP.
After long discussions, Finance Ministers have agreed to an immediate support package also at the EU level. As you know, the package comprises three measures:
- for the labour market, a €100 billion credit line to Member States from the European Commission’s Joint Employment Insurance Fund,
- for the health sector, a €240 billion credit-line to Member States from the European Stability Mechanism, and
- for the real economy: financial support by the EIB Group of up to €200 billion.
The underlying logic of the EIB’s intervention is simple: on the back of a €25 billion guarantee from Member States, we provide banks and national promotional institutions with guarantees and counter-guarantees to unlock lending to firms that are healthy but suffer from liquidity problems because of the fallout from COVID-19.
Importantly, the Guarantee Fund allows us to work closely with our existing network of venture capital and private equity funds to ensure that Europe’s most innovative firms also get through this crisis intact; and that they don’t fall prey to international investors.
While similar schemes are in place in many EU Member States, it is important to stress the European dimension of this.
Not all countries are able to respond to the crisis in the same way. If we allow for vastly different responses across Member States, however, the economic divergence that we have observed prior to the crisis will only get worse.
This will make it harder and harder and – and eventually even impossible – to sustain our Common Market.
Also do not forget: we are in this together! If firms in one country come under stress, this will have repercussions for firms in many other countries. You need 30 000 parts to build a car but if only one part is missing, the car won’t go! This is why it is so important that we complement national initiatives with a pan-European response to the crisis.
The main aim of our Guarantee Fund – as well as most other measures of the immediate crisis response – was to address the economic fallout and to prevent the crisis from getting out of control.
While all our usual environmental, climate and social standards apply to operations under the Guarantee Fund, broader considerations, such as climate and innovation, were not particularly influential for the design of the fund.
What mattered instead was speed of implementation and short-term economic impact.
It is normal that an initial crisis response focuses on limiting the economic damage and on protecting businesses, jobs and livelihoods.
However, having, I hope, weathered the worst of the Coronavirus storm, we are now confronted with a different situation; namely how best to restart our economies and re-engage our workforces.
Here, broader considerations should be front and centre. Specifically, I think that we need to use this moment to re-group and think about our broader strategic ambitions!
We have spent too much time in political discussions in recent years on the question of how to preserve the status quo in the light of financial crises, sovereign debt crises, rising inequality, populism and a global shift in power towards China…and too little time on how to shape our future.
This has left scars and led to a degree of estrangement between Member States… This is why it is so important that we now use this moment of pause that the virus has imposed on us to find our way back together and define a common vision for the coming years.
As mentioned earlier, for me, a common vision should be based on three pillars: sustainability, digitalisation and innovation. For the sake of time, let me focus a little more on the first.
Indeed, what better way to break with the past than moving from an economy that was fuelled by European Coal and Steel – to one that aspires to de-couple growth from fossil fuel consumption all together!
Leaving aside the symbolic importance of “turning the page” in this way, a green recovery is, in my view, the right way forward for Europe for several reasons:
First of all: Let’s be clear, the fight against climate change has become a necessity. If we want to avert catastrophe we have to act now.
The IPCC clearly indicated the years to 2030 as our last window of opportunity to avert catastrophic climate change. This is also true for the protection of biodiversity and ecosystems. So action is needed immediately.
Second: the vision of a green recovery, more than any other initiative, has broad based popular support across all Member States. There is no North-South split or East -West divide in Europe when it comes to the need to fight climate change.
According to the latest Eurobarometer poll, 93% of Europeans believe that climate change is a “serious problem”, 79% see it as a “very serious problem”.
Climate change has overtaken international terrorism as the second most serious problem facing the world today, after poverty, hunger and lack of drinking water.
Sure, there are different views on how best to go about fighting climate change – we learned this lesson during our long discussion with the Member States around the EIB’s new Energy Lending Policy at the end of last year – but ultimately, there is a broad consensus about the direction of travel we want to take…
This is also why, in the end, our new Energy Lending Policy was adopted with 95% of votes; a remarkable result given what was at stake: namely the exit of our support to investments in fossil fuels from the end of next year onwards.
This brings me to the third point: choosing the fight against climate change as part of a shared, new vision for Europe makes sense economically.
Our economists estimate that, over the coming years, the global market for environmental technologies and products will grow at around 10% annually. We need to be in a position to take full advantage of this opportunity.
In the EU we gave ourselves a head start in 2007 when our leaders agreed an integrated energy and climate strategy and set our ambitious 20-20-20 targets for the year 2020. That is: a 20% cut in greenhouse gas (GHG) emissions, a 20% share for renewable energy and a 20% improvement in energy efficiency.
In the meantime, however, the other major economies have also recognised the need to shift towards the low-carbon economy. They too see the benefits of greater energy security and cleaner air – and the huge opportunities for producers of low-carbon equipment and infrastructure such as renewable energy technologies, energy efficiency, carbon capture and storage and smart grids.
This leads me to my last point: what should be the key guiding principles for a forward-looking EU recovery package?
I think there are three:
First, investment must–in my view – take precedence over consumer spending.
Only investment creates growth.
We need to realise that – because of the crisis and the impact it has on firms’ balance sheets – we will be looking at years of very weak investment activities. This includes also investment in sustainability.
Long-term growth programmes, especially if they are of the magnitude we are talking about these days, should have a rapid effect, but their growth effects should not fizzle out like a flash in the pan. They should last for years - or even better: decades.
Sustainability investments meet these criteria. It is true that their financial return is sometimes lower than that of investments without a sustainability component. But in return they develop their effects steadily over decades…
Second, we need to make use of innovation and digitisation to push forward our sustainability agenda.
I keep hearing voices saying that we can achieve the climate targets of 2030 and 2050 with today's technologies. I consider this to be a dangerous illusion. Every realistic scenario shows us that we can only achieve these targets by reducing the costs of existing low-carbon technologies and by developing new ones.
To give you one illustration: the International Energy Agency predicts for 2020 an 8% fall in GHG emissions; larger than any year-on-year reduction in recorded history.
While this may sound like positive news…you need to know that if we want to maintain the global temperature increase below 1.5 degrees, we need a similar reduction every, single year until 2030.
It is clear that this is not possible with our current technologies.
Unfortunately, at present, I do not see that we are doing even close to enough to develop these new technologies. For more than 15 years now, the EU has spent about 1.5pp of GDP less in RDI than our main competitors in the US, China and South Korea.
Third, we need to strengthen our infrastructure
The Coronavirus crisis once again has shown us how important a well-functioning infrastructure is for our daily lives.
In Europe, but especially in Germany, we have been neglecting the maintenance and expansion of our transport routes, energy and telecommunications networks as well as social infrastructure for years. The same applies to the energy-efficient renovation of our building stock.
The backlog is apparent everywhere. While in other European countries, a poor budgetary situation may be seen as an excuse, this is not the case in Germany. What we need is a push for modernisation. Here I am thinking first and foremost of all critical infrastructure, including health care.
I would like to conclude with two final remarks that are often neglected in the current discussions.
Firstly, careful project planning and implementation are key.
Sometimes you get the feeling that our discussions on the recovery package are about one thing only: numbers. The assumption is that the only thing that matters is to get a lot of money out of the door - quickly.
That may work for short-term liquidity support. But it does not work in the case of long-term growth measures, especially investment. Investment does not come out of the blue; it must be carefully planned and implemented. This requires experience, time - and only then financing.
In many cases, however, there is a lack of all three. At the EIB, we know what we are talking about. In addition to the actual financing, a large part of our work involves patiently advising and assisting project promoters from the early planning phase onward on how to best design their projects.
Secondly, we need to ensure the effectiveness and efficiency of public funding.
Whatever public funds we decide to invest in the recovery in the coming months, they will never be enough. Public funds can only cover part of the total required!
Our aim must therefore be to structure our recovery packages in such a way that they ‘crowd-in’ a maximum of private capital. We have had a very good experience in this respect with the so-called Juncker Plan. And I believe that we should build on this example also going forward.
Let me just add one final remark: In all our discussions, we must not forget what is happening in the rest of the world.
Even before the COVID-19 pandemic, the challenges posed by climate change and rapid population growth meant a close to insurmountable challenge for large parts of the developing world.
Add the coronavirus crisis and we have – if we do not intervene quickly and effectively – what could very easily become a triad of humanitarian; economic; and geopolitical crises…
I see many very good initiatives on the horizon, in particular coming from the German development ministry, but more needs to be done if we want to avert greater damage.
While cases of COVID-19 are on the decline in Europe, globally we have never had so many new infections per day as we see currently. Our solidarity is therefore needed more than ever.