EIB offers a wealth of opportunities

Date: 15/01/1998

As it prepares to celebrate its 40th anniversary, the European Investment Bank is trying to raise its profile as one of the world's largest financial institutions. Simon Coss reports "WE'RE very big and we're very good at hiding." This is how one employee of the European Investment Bank, perhaps the EU's least outspoken institution, described his place of work.

Set up in 1958 as the Union's main long-term lending institution, the EIB is in fact one of the world's largest lending and borrowing operations. In 1996, for example, the bank raised more than 18 billion ecu on the world's capital markets which allowed it to provide 23 billion ecu in loans to finance projects both within the Union and further afield.

But ask the average European in the street what the initials EIB stand for and you will probably be met by a blank stare.

Officials at the bank argue that one reason for this could be the EIB's geographical location. The bank is based in Luxembourg - the Union's smallest and most unobtrusive state, and a country usually only visited by Europe's press corps when politicians are in town for meetings of the Council of Ministers in April, June and October.

Another reason cited is that while the bank is involved in important day-to-day financing activities of major infrastructure projects, its smooth functioning and generally careful handling of the funds under its control means that it has never been a really good source of headline-grabbing news.

While no one would suggest that the bank should throw caution to the wind in order to capture the media's attention, it has moved to tackle the first of these drawbacks by opening up a small satellite office in Brussels at the end of last year tasked with ensuring that the EIB has a somewhat higher media profile in future.

"It is very difficult to persuade journalists to come to us in Luxembourg, so we have decided to go to them instead," explained one official.

Unlike commercial banks, the EIB is a non-profit- making body. This means that most of the money it raises is passed on to the projects it funds, with a small percentage used to cover the institution's running costs.

The bank is an autonomous financial body with its own legal personality. However, it is also an official EU institution and its board of governors is made up of the Union's 15 finance ministers.

Basic capital is provided by the Union's member states, which is then used by the bank to raise further funds on the world's money markets.

The finance ministers/governors lay down the general directives on credit policy and approve the institution's balance sheet and annual report. They also commit the bank to financing activities outside of the Union, and decide on any increases in the EIB's capital. The governors appoint officials to the bank's board of directors as well as its management committee and audit committee.

The bank has a board of 25 directors, 24 of whom are appointed by the Union's member states and one by the European Commission. The board is in charge of ensuring that the bank sticks to its remit - set out in the Union's founding treaties - to finance capital investment designed to further EU integration. It also decides on lending and borrowing operations. Meetings of the board of directors are chaired by the bank's president, currently the UK's Sir Brian Unwin.

The institution's management committee is in charge of the day-to-day running of the EIB's affairs. It oversees the bank's business, makes recommendations to the directors and ensures that the decisions taken are implemented.

The audit committee is responsible for ensuring the bank's books balance and that borrowing and lending operations have been carried out in a proper manner.

Although the EIB finances projects around the world, the vast majority of its funds - about 90% - are spent within the Union's 15 member states.

One of the biggest single initiatives the EIB has provided funds for in recent years is the Trans European Networks (TENs) transport, energy and telecommunications schemes.

Although the transport projects in particular have faced their fair share of funding problems as member states have sometimes been unwilling or unable to provide their portion of the necessary money, the bank has nevertheless channelled 33 billion ecu into TENs over the past five years.

Particular emphasis has been put on to the 14 priority transport TENs identified by the 1994 meeting of European government leaders in Essen.

Specific schemes which have benefited from such funding include the Paris/Amsterdam/Brussels/ Cologne/London rail link, which covers the Eurostar network linking the UK capital to continental Europe and the Thalys high-speed links between Belgium, France, Germany and the Netherlands.

The Öresund bridge/tunnel project linking Denmark and Sweden has also received EIB loans, as has the Rome-Naples high-speed rail link.

In addition to the TENs, the bank has also provided finance for many other national transport projects within the Union including the second Severn Crossing and the Channel Tunnel rail link in the UK and the new airport in Athens.

In the telecoms sector, the bank has lent about 9 billion ecu over the past five years to help fund fixed digital, mobile and satellite telephone schemes.

Further afield, it has provided loans for projects in the African, Caribbean and Pacific states which are signatories to the Lomé Convention, and schemes in the Mediterranean region, in central and eastern Europe, in Asia and in Latin America.

However, the bank has also come in for its fair share of criticism over the years. It has sometimes been reproached for not being sufficiently daring in its lending endeavours, preferring to release funds for major infrastructure products rather than supporting smaller more risky ventures.

"It has been very cautious but then its statutes require it to be," explains British Liberal MEP Graham Watson, a member of the European Parliament's monetary committee. Before taking political office, Watson worked for the European Bank for Reconstruction and Development, which was set up to help reconstruction and market reforms in central and eastern Europe and the former Soviet Union.

Watson argues that the EIB has to some extent been restricted in its room for manoeuvre by its ultimate masters, EU governments. "When the EIB was set up, member states didn't really want it to become a full-blown institution," he argues, adding: "The governments have never been entirely sure what they want to do with it."

However, the bank has recently begun to take a slightly more adventurous approach to its activities.

Although the vast bulk of its funds are still devoted to the big schemes, last summer's Amsterdam summit gave the institution permission to channel a limited amount of money into more risky areas, such as providing start-up and venture capital for the Union's small and medium-sized enterprises. For these smaller projects, the bank does not fund ventures directly but provides money to national banks which then lend it on to their clients.

Watson also feels that there has been a definite change of style at the institution since Unwin took over in 1993. "Unwin has modernised the bank. He has brought some Anglo-Saxon financial engineering ideas into it and has made it far less risk-averse and more responsive," he argues.

While a cautious bank with a triple 'A' credit rating is never going to grab the headlines in the way a juicy collapse complete with weeping chief executive or a really exciting financial crisis can, the EIB does finally seem to be emerging from the long grass.

Major feature on the work of the EIB.