Ministers postpone decision on EIB loans

Date: 30/11/1995

THE European Investment Bank is to investigate ways of maintaining its heavy lending load outside the EU without breaching the budgetary ceilings set by the 1992 Edinburgh summit.

Unable to reach a deal on reducing the budget guarantee underwriting the EIB's loans to non-EU countries, Union finance ministers this week compromised by postponing a decision pending an EIB analysis of the problem and possible solutions.

This has been caused by the fact that the EU's loan guarantee fund, which requires a provision for each new loan or guarantee by the Union, will breach its ceiling in 1997 and effectively cap lending.

At their October meeting, ministers decided to deal with the problem by reducing the budget guarantee which underwrites loans made by the EIB in 60 countries outside the EU.

At the moment, the bank receives a 100&percent; guarantee from losses caused by default on repayments and this would have been cut to 75&percent;.

The EIB lent 2.25 billion ecu abroad in 1994 and has warned that some solutions could threaten the high-quality loan status it receives from financial market rating agencies.

Any attempt, for example, to remove the 'global' guarantee that ensures against country loan default and to relate it to specific regions or projects would increase the EIB's exposure to risk.

Since the bank raises funds for loans and guarantees directly from the capital markets, with 14 billion ecu borrowed just last year, it does not want to pay higher interest rates for its funds.

EU finance ministers agreed this week to urge both the EIB and the Commission to consider different possibilities and their effects on the risk profile of the bank and then decide on a new system sometime next year. Meanwhile, the existing system will remain.

The Spanish presidency had hoped for a deal on a transitional system which would allow decisions to be taken on the next round of loan guarantees to be agreed for Central and Eastern Europe and the Mediterranean states in the spring.

Last year, the countries of Eastern Europe received almost 1 billion ecu, the Mediterranean states 600 million ecu and Asia and Latin America 200 million ecu from the EIB.

However, the Netherlands and the UK opposed this. “Some countries feared that if we made this into a transitional system, it could become more or less permanent,” said a diplomat at the talks.

“It wouldn't make much sense to have a transitional system,” said another. “The whole point is to clarify things before you decide on new guarantees.”