New mandate sought for guarantees on CEEC loans

Date: 23/01/1997

By Mark Turner

When EU finance ministers meet their central and eastern European counterparts next week, it will be both as teachers and bank managers.

Uppermost in CEEC ministers' minds is likely to be the ongoing Union debate over how to extend guarantees for around 3 billion ecu worth of loans to the region from the European Investment Bank.

Union ministers hope to decide to what degree the EIB, whose loans to non-EU countries are presently entirely underwritten by the Union budget, should find other bodies to guarantee its risk.

After more than a year's discussion, there is an emerging consensus that around 70&percent; of EIB loans to non-EU countries should be guaranteed by the Union budget, with the remaining 30&percent; covered by the commercial sector.

Member states hope that more businesses will follow the example of Japan's Sumitomo bank, which has underwritten EIB loans for Czech and Slovak energy projects, or Volkswagen, which has helped VW-Skoda in the same way.

The Dutch presidency is now trying to get a consensus on the figure through bilateral meetings before finance ministers meet next Monday (27 January).

It will have to reconcile differences between those advocating lower guarantees (the Netherlands and the UK favour around 65&percent;) and those calling for up to 75&percent;.

The final figure will need to balance sound financial management (if commercial loans are available, they should be used, say member states) with the possible risk to the EIB's 'triple A' credit rating that less government support might bring.

The debate is complicated by ongoing disagreements over what proportion of the EIB's total external loan capacity different regions should receive. France and Germany have been playing a tug of war between the competing demands of the Mediterranean and the CEECs, with a 6.8-billion-ecu pot at stake. Although CEECs are likely to receive more than 3 billion ecu over the next three years, France is pushing strongly to raise the Mediterranean allocation above the 2.1 billion proposed by the Commission.

The EIB's last external mandate, which earmarked 3 billion ecu for central and eastern Europe from 1994 to 1996, has been used up and until a deal is reached, no new loans can be signed.

This has caused some consternation amongst EIB officials, although they admit negotiations on new projects could go ahead despite the lack of a mandate.

East and West will also swap tips on budgetary policy during the special 'structured dialogue' meeting the first the Dutch will chair after next week's meeting of EU finance ministers.

Union governments will advocate medium-term budgetary strategies as the best way to keep deficits under control.

Drawing on their painful experiences over the last 30 years, finance ministers will explain how over-optimistic economic forecasts and a failure to reduce deficits when economies pick up can lead to a downward budgetary spiral. They will also explain their tactics in the run-up to economic and monetary union.

Both sides hope that western experience can provide some valuable lessons for the east Europeans, most of whom suffer from serious shortfalls of income.

Nevertheless, ministers also accept that as the origins of the CEECs problems differ substantially from those in the West, so may the solutions.

EU governments will ask about their partners' plans for both expenditure cuts and revenue-raising measures, seek details of their medium-term consolidation programmes and question how their economies would react to the Maastricht convergence rules.

The meeting will test Dutch promises of a more focused and productive dialogue with Union hopefuls during their presidency.

Foreign Minister Hans van Mierlo has made it clear that he intends to follow up Irish improvements to the structured dialogue. But it is clear that it will remain little more than a discussion forum and will certainly not broach substantive policy.

CEEC ministers have some time to wait yet before they reach the real negotiating table.