Merkel’s reservations hold back plans for more active EIB
German Chancellor Angela Merkel opened a new front in an election-year effort to limit her voters’ exposure to the costs of spurring the slumping European economy: the role of the European Investment Bank.
Merkel refused to loosen the leash on the European Union’s project-finance vehicle at a summit last week, frustrating the aim of southern European leaders to use it more aggressively to spur their slumping economies and attack record unemployment.
“The discussion clearly emphasized the elements of prudence,” Italian Prime Minister Enrico Letta told reporters as leaders headed home on June 28. “I’m telling you this because I don’t want to tell lies. I want to tell you how things really are. On this point, I think, as I see Europe, Europe needs a more proactive EIB.”
Merkel’s blunting of the raid on the EIB mirrors the political battles waged among European leaders since Greece kicked off the euro debt crisis in 2009. The biggest contributor to bailouts, Merkel has from day one sought to limit her voters’ liability for rescuing the most debt-laden states.
Now, it fits in with her electoral strategy of warding off potentially expensive surprises from Brussels. Delaying euro- zone bank supervision, sparing German taxpayers the bill for fixing lenders elsewhere, and blocking an EU decision on tighter car-emissions standards may also reflect that blueprint.
The German leader, seeking her third term in Sept. 22 elections, dismisses any connection between domestic politics and policy in the 28-nation EU.
“I honestly don’t know of any decision in Europe that was delayed or in some way stalled by the fact that we have elections in September,” Merkel told reporters shortly after 1 a.m. on June 28. Thirteen hours later she said that Germany, home to BMW AG, Daimler AG and Volkswagen AG, was behind last week’s EU decision to delay the car-pollution rules because “this is also about employment.”
It was a quiet triumph for Merkel that, when other crisis- related posts went to Italian or Dutch officials, Germany’s Werner Hoyer, once her European affairs minister, was made EIB president at the start of 2012.
The Luxembourg-based bank figured in the growth initiative launched a year ago, when newly elected French President Francois Hollande tried to steer crisis management away from the austerity-first prescriptions pushed by Merkel.
EU governments pledged in June 2012 to plow an additional 10 billion euros ($13 billion) into the EIB, enabling the bank to expand lending by 60 billion euros between 2013 and 2015. Since the EIB only gets involved in projects that have other sources of capital, the reckoning was that the extra lending would sluice 180 billion euros into the economy. While the governments delivered their 10 billion euros, the EIB has only just gotten started with the lending.
An EIB role in spurring business and fighting youth unemployment is something “you can imagine,” Merkel said at the summit. “We have to work out how to do this in concrete cases.” For his part, the EIB’s Hoyer said the bank “is committed to support any new initiative that helps to get the economy growing again and to bring young people into employment.”
There was an air of deja vu to the EIB debate. Often in the past, when money was tight the call went up for the EU’s in- house bank to open its lending spigots. In 2003, the EIB was touted as the savior of debt-laden European phone companies. Because the bank only lends for money-making projects, not to bail out stricken businesses, that idea quickly ran aground.Even then, Luxembourg Prime Minister Jean-Claude Juncker, the only current national leader who was around a decade ago, expressed frustration at the EIB’s inability to turn vision into reality.
“It’s the third time in 15 years that I’m attending a meeting where these programs are launched,” Juncker remarked at the time. “I really hope that this time is the real one.”
Southern European leaders’ impatience now came through in a summit statement that urged “stepping up efforts” by the EIB to buoy the economy, which has been shrinking since the fourth quarter of 2011. Yet language inserted into the statement by Germany and allies like the Netherlands and Finland kept the bank on a tight leash.
In deliberations by lower-level officials before the summit, the German-led faction put in provisos that extra EIB lending would respect the “principles of financial soundness and transparency,” ruling out riskier projects that might jeopardize the bank’s AAA rating. Also barred were further boosting the EIB’s lending limits or an increase in the EU’s central budget.
France’s Hollande said that even a less expansive EIB program would aid small and midsized businesses, shorthanded as SMEs in EU jargon. “An equilibrium must be found,” he said after the summit. “If it loses its triple-A, its borrowing costs go up and its lending rates to SMEs go up.”
Merkel further tightened the guidance at the summit. A reference to the “largest possible participation by member states” — a backdoor way of putting Germany on the hook for EIB loans that go bad — was deleted. A July deadline for designing the lending schemes vanished from the text, replaced by the less-binding “without delay.”
[Bloomberg]
