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IEP Lunch Debate with Dr. Werner Hoyer: “The Role of the EIB in Supporting Innovation, Growth and Employment in Europe”

Dr. Werner Hoyer, President of the Luxem­bourg-based European Investment Bank (EIB) and former Minister of State at the Federal Foreign Office, discussed “The Role of the EIB in Supporting Innovation, Growth and Employment in Europe” on 26 February 2015 at the Repre­sen­tation of Saarland in Berlin. The event was moderated by Dr. Mathias Jopp, Director of the Institute for European Politics.

The aftermath of the financial and economic crisis in Europe, which had negative effects on the monetary area as well as on the real economy, calls for measures to strengthen innovation, growth and employment in Europe. Hoyer stated that this is a matter of growing impor­tance, as the EU is in danger of becoming too short-cyclical in its approach. Long-term strategies and solutions must be imple­mented to counteract the EU’s weakening compet­i­tiveness in comparison to emerging economies.  A 20% reduction in investment activity since 2007 by business and government (especially in education, research and innovation), low capital stock, regulatory barriers, and high youth unemployment (with its human­i­tarian, social and economic dimen­sions) have all contributed to the EU’s flagging compet­i­tiveness. This situation must be remedied to prevent the financial crisis from becoming an investment crisis.

Jean-Claude Juncker’s investment package (November 2014) can provide a targeted plan to strengthen Europe’s compet­i­tiveness and maximize its economic potential.  The first pillar of the investment program stipu­lates the improvement of the insti­tu­tional and struc­tural environment on both the European and national levels; the second is the intro­duction of an advisory platform for public admin­is­tration and project managers; and the third, a € 315 billion European Fund for Strategic Investment (EFSI). The goal is to generate more compet­i­tiveness, sustain­ability and value in order to encourage investment in areas where a hands-off approach has not resulted in suffi­cient investment (e.g., the Nether­lands) and to encourage the avail­ability of credit for small- and medium-sized businesses. There are particular needs for investment in the areas of infra­structure, the energy network, traffic networks, digital­ization and the environment. Legis­lation of the new mecha­nisms, which should be simple, clear and trans­parent, will be ambitiously pursued, with the goal that the EU finalizes the measures in March 2015.

In order to best utilize the available liquidity and to counteract the current risk-averse tendency towards investment in research and devel­opment, investors’ confi­dence must be strengthened. Along with better credit avail­ability to small- and medium-sized businesses, a paradigm shift is necessary: from grants and subsidies to loan guarantees. This shift will appeal to prospective investors by lowering their risk. Hoyer foresees possible diffi­culties here if there is disagreement between the EIB, the EC and member states regarding the allocation of the guarantee sums and the reduction of grants (e.g., Horizon 2020). Sums of € 5 billion from the EIB, combined with € 8–16 billion from the EU, will be allocated to the fund for strategic investment, with the desired effect of a 15-fold leverage.

Hoyer recom­mended that the European Parliament establish an investment committee to undertake risk assessment and perform due diligence, evalu­ating the approx­i­mately 2000 projects supported by ECOFIN in regards to technical and economic respon­si­bility and the mandatory aspect of addition­ality. Furthermore, a steering board including share­holders must be estab­lished. It is of essential impor­tance to protect neutrality during these reviews and to avoid any politi­cization of these processes.

Gover­nance presents another challenge, according to Hoyer. There is a conflict between the inter­gov­ern­mental nature of the EIB and the commu­ni­tarian nature of the European Commission regarding the regulation of financial relation­ships. In addition to the initia­tives of the Juncker Plan, efforts must be under­taken at the national level in each member state towards budgetary disci­pline, struc­tural reforms, and targeted growth efforts.

The subse­quent lively discussion with the audience began with a question about the political indepen­dence of the EIB and a discussion on the impor­tance of modifying the current legal system in order to integrate public bodies, which have tradi­tionally been reliant on grants, into the new system. In response to a question about the EIB’s support of small- and medium-sized businesses, Hoyer again referred to the impor­tance of thorough risk analysis. Regarding the contrast between approaches of austerity policy (as in Greece) and Juncker’s anticyclical investment program, Hoyer stressed the added value of a combi­nation of both tactics: budgetary disci­pline combined with stimulus provided by private investment activity.

By Josefa Glass and Anthony Baumann