The European Investment Bank, which has funded many projects here,is at the centre of a new EU growth drive, president Phillipe Maystadt tellsCliff Taylor, Economics Editor
For most Irish people the European Investment Bank (EIB) is a name on a road sign acknowledging the financiers of the latest piece of motorway. Along with EU Commission grants, EIB loan finance has contributed to the development of major infrastructure here, not only roads but in other sectors such as energy and industrial development.
There are signs, however, that the EIB's role as a behind-the-scenes financier may be developing, as the focus turns to new ways to pay for infrastructure projects. On the European stage it is centrally involved in a new growth initiative promoted by EU governments, while in Ireland the move to public-private partnerships and the shortage of Exchequer funds are leading to new opportunities, in addition to the EIB's existing €1.8 billion loans outstanding to projects here.
Philippe Maystadt, the EIB's president, will have no difficulty negotiating the political waters surrounding the new growth initiative. As Belgian finance minister from 1988 to 1998, he has vast experience of the international economic policy arena and is not short of political nous.
EU governments at last month's summit endorsed a new "growth initiative" in which the EIB will play a central role through supporting investment in major infrastructure projects - so-called trans-European networks - and research and development.
"It is not an initiative for short-term recovery, it is an initiative to improve the long-term growth prospects of the European economy," according to Mr Maystadt.
Do EU governments accept this long-term focus? "None of them expect a quick-fix through this initiative," he insists, adding that it is a long-term vision for improving the productive potential of the European economy.
Last month's EU council gave the go-ahead for the bones of the growth initiative, taking on board the Italian presidency's focus on major infrastructure projects and the Franco-German preference for research and development-based programmes. The Commission proposed a two-pillar programme focusing on major infrastructural projects known as trans-European networks (TENs) and on R&D programmes. Together with the EIB, the EU Commission has been charged with coming up with more concrete plans before the next council meeting in December.
The EIB is already heavily involved in so-called TENs, with total lending last year of €7.5 billion for key road and rail projects and airport and port infrastructure. These include projects such as high-speed rail links in Germany, France, Italy and Belgium, major motorway projects across Europe and upgrading a range of airports.
They are "important to allow the European economy to reap the benefits from the single market", Mr Maystadt says.
The December summit is likely to try to accelerate some of these big TENs projects and, according to the EIB president, progressing them requires political will and action and the ability to overcome technical and legal barriers, which can be particularly pronounced where projects cross border.
For Ireland, keen interest will be in the implications for Exchequer funding of road and rail projects, even if specifically Irish initiatives may not be included in the priority lists of projects due to be identified in December, which is likely to concentrate on major EU networks. Ireland may also benefit from the concept of the proposed "motorway of the sea" between Ireland and the Iberian peninsula, designed to improve sea access down the west coast of the EU.
Mr Maystadt, speaking in an interview in Dublin recently, becomes more animated discussing the second part of the growth initiative - investment in research and development.
"We think that investment in research and development is at least as important [as that in TENs\]. Happily this second pillar has been added," he says.
The EIB has become involved in funding R&D projects since the Lisbon growth strategy agreed by the EU in 2000, which aimed to bring spending in this area up to 3 per cent of EU GDP by 2010, and its inclusion in the latest plan provides some continuity. The EIB aims to lend some €6.5 billion a year in this area up to 2006, out of total annual lending which was close to €40 billion last year. Sectors currently supported under the research programme include education/e-learning, core research and development work and projects supporting diffusion of innovation and audiovisual media.
"It is quite clear that we are lagging behind, especially the US," says Mr Maystadt. "We think we could do more. We will work in close co-operation with the European Commission in the context of their six research frameworks", through which the EU funds R&D projects.
It is important to co-ordinate research support from the EU and the EIB, he says, but the EIB lends directly to the research body or company and could, for example, agree to fund an additional phase of research of projects started with EU support.
In Ireland, the EIB is in discussions with the universities and Higher Education Authorities about loan support for third-level research programmes. Government support in this area was cut last year and with uncertainty about it future, EIB finance at favourable rates may help to allow universities to put in place long-term research programmes.
The EIB is also looking at new project-financing mechanisms to allow it to participate in higher-risk ventures, thus hopefully triggering private sector funding for key areas. Through a new structural finance facility, the EIB is prepared to transfer some of its capital reserves to make special provisions, allowing it to take on more risk. It also believes it has a key advisory role in relation to PPP structures and the use of securitisation, where streams of future payments are sold on to investors.
Risk-sharing is seen as crucial to encouraging public-private partnerships (PPPs), as the private sector may be unwilling in many cases to assume a high proportion of the risk on its own, but might be prepared to participate if the EIB took some on its books.
The EIB's business has been based around borrowing backed by member states capital and lending on at favourable rates. The structural finance facility is a significant new departure for the traditionally risk-averse institution, as it develops from being purely a bank to taking a wider role in project financing.
In Ireland, the EIB was involved in assisting the start-up of the PPP programme through advising the Department of Finance, and becoming involved in projects undertaken, including five secondary schools, the School of Music in Cork and the Kilcock-Kinnegad motorway.
It is "ready and willing" to get involved in further projects, according to Mr Michael Tutty, an EIB vice-president and previous senior Department of Finance civil servant. The EIB is in discussion with the National Pension Reserve Fund, which wants to "piggy-back" on EIB expertise and project evaluation and co-fund PPP projects.
The EIB has also been involved in the energy sector here, through support for ESB and Bord Gais. Friends of the Earth campaigned outside an EIB conference in Dublin last week, complaining that it is not supporting renewable energy. The EIB says that it is keen to get more involved in this area - both in Ireland and across the EU. Here, says Mr Tutty, it has not yet finalised agreements with any suitable projects, but it is in discussions with the ESB on this issue and with Eirtricity, which is developing a major wind-farm off the Wicklow coast.
The experience here reflects that in other markets where, says Mr Maystadt, many projects are too small for EIB finance, or require state subsidisation, which may be for shorter periods than the longer-term funding the EIB provides. In water, meanwhile, where the EU has set ambitious targets, funding is only part of the answer, he says, with proper charging structures for waterconsumers also crucial.
As to the future, the EIB has been active in the accession countries and has extended some €20 billion in loans to them since 1990. The 10 new entrants due to join next year will contribute capital to the bank and participate in structures being reformed to account for enlargement.
There will, of course, be no shortage of infrastructure projects to finance in the accession countries. However, with a squeeze on the budgets of its big member states, all the signs are that the EIB will continue to look at developing its role as a key project financier - as well as just a provider of funds - in addition to playing an important role in newer areas such as sustainable energy and research.
