Europe's new recovery plan mustn't ditch its Green New Deal
The European Investment Bank needs deep reform so that it can support a just transition.
With the European Investment Bank (EIB) called to the rescue of European economies in the midst of looming economic recession, we call on the bank to face the future and become a more sustainable, transparent and accountable institution.
As the Covid-19 pandemic continues to unfold, European governments are developing public stimulus packages to help relaunch their economies and avoid a recession of historic proportions. And the EIB will play a flagship role under the EU recovery package announced by the European Commission’s President yesterday.
Firstly, the bank adopted emergency measures and announced that it will spend €40 billion to support mostly small and medium enterprises (SMEs) in the EU and €5.2 billion outside of Europe. In parallel, the European Council agreed to create a new €25 billion guarantee fund which would back €200 billion of new EIB operations aimed at securing loans for the public and private sector, with an increased focus on reaching out to SMEs and midcaps via public and private banks.
Then, the EIB will be a cornerstone of the new economic recovery plan and future EU budget put forward by the European Commission. In particular, it will be part of a loan facility under the Just Transition Mechanism and will benefit from enhanced guarantees from the EU budget to support its operations around Europe.
Channeling public funds via the EIB to support our economies was seen by EU governments as a much less controversial option than mutualising debt via “Coronabonds”. Still, it raises an important question about the bank’s future: will its recovery efforts be compatible with its ambition to transform into the “EU Climate Bank” and become a core financier of the European Green Deal?
As flagged in an open letter sent by 11 NGOs to the EIB President Werner Hoyer at the end of April, particularly given the mounting evidence linking ecosystem health and human health, it is essential that the bank’s new role in the recovery aligns with its pivotal role in financing the European Green Deal.
Six months after the groundbreaking decision to stop funding fossil fuels, efforts to better contribute to a just and sustainable transition need to be maintained. Truly becoming the “EU Climate Bank” would clearly set out the long-term role of the EIB in steering our economies on a more sustainable and fair path.
The EIB is currently designing a Climate Roadmap, in order to become the first public financial institution to align all its operations with the Paris Agreement. If the bank fails to deliver on this objective, the financing pillar of the European Green Deal will be under serious threat.
All EIB operations, including recovery plans, must avoid pursuing business as usual and should secure greater investment in a carbon-neutral economy, offering social protection to the communities affected by decarbonisation. Priority should be given to investments in energy efficiency, building renovation, decentralized renewable energy sources, circular economy and other forms of infrastructure that are connected to the needs of citizens and territories.
The future Climate Roadmap must also ensure that the EIB economic recovery measures do not fuel projects and companies that counteract the objectives of the Paris Agreement. All investments with long lasting unsustainable lock-in effects must be prevented. For example, the EIB should not use the new funds to help finance aviation and other polluting sectors which experience economic difficulties and are currently asking for public bail-outs, without requiring them to deeply modify their business models.
A profound change of mindset needs to take place so that past mistakes are not repeated, such as using EU public money to finance the privatisations of public services (including in the health sector). The Covid-19 crisis has shed light on some of these failures, with the support for Public Private Partnerships – that the EIB has heavily promoted over the last decades – having played an important part in dismantling public health structures and undermining the universal right to health.
EU public financing should protect the most vulnerable people and small businesses rather than those responsible for exacerbating the fragility of our societies. It will be crucial for the EIB recovery plans to focus on tackling social inequalities and the vulnerability of our societies. In this spirit, the EIB should take the necessary measures to prevent any company receiving EIB support from paying dividends to its shareholders, giving out bonuses to its CEO or from carrying out share buybacks. It must help compel companies to protect their employees, safeguard employment and offer decent working conditions.
Finally, as a significant part of its future operations will target SMEs via credit lines awarded to public and private banks, another challenge for the EIB will be to put sufficient controls in place to ensure that “intermediated” operations are transparent enough and protected from fraud and corruption risks so that they truly benefit workers and the real economy.
The time is ripe for a fundamental reform of the EIB to make it a more sustainable, transparent and democratic bank. If done right, public finance holds genuine potential for steering the ecological transition, tackling social inequalities, and improving the long-term resilience of societies.
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