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Petition addressed to: Werner Hoyer, President of the European Investment Bank
The recovery following the ongoing pandemic should be supported by an unprecedented program of investments spearheaded by the European Investment Bank with the help of the European Central Bank. This would avoid debt mutualisation (EuroBonds) while injecting a huge stimulus in the real economy of the European Countries which are unwilling or unable to fund their own emergency programs through bond emissions.
The current pandemic is causing an unprecedented recession all over the world. Countries such as the USA, Canada and the UK have put in place extraordinary measures to support their economies. Currently, the Eurozone countries are debating such measures.
A major concern is that European countries with troubled finances could exploit any financial support for unfettered pork-barrel spending. However, the solution of restricting the amount of recovery funds or of attaching austerity rules to it, seems to us completely at odds with the scale of this emergency and the urgent need for stimulus.
A more practical but equally important concern is how the money for any set of extraordinary measures could be generated. Setting up ad-hoc borrowing instruments backed by the Eurozone as a whole is seen by many as a dangerous precedent towards sharing the debt burden across the Eurozone. Moreover, the legal hurdles to overcome to put such a system in place would probably take several months: precious time that Europe cannot afford to waste.
We propose that both issues could be solved by raising the necessary capital through the European Investment Bank (EIB), and lending out the funds to key players in the real economy as long-term, interest-free loans.
Reason
Let us discuss in more detail our reasoning, which is articulated in two parts.
1. Raising the capital
The EIB raises capitals on the markets via the emission of bonds. Currently these bonds have a positive but small effective yield. Through a commitment of the European Central Bank (ECB) to buy EIB bonds, it would be possible for the EIB to effectively issue bonds at zero effective yield. This is not surprising in the current landscape of negative interest rates and small or negative yields, nor it is at odds with the existing Quantitative Easing policy of the ECB. We believe that the necessary capital should be of the order of a few trillion Euros, which is unprecedented at the European level but well in line with the approach taken in the UK and USA.
The main obstacle is that the EIB cannot support, by statute, outstanding loans totalling more than 250% of its capitalisation (currently of 243 billion Euros). This currently sets a limit for loans at about 600 billion Euros, a large part of which have already been issued. Revising the EIB statute to raise its loaning ceiling may not be a simple process. It should however be taken into consideration since, combined with an increase of the bank’s capitalisation, it would allow to raise the lending ceiling to the order of 2 trillion Euros.
Raising a capital of the order of a trillion Euros and allowing higher leverage for the EIB may raise some concern. For the former point, it is clear that this would require support from the BCE, whose balance sheet would increase accordingly. An increase of the BCE balance sheet will happen in any case; here we are advocating directing the BCE purchasing program not only to government and corporate bonds but also, to an unprecedented extent, to EIB bonds. This will have the advantage of raising capital at lower rates (given that the EIB has a better credit rating than most European economies) and allow the EIB to redistribute it strategically through loans. As for the second point, the risk profile of this extraordinary lending program would remain smaller than most investment bank operations (e.g., than those towards corporations or developing countries).
2. The lending program
This extraordinary public spending program should be accessible to all EIB countries, should focus on investments (as opposed to current spending or pork-barrel spending) and to projects that regardless of where they are implemented benefit Europe as a whole. This would justify offering long-term, interest-free loans.
There are many examples of such expenditures, which could be achieved by lending to National and Local Governments.
- Funding the development of broadband internet including 5G, which would in turn promote the development of business and facilitate remote and smart working which proved crucial in the current pandemic.
- Funding public health programs such as vaccination for seasonal flu, stockpiling of personal protective equipment (PPE), etc., in view of possible future pandemics (bearing in mind that the past decade has seen numerous disease outbreaks at an alarmingly regular rate).
- Funding the development of local public transport (especially light rail). This would reduce CO2 emission, and reduce crowding.
- Funding the upgrade of infrastructure (bridges, tunnels, dams, river banks, flood barriers, water grids, electrical grids) also in view of the increasing hydro-geological risks posed by extreme weather.
- Funding the renovation of publicly-owned buildings according to criteria of accessibility and energy efficiency. This would reduce energy consumption and CO2 emissions.
- Funding the increase of the research budget of individual Nations and the doubling of their contribution to the European research framework which will succeed Horizon 2020.
These few examples involve fairly uncontroversial budget expenditures which could be undertaken in a matter of months and stimulate the real economy in the construction, transport, health care, telecommunication, information technology and research & development sectors. They could easily justify an investment of a few trillion Euros over the next few years.
Petition image adapted from https://commons.wikimedia.org/wiki/File:Euro-Construction.svg
Petition details
Petition started:
04/19/2020
Collection ends:
10/18/2020
Region:
European Union
Topic:
Economy
