President Hoyer’s keynote address to the Commonwealth Finance Ministers Meeting in Washington DC. Read more about our participation in the 2019 IMF/World Bank Group annual meetings
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Thank you for these kind words of introduction Minister Georgiades.
It is an honour to be here today with you. I am very grateful for the invitation.
Before I begin, allow me to say a few words about the European Investment Bank, the EU bank, for those of you who are unfamiliar with what we do.
The European Investment Bank is the largest supranational borrower and lender in the world and was established sixty-one years ago as a treaty-based organisation of the EU. The EU Member States own its capital – but have never paid in more than EUR 17.4 billion. EIB’s bonds enjoy AAA-rating that allows us to provide advantageous funding to our clients.
As a public investment bank, we seek to address market failures by filling investment gaps.
As such, we seek to complement available financing and thus crowd in the private sector, rather than crowd it out. We typically never finance more than 1/3 of a project’s investment costs.
The EIB Group is also composed of our subsidiary, the European Investment Fund, which is the largest European provider of risk finance in Europe for small and medium sized firms.
The EIB Group supports the European Union in delivering on its policy priorities, both home and abroad. Typically, about 90% of our financing is inside the Union and about 10% is outside the Union.
Understanding local conditions is important and the Bank maintains a network of external offices inside the EU and outside the Union…
…From Addis-Ababa to Yaoundé on the African continent, Barbados and Bogota to Washington DC in the Americas, and from Beijing and New Delhi to Yerevan in Asia.
Since our foundation 61 years ago, we have invested over EUR 1.1 trillion across 140 countries, mobilising investment of over EUR 3 trillion.
This year the EIB Group will provide financing in the region of EUR 70-75 billion.
Enough about the bank, what kind of environment are we working in?
Ladies and gentlemen,
Global economic growth continues to disappoint, remaining well below historical averages. We have seen global growth expectations revised down to 3 per cent for this year in the just published World Economic Outlook. For the Eurozone a growth rate of only 1.2 percent is expected.
After a decade of post-crisis adjustment, most advanced economies are now marked by low growth, low interest rates and low inflation. This is set to continue. The outlook for growth potential remains subdued.
For emerging markets and developing economies, the outlook is mixed, with some certainly enjoying a degree of convergence with advanced economies, whereas others still struggle.
Policy uncertainty is rising and is reaching new highs and multilateralism is in retreat.
But, as the High Representative/Vice-President Federica Mogherini said during her speech at the UN General Assembly in September, “Multilateral solutions are much more effective, because only by joining forces can we tackle the complex crises of our times.”
For the EU, by reducing fiscal deficits and increasing financial sector resilience, Member States have increased sovereign debt sustainability. That being said, investment, and with that future competitiveness, has suffered.
In addition, very accommodative monetary policy, including large-scale deployment of unconventional measures, has ensured ample liquidity in the system and supported asset prices.
Consequently, term and risk spreads have compressed. The renewed policy impetus of September has even seen rates turn negative for Member States that might be considered highly indebted.
In consequence, financing conditions have continued to improve across Member States.
That being said, conditions remain sub-optimal in several Member States and particular sectors.
For instance, firms that are small and young are more likely to face tight financing constraints. In the EU, this is particularly the case for scale-ups, i.e. firms with high growth potential and which find it difficult to attract the kind of financing to fund expansion.
It follows, that, in addition to monetary policy, the EU must employ more direct tools to finance growth-enhancing investment.
At this moment in time, there is an opportunity to avail of low interest rates for growth-enhancing investment and bankable projects. We should take advantage of this.
But where should we direct this growth-enhancing investment?
If you allow me, I shall take a distinctly European focus, but I think many of the messages are global in nature.
Ladies and gentlemen,
For Europe – but I believe many of these areas hold true for many other regions and countries as well – public investment should focus in particular on two areas in the coming years:
1. Innovation and skills
2. Climate: Greening our economies
These are not mutually exclusive areas but go hand-in-hand.
A more competitive, innovative Europe
The first area that Europe needs to invest in is its competitiveness. Europe increasingly fails to keep pace with its competitors, primarily in North America and parts of Asia, as shown by the fact that we have been investing annually about 1.5% of its GDP less on RDI and education over the past 15 years.
For us in Europe, we need to ensure that we remain at the innovation frontier, if we are to offer the same promise of prosperity to the next generation. We need an “Innovation Push for Europe”.
Investment is urgently needed in digital transformation, including artificial intelligence, life sciences, as well as climate and environment technology.
Additional investment should focus on areas with high expectations for economic impact and productivity growth, primarily on digital transformation, including artificial intelligence, life sciences, as well as climate and other environmental technologies.
The big failure in Europe at the moment is that even if a small company has an innovative idea, it is phenomenally hard for that company to become a large innovator.
We have large, old innovators but we lack the Googles and Amazons. Small firms may introduce an innovative product, but they lack growth finance and in the absence of developed capital markets, are unable to invest and grow. Conscious of this gap, the European Investment Bank is developing the growth finance market for the innovative companies of the future.
Developing new technologies is no longer enough. In order to harvest the fruits of our work, we need to invest continuously to keep our innovators and innovations competitive.
This is especially true when it comes to those areas, where Europe is still amongst the leaders – in the automotive, mobile telecoms equipment and automation sectors.
Electric mobility, mobile robotics, such as autonomous driving, smart grids and e-medicine are all examples of system technologies that require an integrated, interdisciplinary approach. And they require huge investments that run into billions of euros per year to maintain Europe’s leading positions.
Skills must be at the heart of the innovation push!
Industrial jobs in many parts of Europe are vulnerable to automation, yet lifelong learning and retaining are relatively rare. Our workforce is ageing and neither governments nor businesses are sufficiently digitised. Technological change demands that economies embrace digital services, but Europe is not ready.
In 2018, EIB Group provided EUR 13.5 billion to help keep Europe at the innovative frontier.
Climate: A greener, more sustainable Europe
Significant investment is required to address climate change and sustainability if we are to limit the global increase in temperature to well below 2°C, aiming for 1.5°C.
The necessary investment in climate-neutral and climate-resilient assets runs into the trillions of euros, but finance is limited as well as the pipeline of high-quality projects.
In Europe – like elsewhere – this will require significant investment in new technologies and a replacement of much of our capital stock in the next generation.
The EU is at the forefront of global efforts to reduce greenhouse gas emissions and to adjust to a changing climate, playing a leading role in the Paris Agreement.
Transitioning to a low-carbon, more resource-efficient economy is not detrimental to Europe’s economies. Quite the reverse, it is crucial to ensure our long-term competitiveness.
With USD 170 billion of climate action and environment lending since 2012, the EIB Group has become the largest multilateral provider of finance for projects supporting climate action and other environmental objectives in the world.
But the EIB must be more ambitious!
This new ambition should rest on three pillars.
Last year, nearly 30% of our new commitments worldwide were dedicated to such goals. We should dedicate 50% of our financing to climate action and environmental sustainability by 2025.
Secondly, by working with our public and private partners we aim to help unlock more than USD 1.1 trillion of investment by 2030.
This will include a marked increase in support of climate adaptation and resilience.
Thirdly, we aim to align our direct lending activities with the principles and goals of the Paris agreement by the end of 2020.
As an important first step, we will phase out energy projects that depend solely on fossil fuels.
We can accelerate acceptance by appreciating that adapting to climate change mitigation also constitutes a burden and, like for the risks of climate change, this burden is not equally distributed.
Therefore, it will be important to facilitate the transition for those facing the greatest challenge – to offer a just transition. We will need to support growth and jobs in these regions. Failure to do so would weaken European growth, but also the strength of the European project.
Ladies and gentlemen,
In reflecting on today’s engagement, I could not help myself but notice the wide expanse of the Commonwealth and the inclusion of many small and, what might seem, disparate islands.
In the 15 years to mid-2018, the EIB has engaged in 50 projects on the islands of the Caribbean and the Indian and Pacific Oceans to the tune of EUR 1 billion.
An excellent example of what the EIB is doing can be found in the Maldives. Their entire territory is less than 5 metres above sea level, so they are extremely vulnerable to sea level rising as a result of climate change. In the past, the islands have been reliant on oil being shipped over great distances.
This made electricity extremely expensive, with a result that 35% of GDP was spent on it.
The EIB is helping finance a USD 200 million project to install solar photovoltaic plants there, on strong structures high above the ground, which will not be affected by sudden storms and flooding.
In this way, the project contributes to the resilience of the Maldives’ energy supply, helps the country adapt to climate change and mitigate some of its effects. And it lessens emissions by increasing the use of green energy, and – last but not least – makes huge economic sense.
Ladies and gentlemen,
Globalisation shows us how interlinked we are, in economic terms, but also in terms of ethical principles, values and goals. In Europe, it took the migration crisis to wake up many to the importance of development and building economic resilience outside our borders. We need to partner together!
There is a growing realisation that traditional public development sources are insufficient to deliver on the scale of today’s development challenges. Indeed, to achieve the Sustainable Development Goals, the UN estimates that USD 2.5 trillion of additional investment annually is needed in developing countries alone.
No amount of grants and public funds will be sufficient to address these development challenges. To achieve this, like to achieve the climate goals of Paris, the public sector will need to crowd in private sector finance.
Here the EIB can help. This is how we can put public finance to work.
To address these challenges, we need to think and act globally. And, in doing so, the most important players must engage in a multilateral effort. The EIB stands ready to provide assistance, both in the EU and to our global partners.
Thank you very much!