Koray Alper, Francesco Cimini, Fotios Klantzis, Atanas Kolev, Rozalia Pal, Jochen Schanz, Bertrand Magnéto and Annamaria Tueske

The EIB Group Forum took place in Luxembourg on 27 and 28 February 2023. It put the European Investment Bank Group at the centre of a policy dialogue on ways to support and enhance the digital and green transitions. The conference gathered major political figures from national governments and the European Commission, central bank governors, chief executives, bankers, and academics to discuss ways to adapt to a changing world.

The new EIB Investment Report 2022/2023: Resilience and renewal in Europe launched during the event provided a background for the policy discussions. Presenting the report, Debora Revoltella (Chief Economist, European Investment Bank) explained that a series of shocks have battered the European economy creating pressures that may risk delaying important investment to address long-term, structural challenges, including the climate transition and digitalisation. Europe’s future depends on its ability to compete internationally and to lead in innovation, particularly in strategic technologies linked to the climate transition. The existence of large investment gaps compared to global peers creates an urgent need for Europe to boost investment to close these gaps and to adapt to a changing world.

On ways to boost investment

The high-level policy discussion centred on ensuring the right environment. Pablo Hernandez de Cos (Governor of the Bank of Spain) laid out a three-pillar plan to address the current crisis. The first pillar is macro stability, including both price stability and stability of public finances. The second pillar is to preserve productive investments in national budget plans so as to maintain productivity growth and progress towards the twin transitions. The third pillar of de Cos’ plan revolves around capital markets. The central bank governor said that properly functioning capital markets across the European Union are vital to support innovative technologies. The work on the Capital Markets Union and the Banking Union must be completed so that capital can be reallocated smoothly towards the most productive uses across the continent.

To enhance cohesion in the European Union, Pawel Borys (President, Polish Development Fund) argued that priority should be given to investments in transport and digital interconnectivity. Such investments have the potential to boost the value added of economies in Central and Eastern Europe and retain a strong human capital base.

Finally, Yuriko Backes (Finance Minister, Luxembourg) emphasised that while European crises have typically been first addressed with protectionist instincts, the final solution has always proved to be collaborative.

On adapting to a changing world

Xavier Bettel (Prime Minister, Luxembourg) argued that while it is essential for the European Union to remain open to global trade, dependence on important inputs and technologies should be reduced. To this end, the European Union should put in place new rules to enhance European strategic autonomy.

Odile Renaud-Basso (President, European Bank for Reconstruction and Development) said that although global trade growth was slowing, there was currently little evidence to suggest that deglobalisation was taking place. Companies have adjusted and reorganised their supply chains by turning to partners in other countries, rather than domestic suppliers. The energy crisis, however, is now fostering decarbonisation globally. Multilateral Development Institutions should have a leading role to play in organising the transition. With help, Africa could become a huge energy producer and exporter.

The European Union should have a big role in promoting decarbonisation globally and in helping partner countries to take advantage of the opportunities, said Jutta Urpilainen (European Commissioner for International partnerships). The Commisisoner argued that the European Union needs to make a positive offer to the Global South, with investments focused on soft infrastructures like education, health and research. With more than 80 flagship projects worldwide, the Global Gateway strategy created over a year ago proves a very useful instrument. However, countries in the Global South need to show commitment and take ownership for projects to succeed. This was echoed by Oulimata Sarr (Minister of the Economy, Planning and Cooperation, Senegal), who argued that a Just Transition Partnership with the European Union would be an excellent proposal for Senegal.

On investment for resilience and competitiveness

The latest EIB Investment Report argues that there is a substantial investment gap between corporate investment in the European Union and the United States. Furthermore, EU firms lag their US counterparts in terms of innovation activity. Making things even worse for European competitiveness, the recent energy crisis has elevated energy costs in the European Union, bringing them well above those in the United States. A new focus on policies to encourage corporate investment and help firms innovate and grow is needed to improve Europe’s global competitiveness.

While targeted and temporary state aid is part of the solution, new instruments to crowd in private investment are needed, according to Margrethe Vestager (European Commission Executive Vice-President for a Europe Fit for the Digital Age and Commissioner for Competition). A well-functioning single market is crucial for EU competitiveness and new instruments should leverage it. The European Investment Bank’s expertise in implementing financial instruments is substantial and the European Commission will rely firmly on close cooperation. Re-skilling and up-skilling the EU labour force should also be a priority.

Jeromin Zettelmeyer (Director, Bruegel) also stressed the importance of the EU single market. In his view, well-targeted subsidies should indeed be part of the toolbox, but not the main incentive. High energy prices and energy security concerns have provided a clear boost to renewables and energy efficiency. Subsidies should be used to reduce uncertainty rather than to mitigate privately insurable risks. Furthermore, to increase their efficiency, subsidies should be allocated at the EU level, rather than by individual Member States.

Piercarlo Padoan (Chairman of the Board, Unicredit) added that structural reforms and policy co-ordination at the EU level are vital to the success of the twin transitions.

Furthermore, André Küüsvel (President and CEO, Nordic Investment Bank) added that a focus on research, development and innovation, along with a more diversified financial system would go a long way towards bridging the investment gap between Europe and the United States.

On energy security and the green transition, as a motivation for more Europe

The recent energy crisis provides an opportunity to accelerate the green transition, but also to improve the resilience and competitiveness of the European economy, according to Laura Piovesan (Director-General, Projects Directorate, European Investment Bank). However, there are formidable barriers to the massive investment needed such as the length of planning, bidding, and or permitting procedures. The fragmentation of the energy market is another big obstacle. Reducing it would help catalyse innovation and lower the costs of green technologies.

The importance of a common market for energy in the European Union, particularly for electricity, cannot be emphasised enough according to Arina Freitag (Chief Financial Officer, TenneT). Policies that reduce uncertainty in electricity markets, like power purchase agreements and targeted support for technologies, improve the bankability of projects and encourage more investment. The European Investment Bank has an important role in both providing finance and in developing the market for green bonds.

The European Commission and EU legislators are working to address the impediments facing the green transition said Kurt Vandenberghe (Director-General, Directorate-General for Climate Action, European Commission). They are putting in place the necessary regulatory and funding framework. The rest of the world is rapidly catching up with Europe, too. The growing availability of funding should make it easier to front load green investments and the EIB remains a powerful tool to help get this done. Frontloading, however, also depends crucially on optimising permitting processes and making the committed funding predictable, simpler to access, attractive, and fast.

European business has a strong sense of the competitive pressure that the energy crisis and the green transition are causing. Dimitri Papalexopoulos (Chairman, TITAN Cement Group) said that parts of European industry were facing an existential crisis. Energy costs might remain permanently higher than in global competitors. The extension of the European Union’s Emissions Trading Scheme to all sectors of the economy will add to this, given that a carbon border adjustment mechanism remains controversial and difficult to implement. The US Inflation Reduction Act (IRA) further tilts the playing field against EU-based industry. To address the crisis, policymakers should shift their approach from controlling to enabling, he said. In this respect, European Union could learn from the US approach. Furthermore, there remain a few low hanging fruit: energy efficiency, leveraging existing digital technologies, and accelerating permitting procedures are all readily available solutions that need additional policy incentives. While industry should do its bit to push the green transition, consumers also need more incentives to become a real driving force for the green transition. Furthermore, the European Union should use its economic might to implement a more muscular trade policy in defence of free and fair trade, while engaging trading partners in the green transition.

On the Global Gateway

For the green transition to be successful and just, the European Union has to engage and incentivise developing countries, where investment needs are high, finance is scarce and expensive. The Global Gateway is a major tool to address these problems according to Koen Doens (Director-General, Directorate-General for International Partnerships, European Commission). It is targeted, with five priority areas: digital, climate and energy, transport, health, education, and research. In order to maximise its impact, the Global Gateway needs to bring together all European stakeholders: development finance institutions, export credit agencies and governments. Team Europe is based on coordination and the Mutual Reliance Initiative between the European Investment Bank, and the development institutions of Germany and France, KfW and ADF, is a good example of this coordination said Rodrigo Madrazo (CEO, EDFI Management Company). It pools the resources and knowledge of participating institutions and simplifies interaction for partners in developing countries.

The second important element is risk taking to catalyse private investment.

Markus Berndt (Deputy Managing Director, EIB Global) added that the Global Gateway comes at a time when investment needs are high and there is a lack of external financing available. Highly indebted governments are unable to increase government investment, which makes support from international financial institutions vital. EIB Global supports the five priorities of the Global Gateway and is a valued partner, not only for its financing but for its trustworthiness and focus on projects that are socially, environmentally and economically viable.

On the role of finance in scaling up green innovation

Investment in new green technologies is crucial for a successful green transition and these technologies are often the products of start-ups or innovative firms that are in the process of scaling up, according to Jean Christoph Laloux (Director-General, Operations Directorate, European Investment Bank). While the European Union does well in university research, in technological innovation, in seed funding and in early-stage funding, it has shortcomings when it comes to scale-up finance and in supporting firms that need to tap equity markets. This is despite the availability of numerous public funds such as the EU Recovery and Resilience Facility, or the European Structural and Investment Funds. Young European firms struggle to grow even when they are profitable said Karen May (Chief Financial Officer, XOcean). Christian Rood (Chief Executive Officer, LeydenJar) added that the size and availability of growth finance in Europe is far more limited than in the United States. Moreover, while companies need public financial instruments, they also need public investment in enabling infrastructure.

On the US Inflation Reduction Act

The US Inflation Reduction Act, with its simplicity and apparent easy access, should serve as an example in designing European support programmes, said Rood. It is a threat because US competitors will get further access to finance and subsidies. But it is also an opportunity because there are many customers in the US and firms can move there and benefit from the incentives with positive spillovers for their EU operations. The IRA is a major example for EU policymakers of speed, clarity and efficiency said Benoit Lemaignan (Chief Executive Officer, Verkor). As competitiveness is back on the top of the European policy agenda, according to Ann Mettler (Vice-President, Europe Breakthrough Energy), the European Union should use its solid position in international trade to forge a transatlantic alliance on green technology.