University of Oradea

Faculty of History, International Relations, Political Sciences and

Communication Sciences
Department of European Studies and International Relations
Master European Studies
Discipline: European Social Law
Second Year

THE EUROPEAN INVESTMENT BANK

Course holder: Prof. Gabriela Goudenhooft

Student: Puie Cristian
George

Oradea, June 2016

The European Bank of Investment

This essay addresses the three most problematic areas of European Investment Bank
operations: project assessment, transparency issues and the sector focus of investments. An
emphasis will be placed on how EIB policy in these areas impacts on environmental
sustainability and the level of corruption in the target countries. The aim is to determine the
extent to which criticism is truly justifi ed and to outline solutions to the problems when
possible.
In this section of the essay we introduce the Bank as a fi nancial tool of EU policy in
support of the development of the European region as well as countries outside the Union.1
The European Investment Bank (EIB) was founded along with the European
Economic Community in the Treaty of Rome2 in 1957. As such, the Banks operations are
governed by EU bodies. Since the beginning, the mission of the EIB was to contribute to the
balanced and steady development of the common market in the interest of the
Community.3 To this end, the Bank is authorized to provide long-term loans for fi nancially
sound development projects. The Bank performs activities in countries outside the EU4 on the
basis of mandates (see below) that are aligned with the goals of European Development
Policy5 and Policy Coherence for Development.

1 EEC, Treaty of Rome, Protocol on the Statute of the European Investment Bank
- EIB charter, Title IV, Ar cles 129 and 130, EEC (European Economic
Community), 1957.
2 EEC, The Rome Treaty, Protocol on the Statute of the European Investment
Bank EIBs Charter, Appendix 1.2, The EIBs Statute, Ar cles 1 to 29, EEC
(European Economic Community), 1957.
3 EEC, The Rome Treaty, Protocol on the Statute of the European Investment
Bank - EIB charter Title IV, Ar cles 129 and 130, EEC (European Economic
Community), 1957
4 The fi rst loan outside the EEC was provided to Ivory Coast in 1965. Each year,
the share of loans to countries outside the EU and the overall volume of loans
increase.
5 http://europa.eu/legisla
on_summaries/development/general_development_framework/r12533_en.htm

Due to the fact that the EIB is a financial institution6 of the European Union, its
activities should be in line with the goals of development cooperation and have a positive
eff ect on developing countries.
I also want to check out the fact that the EIB obtains funding for its activities by
issuing its own bonds on world capital markets. The aforementioned joint guarantee provided
by all EU Member States has given the Bank the highest credit rating possible.

Something new on market-Long-term, but without risk

The EIB is able to obtain favourable funding opportunities on world capital markets,
which can then be used to provide loans for development projects under more advantageous
terms than those off ered by commercial banks.7The Bank provides loans for up to half of the
total cost of projects. The remainder of funding is the responsibility of other fi nancial
partners - international organizations or commercial banks. At the very least, the loans
provided by the EIB simplify the funding of projects whose size and level of profi tability
would be unfeasible in the private sector or would be impossible in the public sector due to
lower project effi ciency.8 In addition, the very fact that the Bank is supporting a project tends
to attract other investors , and not having to pay subscribed capital or fi nancial guarantees
creates an incentive for shareholders to favour conservative and fi nancially advantageous
projects.
EIB tools and political mandates
The EIB provides loans for development projects through several channels. The largest
of these (and the one used in the majority of cases) is direct loans; the second largest,
representing 23% of the overall volume in 2009, is global loans.
EIB tools are:
direct individual loans for specifi c projects;
global loans for fi nancial intermediaries and leasing companies (known inside the EIB as
credit lines);
support in strengthening the capital of companies headquartered in the EU through shares in
funds;
6 European Investment Bank,The Board of Directors, EIB, 2011.
7 See. EIB, European Parliament Dra Report on the EIBs 2002 annual report,
EIB, 2004. Or also: Zdenek Hruby, a member of its Board of Directors at the na
onal level, consulta on with the author, date 07.01.2011.
8 Labelled in English sources as the principle of additionality or frontier
financing.

 technical assistance for the support of development and the growth of investments; fi
nancial guarantees for projects in target sectors, especially infrastructure.
Policy mandates, established in the Treaty of Rome, the Cotonou Agreement and the
so-called external mandates (see below), defi ne the Banks fi eld of activities. The
mandates only determine the geographical area of the Banks activities and state that the
support is for development. They do not, however, set forth specifi c steps or rules on how to
best achieve this goal.9
Every three years the EIB approves the Banks Corporate Operational Plan, the aim of
which is to contribute to better coordination, coherence and synergy between the fi nancial
activities of the Bank and EU instruments for assisting the third countries10

CRITICISM OF THE PROJECTS AND ACTIVITIES OF THE EUROPEAN

INVESTMENT BANK
The EIB is criticized for a lack of projects in sectors with the greatest potential for
development16 such as agriculture, health care, education, telecommunications, waterworks
and the building of sewerage systems. A closer look at the reasons behind this situation shows
that the impacts of investments are distorted by the fact that only fi nancially sound projects
those that favour higher profi t over the mitigation of environmental consequences have a
greater chance for success. Projects are submitted by profi t-driven private firms that have
little or no concern for the negative externalities of the projects on the environment.11
Alternatively, the projects are submitted by public institutions whose main criterion
should be the development of the target country. In many cases, however, public institutions
also put profi t concerns before development. In the case of poor countries, this often means
placing an emphasis on a relatively low costs and a greater eff ect for the growth of the
countrys economy. Unfortunately, this priority often produces a heavier burden on the
environment.

Conclusion

9 http://ec.europa.eu/dgs/economy_finance/evaluation/pdf/ecfin_eval_en.pdf
10 European Investment Bank, Operational Plan of 2010 - 2012, Sec ons 320
and 321, EIB, 2010
11
http://www.eib.org/attachments/efs/investment_and_investment_finance_in_europ
e_en.pdf

Accepting input from the European and, in particular, non-European public on the
discussion would improve the quality of project evaluation and oversight of the Banks
activities. As it is now, public involvement is at odds with the interest of promoters in
protecting confi dential information. One of the possible solutions to this problem is based on
the assumption that the Banks involvement attracts other investors to projects. The EIB
should emphasize this fact to individual promoters as compensation for the earlier release of
information.

Bibliography
EEC, Treaty of Rome, Protocol on the Statute of the European Investment Bank - EIB
charter, Title IV, Ar cles 129 and 130, EEC (European Economic Community), 1957.
EEC, The Rome Treaty, Protocol on the Statute of the European Investment Bank EIBs
Charter, Appendix
The EIBs Statute, Ar cles 1 to 29, EEC (European Economic Community), 1957.
EEC, The Rome Treaty, Protocol on the Statute of the European Investment Bank - EIB
charter Title IV, Ar cles 129 and 130, EEC (European Economic Community), 1957

The fi rst loan outside the EEC was provided to Ivory Coast in 1965. Each year, the share of
loans to countries outside the EU and the overall volume of loans increase.
http://europa.eu/legisla
on_summaries/development/general_development_framework/r12533_en.htm
European Investment Bank,The Board of Directors, EIB, 2011.
See. EIB, European Parliament Dra Report on the EIBs 2002 annual report, EIB, 2004.
Or also: Zdenek Hruby, a member of its Board of Directors at the na onal level, consulta
on with the author, date 07.01.2011.
Labelled in English sources as the principle of additionality or frontier financing.
http://ec.europa.eu/dgs/economy_finance/evaluation/pdf/ecfin_eval_en.pdf
European Investment Bank, Operational Plan of 2010 - 2012, Sec ons 320 and 321, EIB,
2010
http://www.eib.org/attachments/efs/investment_and_investment_finance_in_europe_en.pdf
http://www.eib.org/about/press/2010/2010-024-european-investment-bankdeliversunprecedented-lending-volume.htm (Cit. 14/02/2011)