The Next Generation funds mobilized by the European Union during the pandemic through an unprecedented issuance of joint debt are one of the reasons why the bloc's economy has emerged faster and stronger from the double blow suffered in a few years, the virus and , immediately after, the energy shock derived from the Russian invasion of Ukraine. “This time it has been different, the EU learned the lessons of the previous financial crisis,” celebrates Debora Revoltella, chief economist of the European Investment Bank (EIB).
The data appears in the report published this week by the entity. Three and a half years after the arrival of the virus, the level of real investment in the EU was 5% above what it was before, when with the global financial crisis in that period of time the figure was 11% lower, a result obtained thanks to the combination of a more lax fiscal policy (the stability pact restraint has been suspended for four years) and an active public support policy optimized by working at a European level.
There is, however, no room for complacency. The manna of the Next Generation EU funds (807 billion euros, the figure never mobilized for a European program) will in principle be exhausted in 2026 and, from this same year, governments will begin to clean up their public accounts, all of this in a scenario of rising geopolitical risks that are going to force the European Union to dig deep into its pockets, innovate and join efforts to face the great challenges that lie ahead, as bankers, investors and politicians in recent days have agreed to highlight. the EIB's annual forum held this week in the European quarter of Luxembourg.
“The projects we finance aim to stop common European priorities from being abstract ideas, turning ideas and dreams into tangible solutions,” highlighted the new president of the European Development Bank, Nadia Calviño, in the opening session, in which highlighted the entity's contribution to the European energy transition (more than half of the 88 billion euros granted in loans last year were allocated to this sector), through financial support for leading projects such as the production of ecological steel in Sweden or the opening in Italy of the largest photovoltaic power plant in Europe.
According to the European Commission, to meet the emissions reduction targets for 2030 (a 55% cut compared to 1990 levels), the Union will have to invest at least 700 billion euros per year in the decarbonization of the economy. The final goal is climate neutrality, a completely decarbonized economy, in 2050. Added to this objective is growing political pressure, intensified by fear of a second term for Donald Trump in the White House, for Europe to invest more in the defense sector. In the background, there is also the commitment to play a leading role in the reconstruction of Ukraine, as well as the promise to open the doors of the EU to this country and a dozen other candidates.
“Europe faces many challenges,” said Belgian minister Vincent Van Peteghem, current president of the EIB board of governors. But “we, the finance ministers, what we think about is how we are going to finance all this.” This semester, the Belgian Presidency of the Council is going to carry out an evaluation of the functioning of the European Recovery and Resilience Plan, from which the NextGen EU funds come, agreed with the commitment, imposed by Berlin, that it would be temporary, non-renewable support. This evaluation exercise “will inevitably trigger a discussion about what we will do in the future, whether we use Eurobonds or other instruments” and, if we opt for this route, “we would have to bet on projects of transnational interest in the field of transport, energy or the defense".
The debate on how to mobilize the enormous investments that the EU has ahead of it is open and will gain strength after the elections to the European Parliament in June, facing the next political cycle. Some taboos begin to fall. Will it be possible to carry out a new issue of Eurobonds to support climate investments, as proposed by the Prime Minister of Luxembourg, Luc Frieden? Could the European Stability Mechanism, the euro zone's rescue fund, step up to the plate in the face of the consequences of the Russian invasion of Ukraine, "the biggest risk to the financial stability of its partners," as its managing director has said? Pierre Gramegna? Can the EIB support increased military spending in the EU, as requested by Charles Michel, although it is currently prohibited from investing in weapons or ammunition? Or will it be able to “take more risks” and invest in nuclear energy, as the European Commission has proposed?
The creation of a truly single capital market continues to be the great unfinished business of the European Union and the reason why many start-ups, when it comes to growing, are forced to cross the Atlantic. “The urgency to move forward to unleash the full potential we have is severe,” stressed the European Commissioner for Financial Services, Mairead McGuinness. In this context, as always when the continent is mired in a crisis, all eyes turn to Luxembourg, headquarters of the EIB, the great catalyst for investment in the EU through its support for private sector projects.
The sovereign debt crisis brought it out of hiding forever and the nickname “financial arm of the EU” took on full meaning. Egged on by governments, with public coffers shivering, “the EU's best kept secret”, as one of its former vice-presidents proudly called it, it had to pitch in and dedicate part of its firepower to stimulating the languishing economy. through support for SMEs, instead of dedicating itself only to large infrastructure projects, which are expensive but have almost no risks.
Its commitment to renewable energies, particularly wind energy, when private investments were paralyzed as a result of the financial crisis explains why, several decades later, the EIB can boast of being “the climate bank.” But the new political priorities in which some voices ask the entity to get involved raise more doubts in the entity, with a reputation for being conservative, excessively in the opinion of some governments, especially in the field of defense investment.
“Since the beginning of the Ukrainian war we have broken down countless taboos. We are doing what would have been unimaginable even a few days before the war, delivering weapons to Ukraine, through the European Peace Facility, worth more than 5 billion”, which added to the support provided at the national level raises the military aid to the country to 28 billion euros, highlighted the president of the European Council, Charles Michel, who dedicated his speech to defense before the EIB Forum, whose current rules, which can be changed by a simple majority, prohibit investing in weapons and ammunition, precisely what governments need to produce now that they have emptied their arsenals in Ukraine.
In 2023, the annual defense spending of the Twenty-seven increased more than 8% and the forecast is that they will invest “at least 600,000 million euros” in the coming years, hence their request in December to the EIB to adopt “a greater role in supporting European security,” Michel recalled. Internally, it is a contentious issue as it could jeopardize the EIB's credit rating, its prized AAA, which “is what gives us a very solid basis to be able to contribute to European political priorities in the coming years,” says Calviño. This type of investment does not convince pension funds, for example, recently warned Kris Peeters, one of the entity's vice presidents, who is reluctant to risk changing policy, like a sector of the European Commission, with the French Thierry Breton at the head, demands that it be done in light of the current situation.
