EU: crisis, reactions and the EIB - UBI Banca

EU: crisis, reactions and the EIB
INTERNATIONAL BANKING FORUM 2013
Brescia, 13-14 June 2013
Markus BERNDT
Head of Division, Policy + Strategy, Economics Department
European Investment Bank
m.berndt@eib.org
Economist for Italy: Luca Gattini, l.gattini@eib.org

EU: crisis, reactions and the EIB
Crisis and recent developments: real economy
Changes in EU real GDP and components
(Index, 2007 = 100)
105
100
95
GDP
Domestic demand
90
Investments*
85
80
2007 2008 2009 2010 2011 2012 2013 2014
* Gross fixed capital formation
Source: Eurostat, May 2013
Growth rate of investments*
15%
10%
5%
0%
‐5%
‐10%
‐15%
‐20%
2006 2007 2008 2009 2010 2011 2012 2013 2014
CY, GR, IE, IT, MT, PT, SI, ES All other eurozone
Non‐eurozone
US
* Gross fixed capital formation
Source: Eurostat, May 2013
2

EU: crisis, reactions and the EIB
Crisis and recent developments: real economy
Investment rates in the EU
per cent of GDP
29%
27%
25%
23%
21%
19%
17%
1995 1997 1999 2001 2003 2005 2007 2009 2011
EU big 4 EU 7 small EU Cohesion EU NMS
Source: Eurostat
3

EU: crisis, reactions and the EIB
Crisis and recent developments: financials – end-user lending
Cross-country standard deviation of interest rates on new loans across
euro area countries
a) Loans to non-financial corporations (floating rate and up to 1 year)
140
120
100
80
60
40
20
0
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05
Jan-06
Aug-06
Mar-07
Oct-07
May-08
Dec-08
Jul-09
Feb-10
Sep-10
Apr-11
Nov-11
Jun-12
Up to €1 million
Over €1 million
Source: ECB.
4

EU: crisis, reactions and the EIB
EU response to the crisis
The EU, and the eurozone in particular, responded to the 2009 crisis
with joint actions –
A mixture of emergency and structural measures
Emergency: to reduce the risks to financial instability and to the
liquidity position of sovereigns
Structural: to address long-term weakness of the current
infrastructure of the monetary union
Immediate response to the emergency – backstops
Direct support the banking system to safeguard financial stability: ECB
non-standard policy measures
Increased number and maturity of LTROs (long-term refinancing
operations)
Relaxation of collateral requirements
Fixed rate full allotment
5

EU: crisis, reactions and the EIB
EU response to the crisis
“swap” operations with major CBs
Security Market Purchase - SMP
Covered bond purchases programme I and II
Draghi’s: “Do whatever it takes” – OMTs – not utilized yet
Changes in the interest rates corridor
Support to sovereigns: BOP / GLF / EFSM / EFSF / ESM to finance
IMF/EC/ECB adjustment programs
Greece:
First programme: roughly EUR 73 bn.
Second programme: roughly EUR 164 bn.
Purpose: (i) budget financing and debt redemptions; (ii) bank recapitalisation;
(iii) debt restructuring – PSI; (iv) debt buyback – DBB; (v) a temporary (and
returned) facility for credit enhancement of the Greek notes
Access to market: 2014
Partial OSI with maturity extension
6

EU: crisis, reactions and the EIB
EU response to the crisis
Portugal:
Programme amount: roughly EUR 78 bn.
Purpose: structural reforms, fiscal consolidation, and a financial sector
(recapitalisation).
Access to market: mid-2013
Partial OSI with maturity extension
Ireland:
Programme amount: roughly EUR 85 bn. including bilateral loans
Purpose: structural reforms, fiscal consolidation, and financial sector (recapitalisation)
Access to market: early-2013
Partial OSI with maturity extension
Cyprus:
Programme amount: roughly EUR 10 bn.
Purpose: structural reforms, fiscal consolidation, and financial sector overhault
Spain:
Programme amount: up to EUR 100 bn. – roughly EUR 42 bn. disbursed
Purpose: bank recapitalisation
7

EU: crisis, reactions and the EIB
EU response to the crisis
Structural changes to the Union
Strengthened coordination of national fiscal policies
The Six Pack: legislation governing the Stability and Growth Pact (SGP) initially approved
in 1997 - significant reforms enacted in 2011 referred to as “six-pack”
Strengthened fiscal surveillance
Enforcement provisions of the SGP by adding an expenditure benchmark to review countries'
fiscal positions,
Introduction of an early and gradual system of financial sanctions
New minimum standards for national budgetary frameworks
Surveillance of both budgetary and economic policies together under the European Semester
The Two Pack: Entered into force on May 30, 2013 - introduces additional surveillance
and monitoring procedures for euro area Member States (MS)
Establishes a comprehensive surveillance regime for euro area MS experiencing (or threatened)
serious financial instability
Requires MS to set up independent bodies in charge of monitoring national fiscal rules and to
base budgetary forecasts on independent macroeconomic forecasts
8

EU: crisis, reactions and the EIB
EU response to the crisis
The Fiscal Compact: it contained within the inter-governmental Treaty on Stability,
Coordination and Governance (TSCG)
It enhances further key provisions of the SGP
Requires MS to enshrine in national law a balanced budget rule with a lower limit of a
structural deficit of 0.5% GDP
Increased role of independent bodies, which are given the task of monitoring compliance
with the national fiscal rules
The TSCG was signed by 25 EU MS (all but UK and Czech Republic), entered into force on
January 1, 2013
9

EU: crisis, reactions and the EIB
EU response to the crisis
Strengthened coordination of banking and financial sector regulation and supervision
Focus on the creation of a banking Union, several steps required:
Banking supervision – Single Supervisory Mechanism (SSM)
Common Resolution mechanism
Common Insurance Mechanism – deposit insurance scheme
Basel III: more stringent capital rules will be implemented – November 2010 G-20 – e.g.
countercyclical capital buffers
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EU: crisis, reactions and the EIB
EIB capital increase: Compact for Growth and Jobs
Both a structural and an emergency response:
Crisis response: the European Council endorsed a EUR 10bn paid-in increase in the
European Investment Bank (‘EIB’) capital from MS
Part of the “Compact for Growth and Jobs”.
Comprising a range of policies aimed at stimulating smart, sustainable,
inclusive, resource-efficient and job-creating growth
As a result, expected lending would increase of 43% or by EUR 60bn in the period
2013-2015
This additional lending can support total investment of up to EUR 180bn
(around ½ percent of EU GDP)
EIB’s investments remain targeted on critical levers for EU growth and
competitiveness
Innovation and skills; SME access to finance; Resource efficiency; and
Strategic infrastructure
11

EU: crisis, reactions and the EIB
EIB total assets compared to
other IFIs (EUR bn, 2012)
600
500
400
300
200
100
0
EIB IBRD IFC EBRD
Source: EIB, Fitch
Total exposure end-2012
EU
100%
80%
60%
40%
20%
0%
Lending to Member States
Total exposure end-2012 (% of GDP)
EU
SMEs & intermediated
Other manufacturing
Autom & transp equip
Ref, Mining, Quarrying
Agric, food
Services
Health,social
Education
Telecommunications
Composite infrastructure
Water, sewage
Urban infrastructure
Urban,inter modal tr.
Other transp.
Air transport
Sea transport
Roads, motorways
Railways
Energy
3.4
0 5 10
Source: EIB
Source: EIB
Simplified sector split
Exposure end-2012
SMEs
through
banks
EU15
EU12+1
RDI
FDI
&
other
Big 4
Small 7
Cohesion 4
Infrastructure
targeting
MS with
higher
needs
EIB strengths in the crisis
Increase: >40%
Increased support
of convergence
and distressed
member states
Improving competitiveness
through
investments in
research,
development and
innovation
€ 60bn
Baseline
lending
targets
before
capital
increase
Lending targets
2013‐15
(EUR bn)
safeguarding access to longterm
financing addressing
fragmentation and deleveraging
Bringing forward of employment
intensive economically and
financially viable infrastructure
investments
12

EU: crisis, reactions and the EIB
EIB lending activity in the EU
Note: 2013 targets may be revised in the context of the Mid‐Year Review due to be approved by Board of
Directors in July. The overall lending envelope target will not be affected.
Source: European Investment Bank Group, Operational Plan, 2013 ‐ 2015
13

EU: crisis, reactions and the EIB
Signatures in the EU and 2012 and Pre-accession region, initial targets 2013-15
EUR bn
70
60
50
40
30
20
10
Exclusive convergence and
climate
Urban renewal and
regeneration
Environmental protectiom
TEN Transport
Sustainable transport
Renewable energy and EE
Competitive and Secure
Energy
Knowledge economy
0
2012 2013 2014 2015
Support to SMEs
Note: 2013 targets may be revised in the context of the Mid‐Year Review due to be approved by Board of
Directors in July. The overall lending envelope target will not be affected.
Source: European Investment Bank Group, Operational Plan, 2013 ‐ 2015
European Investment Bank
14

EU: crisis, reactions and the EIB
Select new initiatives
1. The EIB Board of Directors approved a package of measures to increase the risk tolerance of the Bank, notably
in relation to certain bank counterparts. At the same time, efficiency efforts are being implemented to simplify
and shorten the lending cycle, and increased staff resources are being made available to the front offices to
strengthen and further support the loan origination process.
2. The EIB has increased its lending target for ‘Special Activities and Special Activity types of operations' to EUR
8.3bn*,
EUR 6bn of which will be on the EIB’s balance sheet (compared to EUR 1.8bn in 2012).
The remaining EUR 2.3bn is made possible by blending EIB loans with EU funds, where the EU absorbs part
of the risk of a given loan portfolio.
This enables the EIB to expand activities in vulnerable and programme countries, and high‐risk sectors, such
as research and development projects, e.g.:
Project bond pilot initiative (PBI) to support the role of capital markets in financing long‐term
infrastructure
Risk Sharing Finance Facility (RSFF)
Loan Guarantee for TEN‐Transport (LGTT).
3. The Bank has developed new security structures and products in some Programme countries, including risk
sharing and credit enhancement instruments, e.g.:
In Greece Structural Funds were used to set up a Guarantee Fund dedicated to EIB lending in favour of SMEs,
structured on a portfolio first‐loss basis.
EUR 500m trade finance facility for the first time to support a trade volume of EUR 1.5bn per year.
15
* Includes EUR 0.5bn for operations outside the EU

EU: crisis, reactions and the EIB
Select new initiatives
4. The Bank has also stepped up its support for SMEs through additional measures:
• It has increased lending targets to SMEs considerably. In 2012 signatures for SMEs increased by
18% to reach EUR 12.1bn. The 2013 target for signatures for SMEs was EUR 14.1bn. The current
forecast is around 17bn.*
• It is developing new security structures and products (e.g. the aforementioned Guarantee Fund
and trade finance facility in Greece)
• The Commission and the EIB are also working with the ECB to develop an EU strategy to alleviate
the financing constraints for SMEs. The discussions focus on options for reviving the structured
credit markets to support SME lending in particular (but not limited to) the more vulnerable
Member States. Collaboration is directed at covering two dimensions
(i) sufficient funding for the banking sector directed specifically to SME lending and
(ii) credit enhancement of existing or new SME loan pools so as to reduce distorted credit
margins and attract institutional investors in large SME loan pools alleviating important
supply constraints for investments.
• In responding to the gap left by the withdrawal of institutional investors, the Risk Capital Mandate
was reinforced and established as an open ended, EUR 7bn revolving fund managed by the EIF on
behalf of the EIB.
• Strengthening EIF partnerships with national institutions to deliver different equity and debt
solutions through a wide range of financial partners across the EU
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* Includes EUR 1.1bn for operations in the Pre‐accession region

EU: crisis, reactions and the EIB
Select new initiatives
5. Complement the Commission’s and Member States’ efforts with a dedicated "Skills and Jobs ‐ Investing
for Youth" programme to help counteract high and rising youth unemployment with two components:
i. "Jobs for Youth" ‐ providing SMEs with better access to finance; and
ii.
"Investments in Skills" ‐ providing lending to projects investing in the skills of young
people, including investments in education infrastructure, training, student loans and
mobility.
In the context of Jobs for Youth, the EIB is exploring ‐ together with partner banks ‐ options to further
increase its lending to SMEs –the main employer of young people –in order to support employment.
The investments targeted under "Investing in Skills" include the EIB’s established financing of
investments in schools and universities as well as a broad range of training schemes, notably
programmes that scale up and improve the quality of vocational training in Europe. The focus on jobrelated
skills from secondary to tertiary education is seen as having the biggest impact on improving
the employability of young people and offers the best protection against unemployment. The
supported measures also comprise the support of mobility schemes for students and employees
across the EU.
6. The EIB is looking at further means to strengthen its lending and advisory activities to help project
delivery, speed up disbursements and real investment as well as increase Member States capacity to
absorb EU resources.
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EU: crisis, reactions and the EIB
EIB lending activity in Italy
Italy - EIB's activity by sector
Exposure, end-2012
Percentage
100%
80%
60%
40%
20%
0%
Italy exposure: EUR 61.5bn, 3.9%
of GDP
Source: EIB
EU
IT
Signature flow
% of GDP
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2008
2009
2010
2011
2012
2013
2013 estimate
SMEs & intermediated
Other manufacturing
Autom & transp equip
Ref, Mining, Quarrying
Agric, food
Services
Health,social
Education
Telecommunications
Composite infrastructure
Water, sewage
Urban infrastructure
Urban,inter modal tr.
Other transp.
Air transport
Sea transport
Roads, motorways
Railways
Energy
EU average for sign/GDP
High level of SMEs lending
– both outstanding and
flows
Expected ramp-up of EIB
lending in 2013 comparable
to 2009 crisis
Strong focus on energy and
infrastructure (e.g.
motorways)
Expected lending for 2013
as % of GDP well above
EU average
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EU: crisis, reactions and the EIB
EIB lending activity in Italy
In an economic climate demarcated by fiscal consolidation, tight
financial conditions and negative growth, the EIB can:
improve access to finance for SMEs and mid-caps against the
background of tight credit supply;
support energy and transport infrastructure to fill existing
infrastructural gaps, increase cross-border inter-connectiveness
and facilitate competition and exporting;
increase cross-border inter-connectiveness and facilitate
competition and exporting;
provide much needed investment in RDI, ICT, education,
renewables and water sector;
improve the absorption of EU structural funds
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EU: crisis, reactions and the EIB
Activity in the neighbourhood
20

EU: crisis, reactions and the EIB
Activity in the Southern neighbourhood neighbourhood
‣ EIB the largest IFI/DFI in terms
of volumes
‣ Focus on access to finance
(AtF), transport and energy
Signatures 2007-2012
Cumulative (EUR m)
Signatures 2007-2012
Share in sector activity of major IFIs/DFIs (percent)
21
Sources: EIB. AtF stands for Access to Finance and includes intermediated loans, loans to
industry and to services.

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EU: crisis, reactions and the EIB