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Celerity

(43,458 posts) Tue Oct 6, 2020, 08:59 AM Oct 2020

The European Investment Bank: we will miss it when it is gone

https://fedtrust.co.uk/the-european-investment-bank-we-will-miss-it-when-it-is-gone/

With the prospect of ‘no-deal’ once again prominent in the headlines and the fear that the government is now leading us into an at best threadbare Brexit trade deal at the end of this year, there has been a renewed focus on the likely disruption to the UK economy. This outcome will pile significant economic damage to the economy on top of that already caused by the Covid pandemic. As a report this week from the UK in a Changing Europe demonstrates, not having a deal will have consequences more profound than restricting trade between the UK and the EU27.

The report’s conclusion is both stark and worrying: ‘a no deal outcome will have repercussions not just on our economy, but on our politics, our security, and the UK’s own Union’. The Kafkaesque announcement that lorries will need a permit to enter Kent reinforces the sense of disarray, whatever Michael Gove, the responsible minister, claims about contingency plans, including the hiring of an additional 50,000 customs officers and border officials. Even if, in a last minute settlement, it proves possible to avoid lengthy delays and blockages at the major ports, critical breaches of supply chains, shortages of food and other essential commodities, the magnitude of the challenge facing the UK economy has to be recognised, yet the government has remained remarkably silent about a further serious blow to the economy arising from Brexit – the loss of access to investment finance from the European Investment Bank (EIB).

The EIB is a financial giant

The EIB, situated in Luxembourg, is the EU’s house bank and by far the largest multilateral lender in the world. Founded under the Treaty of Rome in 1957 its primary purpose is, by raising finance on the world’s capital markets with its top-class AAA rating, and on-lending it long-term for viable projects in member states, to promote the balanced economic development of the EU. Since the UK joined the (then) European Community in 1973 the EIB has lent nearly €120 billion for projects in the UK. Many of them are iconic transport infrastructure projects such as the channel tunnel and the second Severn crossing but in recent years the EIB has extended its coverage to “social” sectors such as education (schools and universities), health and housing. Prior to the 2016 decision to leave the EU, annual lending to the UK was running at around €7 billion a year, which, since the EIB lends on average around a third of total project cost (it plays a valuable role as a catalyst for other lenders), supported total annual investment of around €20 billion.

But all that will cease with Brexit. The Withdrawal Agreement stated clearly that “After withdrawal UK projects will not be eligible for new operations from the EIB reserved for member states”. This is because the EIB’s statute restricts it to lending in member states except for a small minority of loans in third (mostly developing) countries under unanimously agreed special provisions. In theory, if good will were available after departure, amendments to the Treaty and/or to the EIB’s statutes could be made to enable the UK to continue to benefit from EIB finance. But this would also require unanimity and given the UK’s increasingly aggressive approach to the negotiations – not to mention its threat to break international law by reneging on key provisions of the Withdrawal Treaty – such good will is most unlikely to be available. Ominously, the EIB, and its subsidiary, the European Investment Fund (EIF), which has been providing over a third of UK venture capital, have already, in anticipation of the final break, drastically reduced their UK commitments (the EIB to less than €1 billion in 2018). And despite talk of setting up a new British investment bank, little seems to have been done so far that could begin to replace EIB finance.

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