More money for EU investment bank as leaders re-focus on growth - Montesquieu Institute

BRUSSELS - German Chancellor Angela Merkel is backing calls by the EU commission to boost the funds of the European Investment Bank (EIB), a move meant to show that leaders are putting their money where their mouth is in terms of growth.

As leaders are increasingly shifting their focus from austerity to growth-boosting measures, older plans tabled by the EU commission in the past few years are being revived.

Boosting the lending capacity of the Luxembourg-based EIB is one of those ideas.

Merkel over the weekend told Leipziger Volkszeitung she "can imagine that we further strengthen the capabilities of the European Investment Bank,” without going into any details.

The EIB move could be an anticipatory concession towards Francois Hollande, the front-runner in this weekend's second round of the French presidential elections.

Berlin has refused to consider Hollande's demand to renegotiate its fiscal compact treaty, signed recently by 25 member states.

Merkel's spokesman Steffen Seibert on Monday explained that the German government is willing to support an increase in EIB's capital, currently at €72 billion.

“We are talking about raising fresh capital for the EIB,” Seibert told Dow Jones Newswires. “That is a direction that we think is worth pursuing. Now it’s up to finance ministers to work out the details,” he said.

Spanish newspaper El Pais on Sunday quoted unnamed officials saying one option on the table would be to reallocate some €12 billion in unused funds from the EU commission's bail-out facility (EFSM) that was cobbled together before the eurozone's own bail-out funds were established.

But an EU official told this website there are "legal problems" with this option, with finance ministers mid-May rather set to look at other solutions.

A spokeswoman for the EU commission on Monday sought to play down the "highly speculative figures" mentioned in El Pais - the alleged creation of a €200 billion 'investment fund' comprising the ECB boost, structural funds and eurobonds.

Pia Ahrenkilde-Hansen did stress, however, that the commission last year had tabled several proposals on how to better make use of the money available and how to increase the EIB firepower. "We are not talking about an alternative to fiscal consolidation. The issue is not either fiscal consolidation or growth, we need both," she said.

The chorus of warning voices over the negative effects of austerity was strengthened last week by Nobel-prize winning economist Joseph Stiglitz.

“There has never been any successful austerity program in any large country. The European approach definitely is the least promising. I think Europe is headed to a suicide," Stiglitz told a conference in Vienna.

If Greece was the only part of Europe that was having austerity, authorities could ignore it, Stiglitz said, but not if big countries like the UK and France are also in recession. He warned that the German-led austerity approach is making things worse in Spain, where unemployment is nearing 25 percent.

“What you are doing is destroying the human capital, you are creating alienated young people," the economist warned. As a solution, he mentioned "fully utilising" institutions such as the EIB.

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