D revoltella

The Investment Crisis – the role of the EIB

Debora Revoltella, Director Economics Department European Investment Bank

European Investment Bank Group

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Rationale (1) Europe has an issue in terms of potential growth

EU real GDP growth and es3mated poten3al growth

The stagna*on of es*mated EU poten*al growth contrasts with the impact of recovery in the US

4.0% 3.0% 2.0%

Estimates of potential growth (in percent)

1.0%

2

0.0%

US

Real GDP

-­‐1.0%

Poten*al real GDP

-­‐2.0%

1

-­‐3.0%

EU

-­‐4.0% 0 2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

-­‐5.0%

2007 2008 2009 2010 2011 2012 2013 Source: European Commission, AMECO

Source: Eurostat, DGEcFin estimate of EU potential growth

04/03/2015

European Investment Bank Group

2

Rationale (2) investment was below depreciation and at micro level there are investment needs in sectors crucial for EU competitiveness Real GDP per capita developments in Europe, US and Japan (in purchasing-power and inflation adjusted international dollar, 2013) US 50,000

Shortfalls – examples Annual shortfall estimates*

(EUR bn)

Innovation and modernisation - R&D investment: - Industrial modernisation:

40,000 Japan EU

30,000 EU

20,000 1990

1995

2000

Japan

2005

130 90

Finance for growth - Net bank lending* - Venture capital financing**

55 20

Human capital development - Educational facilities - Educational operational spending

10 90

US

2010

Source: IMF, WEO

Patent Applications (Number per 1 million inhabitants) South Korea Japan

4000 3000 2000

US EU

1000

Infrastructure investments - Broadband and data centres: - Energy: - Transport: - Environmental rehabilitation

55 100 50 90

Source: EIB estimates, “Restoring EU competitiveness” (2014)

0 2000

2002

2004

2006

2008

2010

2012

* Compared to pre-crisis flows ** Compared to US VC financing flows

Source: World Intellectual Property Organization; Comparability across countries is limited due to differing patenting systems.

04/03/2015

European Investment Bank Group

3

Rational (3) liquidity is not an issue, but risk bearing constraints exist

Medium-­‐term fiscal space constraints

-­‐ Less space for direct funding on Member State budget -­‐ Less space for government risk taking (equity / guarantees) in PPP schemes -­‐ Increased (perceived) regulatory risk due to fiscal sustainability concerns (see, e.g., renewable energy in Spain)

Required adjustment by 2020 to reach 60% of GDP target: none 0 – 1.5 % of GDP > 1.5% of GDP

Source: Medium term fiscal sustainability as captured by EC medium-term sustainability indicator 2014

Banking sector constraints

-­‐ Needs in some banks for capital relief

MT EE LV LT SI SK GR PT IE LU AT BE IT ES FI CY DE FR NL

-­‐ Limited space to expand balance sheet or to shi` from low risk sovereign holdings to higher risk corporate lending when demand picks up -­‐ Con*nued regular uncertainty, e.g. leverage ra*o threshold (recently introduced as 5% by FED for SIBs)

Leverage ra*o CET ra*o

0

10

20

Source: ECB 2014 AQR, only SSM banks

04/03/2015

30

40

50

European Investment Bank Group

4

The Investment Plan tackles all those - a concerted action to create an environment conducive to investment •

•

3/23/15

Generate an environment conducive to investment •

Structural reforms to generate an innovation and investment friendly environment

•

European market integration (institutionally and physically), creating competitiveness enhancing investment opportunities

Public support, via the EFSI and EIB activity, can help to kick-start •

Public stimulus targeting competitiveness-enhancing investments with positive spillovers like research, development, innovation, skills and infrastructure

•

Targeting commercially sound, economically and technically viable projects and trying to avoid market distortion (new focus on smaller projects, not only targeting market leaders)

•

Turning grants into catalytic financial instruments. As public stimulus will cover for some of the risk taking, abundant market liquidity will be attracted in an easier way

•

Advisory and coordination of project preparation

European Investment Bank Group

5

Does it matter? Ø The investment plan is just one of various elements to support investment Ø It concentrates on a specific subset of investments – investments in merit goods Ø EUR 105 bn is Ø 0.8% of GDP Ø 3.9% of investments Ø 25.9% of public investment Ø 11.8% of investment in target areas (sum of R&D, technology adop*on, educa*on infrastructure, transport, energy, environment, broadband and data centres) Ø Structural reforms Ø QE and oil prices helping on growth 04/03/2015

European Investment Bank Group

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