Exclusive: New EU development bank fades as study backs 'Status Quo+'

The European Union has not ceased exploring the prospect of a new European Climate and Sustainable Development Bank, but at the end of all its exploring it now looks likely to arrive close to where it started. They call it “Status Quo+.” A new study, circulated to member states Tuesday and seen by Devex, revisits the decades-old question of what to do about the sometimes overlapping work of the European Investment Bank and the European Bank for Reconstruction and Development. Unsure what to do with a 2019 Wise Persons Group report on the same topic, EU member states commissioned a feasibility study of three options, two of which the “wise people” had just analyzed themselves: Expanding the role of EBRD or creating a development-focused subsidiary of EIB. The consultants were also asked to consider the third, less radical, option of improving the current division of labor between the EU institutions, EBRD, EIB, and EU governments. “Building on already existing resources and complementarities .... seems to be the most suitable scenario.” --— "Feasibility Study on Options for Strengthening the Future European Financial Architecture for Development" Now the analysis is in, with the consultants appearing to indicate that the third scenario — also referred to as “Status Quo+” — is the best way to go. “When EU Member States and partner countries need quick and effective collaboration and support to continue to navigate the impacts of COVID-19, building on already existing resources and complementarities .... seems to be the most suitable scenario to ensure a strong and coherent approach to address the current main development challenges,” the study’s authors wrote. The team consulted more than 140 documents and conducted 106 interviews between September and January. They identified many of the same hurdles to a possible new EBRD or EIB-led bank as the Wise Persons Group. The EU’s lack of a full controlling majority among the EBRD’s soon to be 72 shareholders, means that “broad alignment with the EU policies and agenda can (only) be expected, but not guaranteed,” the authors wrote. Getting to the required 85% stake would mean either buying out other shareholders, or an EU-driven capital increase of €33.7 billion ($40.4 billion). As for EIB establishing a subsidiary in which it would hold a minority shareholding, the consultants argued that this would require big changes to the Luxembourg-based lender’s “governance, risk appetite, policies, and procedures.” And they raised concerns about how a subsidiary able to pursue high-impact projects in low-income countries could be adequately financed. In the end, the consultants argued that creating a new bank “may result in a more costly, time-intensive, and risky endeavor, duplicating institutions and business models.” That will likely please the European Commission, which declined to comment for this story, and wants more control over EU development finance institutions. Under the EU’s 2021-2027 development programs it wants to create Team Europe Initiatives where the commission, EBRD, EIB, and EU member states will work in concert in a few priority areas, including renewable energy and digitalization, in a given country. The consultants pointed to Team Europe, as well as “enhanced dialogue” between national and multilateral European banks benefiting from EU budget guarantees, as possible “concrete steps” to improve EU development policy without creating a new institution. San Bilal, from the European Centre for Development Policy Management think tank, told Devex of his hope that this study will now end the “highly politicized … beauty contest” between EBRD and EIB. “Enhancing the coherence and collaboration of European actors is more effective in times of COVID-19 than a grand design towards a ‘winner takes all’ development bank,” Bilal added. Asked to comment on the study, an EBRD spokesperson emailed: “We are glad that it emphasises the strengths of the EBRD and the large contribution that it makes to the delivery of the European Union’s development strategy.” An EIB spokesperson wrote: “We are making progress on the journey from studies to action.” “The report comes to the welcome and unsurprising conclusion that the options of replacing EBRD by an EIB body, or replacing EIB’s non-EU operations by turning EBRD into an EU institution, are neither feasible nor desirable. This is 100% in line with our position,” the EIB spokesperson wrote. “It also concludes that we are on the right track with the [2021-2027 EU budget instrument for development] and that the EU should work through all its channels: the EIB, which is its own bank; global and regional MDBs; and Member States’ Development Finance Institutions.” The study will be discussed in a virtual workshop of EU finance and development officials on Feb. 18, where the consultants — Thierry Senechal, Federico Bilder, Christopher August, and Christopher Egerton-Warburton — will present their findings and respond to questions.