Q&A: It is 'total nonsense' that EIB has no development experience, Werner Hoyer says

LUXEMBOURG — Just before Christmas, European Investment Bank President Werner Hoyer traveled to London with a message for his counterpart at the European Bank for Reconstruction and Development, Suma Chakrabarti: “Let’s sort things out.” After months of sparring over which institution should win the race to become the European Union’s Climate and Sustainable Development Bank, Hoyer told Devex he would try “to convince my colleague in London to say, ‘Come on, let us develop a little bit of common ground together and propose something together to our political leaders.’” “What they overlook, some people in the Council [of the European Union], is that my professional career began in development. So they should not tell me what development is.” --— Werner Hoyer, president, European Investment Bank The encounter did not immediately generate white smoke, however. An EIB spokesperson said the gathering — the second of the banks’ biannual meetings in 2019 — “was constructive, friendly, and broad brush … a chance to take stock of our cooperation and explore possible new areas of cooperation for the future.” A spokesperson for EBRD said, “The senior management teams of EBRD and EIB have been meeting on a regular basis in recent years,” adding that “we have been discussing ways to boost our collective development impact intensively.” As requested by EU finance ministers, both banks have until the end of January to answer a series of questions on how they can better work together in the short term, as well as what it would mean in the long term should one or the other be charged with expanding its work in sub-Saharan Africa and least-developed countries. The day before his trip to London, Devex met Hoyer in Luxembourg to talk about the banks’ futures in the wake of the recent Wise Persons report, which looked at how to restructure European development finance and recommended the creation of a new bank focused on climate and development. This conversation has been edited for length and clarity. You have said that the Wise Persons report misunderstood the essence of EIB and EBRD. What did you mean by that? I think some people have a completely wrong appreciation or at least knowledge of what we are doing. Some people have the impression [that] EIB wants to start to do development while EBRD is the experienced development institution, which is, of course, total nonsense. I see the value of EBRD in a completely different way, and I mean “value” seriously. I was present politically when the idea of EBRD was coming up and the institution was founded … The name was wrong. It should have been the Bank for European Reconstruction and Development. Why? Because the idea that the political leaders had — the Germans included — was that the challenges of development in Eastern Europe and the EU’s eastern neighborhood would become so big that it [made] sense to ask the Americans and the Japanese to take up a part of the burden, to co-finance it, and be members or shareholders of EBRD … So the setup of EBRD was basically a regionalized global institution, with a transformation job in Eastern Europe and in the former Soviet Union, [and] later Central Asia. That’s where I believe until today their strength is. Secondly, the strength of EBRD is their enormous capital endowment. They have enormous headroom for further lending, which is particularly needed — in the eastern neighborhood, in the southern neighborhood, the western Balkans, and parts of the Middle East — for private sector equity investment. This is where EBRD is strong because they have so much capital. That is where we [EIB] are weak because we have so little capital. So from that point of view, a division of labor between EIB and EBRD in Eastern Europe, Central Asia, and around the Mediterranean simply makes sense. On the ownership point, Erik Berglöf, a former EBRD chief economist who sat on the Wise Persons panel, recently said that the lack of EU control over EBRD is a “red herring” because “there is no meaningful example where the EBRD didn’t implement an agreed EU policy.” This is, of course, nonsense. Could you imagine that the EIB could have taken the decision on climate policy and energy lending [to end all fossil fuel investments by the end of 2021] with the Americans on the board table? No way. The key thing — and this is what Berglöf completely overlooks — is that we have arrived at a position where the Europeans must define their strategic autonomy. And this is why, when we talk about EU policies, I think it is not very wise to leave key decisions to Russians, Chinese, Americans, whomever. Your idea for an EIB subsidiary focused on development spending predates the Wise Persons report. How, if at all, has the report altered your vision for how this could work? It has not at all been given up. But we have had four council meetings [of EU member states in the Council of the European Union], and we have been asked not to produce faits accompli — facts that we cannot get away from anymore. And we respect the decisions of the councils. That does not mean that we [step away from] this idea. … … It’s a little bit of an awkward situation to be told “don’t produce facts,” but at the same time, there are complaints that nothing is moving forward. So we must at least prepare ourselves to move forward once we get the green light. And this, I think, does not deserve nitty-gritty discussions between two institutions which both have their value and their purpose — although, of course, they are light-years apart when it comes to volumes and impact — and therefore we should try to come to good terms with colleagues from the EBRD. Have you discussed with heads of state how this issue surrounding the future of EBRD and EIB could be resolved? What do Emmanuel Macron and Angela Merkel think about this? They were the ones who commissioned this Wise Persons report in the first place. I think they have been very unfair to Thomas Wieser, [chair of the Wise Persons Group]. They were stuck in a combination of a dead-end road and one-way street, and then they asked a wise person to form a group of more even wiser persons and then come up with a solution. The solution is: “OK, we have different options. Let’s set up a working group.” So it is politically incorrect to criticize the Wise Persons Group, but we are losing time. What are you doing to address the report’s criticisms that EIB is not development-oriented, is not present enough in poorer countries, and has no record of private sector mobilization? Private sector mobilization is pure nonsense because even in the toughest, least-developed countries, we are 50-50 between public and private sector, so it is not supported by the facts. When you talk about [the institution needing] “development people,” you see the guy in front of you who draws the water holes in Burundi. There is some truth in that we don’t have these [people within EIB]. This is the price we pay so far for being a very lean institution. We produced this year probably €63 billion [$70 billion] of new lending with 3,500 people. EBRD is going to probably produce roughly €10 billion with 2,500 people. So we have indeed a high concentration of activities in Luxembourg … [and] our presence in Africa or Latin America or Asia is relatively limited … I’m aware that we must strengthen that, no doubt. But I think it is an attack on the professionalism and integrity of some of our people who definitely have the development DNA in their genes, and I think we should stress that more. I’m ready to go into some interesting pilot projects to say, “OK, let’s show what we can do” if we are allowed to send people into a regional office that we develop into a really regional development leader, with people who roll up their sleeves. I’m not shying away from that, and we have these people. What they overlook, some people in the Council [of the European Union], is that my professional career began in development. So they should not tell me what development is.