Luxembourg Reconstruction in Ukraine threatens to falter before it has really got started. At the end of the year, the guarantees from the EU countries, with which the European Investment Bank (EIB) secures infrastructure projects in the war-torn country, will expire. This means that the development bank will not be able to finance any new projects in 2023.
“From January we will no longer be able to do any new business in the Ukraine as long as the necessary guarantees are missing,” says EIB boss Werner Hoyer in an interview with the Handelsblatt. He warns that scaling back project funding would be “misprioritising.”
The current situation is “very unfortunate”. In the past few weeks, the 27 member states and the EU Commission have been very busy agreeing on 18 billion euros in financial aid for Ukraine.
However, this is only intended to cover the current expenses of President Volodymyr Zelenskiy’s government for the coming months. The negotiations in the EU Council were so difficult that the EIB did not want to burden the talks with its own demands.
Two different ways of thinking are currently clashing on the Ukraine question:
- The prevailing view in some European capitals is that it is too early to rebuild while the war with Russia is ongoing. First, the partners want to ensure that Ukraine has a functioning government and enough weapons to defend itself.
- In the EIB, on the other hand, a functioning economy is considered to be just as important for the country’s success.
The debate about tank deliveries is “a bit one-dimensional,” criticizes Hoyer. He believes that reconstruction is urgently needed. The EU is rightly providing money to fund the Ukrainian government’s current spending, he says. The previous EIB programs in Ukraine also continued.
But he thinks it was a mistake that the additional project financing should now be stopped. “It would now be crucial to start the reconstruction with the help of the EIB.”
The president of the European Investment Bank wants to start the reconstruction of Ukraine now.
(Photo: Getty Images)
Similar to the German KfW, the European development bank provides public loans and guarantees. Its mission is to advance European integration and promote EU goals around the world. The 27 member states have provided the equity, but the bank finances itself independently through bonds on the capital market.
“Lots of project ideas” for Ukraine
Bank boss Hoyer says in his Luxembourg office that he constantly receives letters and calls from Ukraine. A mayor told him that they had destroyed a bridge over the river in his town in the first weeks of the war to prevent Russian tanks from advancing. But now the Russians are 500 kilometers away and the town needs a new bridge.
“You don’t need the bridge in five years when Ukraine has won, you need it now, because otherwise the region will no longer function economically,” says Hoyer. The efficiency of the Ukrainian economy is remarkable and must be preserved. EU companies are also willing to get involved if they get the appropriate guarantees. There are “lots of good project ideas” and the EU must help more with their implementation.
EIB boss Hoyer admits that projects in Ukraine are currently risky.
(Photo: dpa)
Hoyer emphasizes that the bank does not need fresh capital from EU governments. “We just have to be put in a position to use the available capital.” Of course, projects in Ukraine are now risky, admits the head of the bank. He cannot rule out that the Russians will shoot up new infrastructure again. “But these are precisely the risks that must – and can – be covered by good risk management and risk sharing,” says Hoyer.
Hoyer does not want to take part in speculation about how much the reconstruction will ultimately cost. Estimates range from a few hundred billion euros to more than one trillion euros.
“It is quite clear that these sums will never come from European national budgets alone,” he says. That is why you have to mobilize a multiple of private funds with limited budget funds. That is precisely the role of the EIB.
Hoyer considers EU investment funds 2023 to be realistic
Hoyer also sees a great financial need for investments within the EU. Hoyer believes that the US government’s latest subsidy program, the Inflation Reduction Act, which supports green technologies with almost $400 billion, will widen the investment gap between the US and the EU. “I see a very great danger that the Europeans will lose massively in this competition and that the deindustrialization of Europe will progress.”
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The EIB boss therefore supports the idea of a European investment fund, as proposed by the EU Commission. Following the example of the EIB, he could mobilize significantly more private investment with relatively little public funding, according to Hoyer.
The idea is to relieve the industry of certain technological risks or market risks. Then, it is hoped, companies like the Swedish battery manufacturer Northvolt would not migrate to the USA.
If you want to compete with the Americans, you have to come up with something. You can’t think too small. A three-digit billion amount is needed. EIB boss Werner Hoyer
Although several finance ministers, including Hoyer’s party friend Christian Lindner (FDP), have spoken out against it, the head of the bank considers it “quite realistic” that such an investment fund will be decided in 2023.
The initiative must of course come from the Member States, he stresses. “If you want to compete with the Americans, you have to think of something. You can’t think too small. A three-digit billion amount is needed.”
EIB wants to speed up to keep up with China
From Hoyer’s point of view, the EU still has to do better when it comes to competing with the second superpower, China. The “Global Gateway” investment program, which is being marketed in Brussels as an answer to China’s Silk Road project, must pursue the strategic goals of the EU. “Goodwill alone is not enough,” says Hoyer.
In recent decades, China has made targeted investments in Africa, Asia and the Middle East in order to secure access to raw materials and critical infrastructure. The EU now also wants to gear its international cooperation more closely to its own economic interests. However, the EU Commission is accused of simply relabeling existing development aid projects instead of really realigning the allocation of funds.
>> Read here: Commentary: Global Gateway: Europe’s billion-dollar bluff in system competition with China
With a view to Africa, Hoyer is also self-critical of his bank. “We have to be much faster,” he says. “If it takes us two years to evaluate a project and the Chinese say we’ll build it in a year, then I know how the governments in Africa decide.” Since the EIB sees itself as a “climate bank” and assesses every project for climate impacts, it will always take a little longer. But the decision was recently taken to cut the process of getting a project approved by half, says Hoyer.
However, speed is not the only criterion for the partners. “The Chinese are attractive when it comes to speed, but not when it comes to terms,” says the head of the bank. “The elevated highway in Nairobi from the airport to the city, for example, is almost complete. But most citizens won’t be able to use them because the usage fees have to be very high to service the Chinese loans.” Therefore, such projects often led to a gigantic increase in the structural national debt.
More: This is the federal government’s secret list of projects against China’s influence.