Former I.M.F. Chief Recommends That E.U. Merge Its Lending

The New York Times (Link) - Stephen Castle (February 24, 2010)

The creation of a powerful new European development bank could increase the European Union�s global influence and give its foreign policy more credibility, according to the author of a report due to be published Wednesday.

Michel Camdessus, a former managing director of the International Monetary Fund, said that the Union should consider merging its existing agencies into one big development bank able to spend more than �10 billion, or $13.5 billion, each year.

�Europe needs to be seen to have powerful instruments commensurate with the money Europe is ready to spend,� he said Tuesday.

The idea is likely to encounter practical objections, not least because one of the institutions involved, the European Bank for Reconstruction and Development, has non-European government shareholders, including the United States.

But after evaluating the external work of the European Investment Bank, Mr. Camdessus argued that a more cohesive lending program could provide vital support to E.U. foreign-policy objectives and solidify the bloc�s influence in neighboring and developing countries.

The proposals come after the introduction on Dec. 1 of the Union�s Lisbon Treaty, which is supposed to streamline Europe�s structures, placing both policy making and much external spending under the control of a new foreign-policy chief, Catherine Ashton.

Mr. Camdessus said his plans could �provide the E.U. with a single powerful financial arm in parallel with the political arm being arranged by Baroness Ashton.� The proposals come from a committee of �wise persons� chaired by Mr. Camdessus.

The European Investment Bank, which is owned by the 27 countries of the Union, concentrates most of its lending on infrastructure, energy and other projects within the bloc, but also supports development around the world. It finances its operations both inside and outside the bloc by borrowing on the capital markets rather than drawing on the E.U. budget.

The E.B.R.D., which was set up after the collapse of communism in 1989, works mainly by investing in private companies on projects in 29 countries from Central Europe to Central Asia. It is owned by 61 countries, many of which are outside the bloc, as well as the Union and the E.I.B.

In addition the European Commission, the Union�s executive arm, has extensive aid programs in developing nations, in countries neighboring the bloc, and those about to join it.

The report says the E.I.B.�s external lending ceiling for 2007-13 is �40.5 billion while the Union is due to spend �55.9 billion outside the bloc.

�If you look at the numbers, we will spend around �100 billion during seven years,� Mr. Camdessus said by telephone. �It�s a huge amount of money, but it is scattered between the E.I.B., the E.B.R.D. and grants from the European budget. It is coordinated, but it does not have the visibility and financial effect of better structured actions.�

His report will recommend two options, both of which would involve separating the E.I.B.�s work inside the Union from its operations outside the bloc.

One involves integrating the external financing of the E.I.B. with the European Commission�s work, setting up a European agency for external financing.

The second option would see the creation of a major European financing body, integrating the relevant means of the commission, the E.I.B. and the E.B.R.D., forming a European Bank for Cooperation and Development.

An interim step could be the creation of an E.U. platform for external cooperation and development � a coordination mechanism for grants and loans offered by different institutions and possibly bilateral aid from European governments.

Mr. Camdessus said his plans would not require changes to the Lisbon Treaty, but any option involving the E.B.R.D. would need negotiation with its shareholders, including the U.S. government.

But he added that the �opinions and views of the non-European countries must not prevent Europe from trying to streamline and reorganize its own ways of external action.�