June 28 (Bloomberg) -- European Union leaders approved a 120 billion-euro ($149 billion) plan to promote growth in the 27-nation bloc that includes a capital boost for the European Investment Bank.
The government chiefs agreed on a 10 billion-euro capital increase for the EIB today as a centerpiece of the long-term growth plan, which includes infrastructure financing, tax-policy pledges and more focused use of EU funding. It also calls for project bonds and support of small and medium-sized businesses.
“The growth agenda is a sign of our unrelenting commitment,” EU President Herman Van Rompuy said in a press conference in Brussels on the first day of a two-day summit. “It brings together all concrete measures that we will swiftly take.”
The growth plan came before leaders took on the thornier measures to prevent the euro area’s financial crisis from swamping Spain and Italy. They’ll discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-era records, Finnish Prime Minister Jyrki Katainen said. He also proposed that bailout funds buy collateralized government debt in primary markets.
Van Rompuy said other elements of the growth-promoting strategy, such as those dealing with financial stability and the future of the euro, have not yet been finished.
The leaders will continue meeting tonight to discuss the long-term future of the EU and its 17-nation common currency. “We are making progress,” he said, adding that debate on short-term measures isn’t blocking the path to agreement. Leaders also continue to discuss an EU patent, he said.
German Chancellor Angela Merkel endorsed the growth plan before the meeting started, calling it “a good program, especially in terms of future-oriented investment and above all in terms of more job opportunities especially for young people.”
The Luxembourg-based EIB could use its capital infusion to increase its lending capacity by 60 billion euros and unlock 180 billion euros of additional investment, according to EU estimates.
With the extra capacity, the EIB can keep expanding its efforts to finance EU infrastructure projects. In January, the bank said it was on course to gradually return to pre-2008 lending levels, with loans set to decline to 50 billion euros in 2012 from 61 billion euros in 2011.
The capital increase comes with a pledge to make sure EIB loans reach “the most vulnerable countries,” according to draft conclusions circulated ahead of the meeting. At the same time, documents sent to leaders last week by EIB President Werner Hoyer and European Commission President Jose Barroso say the EIB won’t abandon its lending standards.
“The increased activity should not compromise the EIB’s fundamental AAA-based business model,” said the commission-EIB report on joint lending priorities, obtained by Bloomberg News.
“While EIB has a countercyclical role to play and is ready to do all it can to support growth and jobs at this difficult moment, the EIB cannot be seen as and should not become a crisis-management tool, nor a bailing out instrument,” the report said.
Hoyer said the extra 180 billion euros in investments would take place between 2013 and 2015 if the EIB gets the extra capital, in an interview published today in Les Echos. Over the next three to four years, the EIB could make additional loans and investments on innovation, strategic infrastructure, resource efficiency projects and access to finance for small and medium-sized entities, the report said.
Spanish Prime Minister Mariano Rajoy said in Brussels today that the EIB needs to finance smaller companies as part of needed reforms for European growth.
-- With assistance from Joao Lima, James G. Neuger, Tony Czuczka and Robert Hutton in Brussels. Editor: Patrick G. Henry, Matthew Brockett
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