Europe's Own Banker Seeks Ways to Put Draghi's Money to Good Use

  • European Investment Bank president Hoyer speaks in interview
  • `Juncker plan' for investment proceeding faster than expected

European Investment Bank President Werner Hoyer said easy monetary policy can only do so much if the money created isn’t put to use with meaningful investment projects.

“We have abundant available liquidity, we can drown in it,” Hoyer, 64, said in an interview in Washington, where he attended the spring meetings of the International Monetary Fund and the World Bank. “If we don’t bring it to productive use, we have lost.”

Werner Hoyer

Photographer: Andrew Harrer/Bloomberg

The European Central Bank has laid the ground for an economic recovery with ultra-low interest rates and asset purchases that have helped push liquidity to record levels. While consumers have responded with increased spending, investment is lagging as banks remain saddled with bad debt.

Three years after the 19-nation economy overcame its longest recession, it’s still facing a capital-spending gap of more than 400 billion euros ($451 billion) compared to pre-crisis levels. European Union Commission President Jean-Claude Juncker’s investment plan, developed in close cooperation with the EIB, won’t be enough to fill it, Hoyer said.

Juncker Plan

“The Juncker plan is not the silver bullet,” he said. “It’s a contribution to a problem solution.”

Announced at the end of 2014, the plan aims to put into action 315 billion euros of investments over three years. Projects worth one third of this target have already been activated, according to the EIB.

“It’s a huge surprise to us that it went so quickly,” Hoyer said. Financing for small and medium-sized enterprises “is getting a lot of traction” but “it makes sense to think beyond what we’re presently doing when it comes to developing and programming good projects.”

Refugee Flows

The migration influx that has contributed to the rise of populist, right-wing parties across Europe is high on the list of EIB priorities at the moment. Even so, it’s hard to quantify how much of its budget the bank has allocated to the crisis since everything from efforts to improve labor-market conditions to supporting integration to funding development projects in the countries that refugees are fleeing can be considered a response.

“Migrants are a huge opportunity” in view of Europe’s economic and demographic situation, Hoyer said. “But if you’re so overburdened because in your local community there’s not a single school gym available,” then “the argument hardly gets through.”

Europe “should have adopted a proactive migration policy decades ago,” he said.

Brexit Risks

While the EIB president highlighted the economic risk of an exit of the U.K. from the European Union, he said a so-called Brexit would have no immediate impact on the bank’s capital or activity. But “since we are a treaty-based institution,” the U.K.’s membership as “shareholder in the EIB will have to be decided,” he said.

The EIB, the EU’s development bank, is the largest multilateral lender by volume and provided 77.5 billion euros in 2015. Its subscribed capital amounted to some 243 billion euros in 2013 after EU member states decided to expand the bank’s coffers in the aftermath of the global financial crisis.

Before it's here, it's on the Bloomberg Terminal.