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The document discusses a project to improve the efficiency of monetary expansion in the Eurozone by involving the European Investment Bank (EIB). It presents some key premises of the project, including that EIB involvement could help direct resources from monetary expansion more effectively to the real economy. It outlines potential ways the EIB could be involved, such as through loans from the ECB to the EIB or a fund managed by the EIB. The document also discusses some of the main policy issues involved, such as ensuring compatibility with the ECB's price stability objectives, and challenges for the project related to technical and institutional factors.

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European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank (EIB) PRESENTATION OF THE PROJECT CCMI – Group III July 14th 2015
.. The main purpose of this project is to collect, elaborate and disseminate information on the legal, technical and economic feasibility of different mechanisms of cooperation between the Eurosystem and the European Investment Bank (and National Promotional banks and agencies) as a potential way of improving the efficiency of monetary expansion in the Eurozone. Main goal of the Project
EIB know how could be useful in improving efficiency of ECB policies, that impact economy through: .. Key interest rates .. Expansion of Eurosystem Balance Sheet Monetary expansion is achieved in an indirect way, channeling liquidity to the banking system. Involving the EIB could ensure that key interest rates and monetary expansion impact as directly as possible in real economy. Monetary expansion
Quantitative monetary expansion has evolved in an irregular but clearly expansionary way during the financial crisis. EUROSYSTEM CONSOLIDATED BALANCE SHEET 2008 – 2015 (million EUR) Monetary expansion Source: ECB/Saxo Group
EUROSYSTEM CONSOLIDATED BALANCE SHEET 1999 – 2008 (million EUR) Monetary Expansion is not only a matter of QE programmes Source: ECB/Depth Dynamics
.. The main objective of the Eurosystem - Keeping inflation under but close to the 2%- means that, in the long term, monetary expansion will increase over the GDP increase rate. CENTRAL BANKS BALANCE SHEET AS A % OF GDP (2000-08) Monetary Expansion is not only a matter of QE programmes Source: ECB / FED / Hinde Capital
.. So, the ECB-EIB collaboration should be articulated through mechanisms that do not increase the overall risk of the Eurosystem consolidated balance sheet. .. As opposed to that, increasing the efficiency of monetary expansion implies: a) Achieving similar results with lower resources and risk b) Achieving better results with similar resources or risk Overall risk level of monetary expansion
• This programme, which began in March at a monthly rate of EUR 60 000 million and will last “at least” until September 2016, will be implemented through the acquisition of financial assets. • So, “at least” it will reach 1,14 trillion EUR (As a reference: more than 50 times the EC Investment Plan for Europe or Juncker Plan). Expanded Asset Purchase Programme 2015-2016
Long Term Programs LTROs 2011-2012 ASSET PURCHASE PROGRAM 2015-2016 - 1 trillion € - Loans to European banks - Term: 3 years - Rate: 1% - 60.000 Million € / month (“At least” 1,14 Trillion €: 11% / Eurozone GDP) - Public and private securities .. “Shared Risk”: 20% .. “Non shared risk”: 80% (national central banks).
• The main problem with monetary expansion is its lack of focus. Funds are provided to banks and it´s up to the banks to decide if these funds are or not invested and, if so, if they are invested in or out of the Eurozone and in productive or speculative activities. Indirect nature of monetary expansion
.. There are differing opinions about the extent to which the banking sector will redirect the resources obtained through monetary expansion into local economic activity. However, it is generally accepted that this redirection is only partial. .. It seems that a significant proportion of the resources generated through monetary expansion remain stuck on bank balance sheets, are invested outside the territory or are channelled into speculative bubbles. Indirect nature of monetary expansion
This involvement of the EIB should further four basic objectives: a) making the transmission mechanism of monetary policy more efficient in terms of its direct connection with the real economy; b) establishing a more direct relationship between monetary policy, money supply and price stability; c) establishing a more direct relationship between money supply expansion and increasing productive capacity; d) providing more resources for policies to promote investment in the eurozone. A more focused monetary expansion
We can visualise different potential operational options: .. establishing some kind of systematic advice from EIB on the allocation of resources generated through monetary expansion. .. loans from the Eurosystem to the EIB .. acquisition by the Eurosystem of securities issued by the EIB .. setting up a fund held by the Eurosystem/ECB, but managed by the EIB .. setting up a fund or entity managed –and owned- by the EIB How to involve the EIB expertise
The role of the EIB • In theory, there may be different ways to make monetary expansion more focused in real and productive economy. • But, from our point of view, the collaboration with the European Investment Bank is a practical, realistic and feasible way of achieving this goal.
EIB. Credit Rating EUROPEAN INVESTMENT BANK Fitch Moody’s Standard & Poor’s Long term AAA Aaa AAA Short term F1+ P-1 A-1+ EUROPEAN INVESTMENT FUND Fitch Moody’s Standard & Poor’s Long term AAA Aaa AAA Short term F1+ A-1+
BREAKDOWN OF OBLIGORS 2013 Source: Fitch / EIB. Based on the ultimate obligor If necessary, EIB also works through banks
DEGREE OF PROTECTION IN CREDIT TO BANKS 2013 Source: Fitch EIB also knows how to work with banks in a very secure way:
.. Aside from regulatory considerations, the European Investment Bank would seem to be an ideal repository of the know-how required to redirect resources generated by monetary expansion to the real economy. .. Its objectives, as defined in Article 309 of the Treaty on the Functioning of the European Union, ensure the general interest of its activity. The role of the EIB
.. Main questions had to be answered: A. CAN IT BE DONE? B. HOW? C. IN WHICH AMOUNT? D. WHEN? .. Our position / goals should be adapted as the Project goes on, according to the positions of the European stakeholders, EU institutions, technical issues, … Starting point
.. Preliminary Draft (february 2015) .. Decision of the EESC Board (march 2015) .. Power point presentations on “Some Basic Concepts “ and “Main Issues” (march 2015) .. First contacts with EIB and ECB (march 2015) .. Checking with experts in different EU countries (april 2015): - 70 experts checked - At the moment, 39 answers Main steps
.. Four main power point presentations (to be continuously updated) (may 2015): - PRESENTATION OF THE PROJECT - POLICY ISSUES - LEGAL AND TECHNICAL ISSUES - MAIN PROVISIONAL CONCLUSIONS Main steps
.. Next steps: - Small presentations with stakeholders in Brussels: .. September 1st: IndustryAll - 3 local events (Vilnius, Bilbao, …) - Brussels Round Table: November 12th Main steps
A. One of the major barriers to increasing the efficiency of monetary expansion policies is the indirect nature of their transfer to the real economy, which is achieved by injecting liquidity into the banking system, either through loans to financial institutions or acquisition of assets owned by those institutions. But banks are not subjected to conditions that ensure the correct destination of the funds. It is hoped that financial institutions will move this liquidity into the real economy, but this happens only partially. Main premises
B. The EIB is the EU institution that has the know-how and the tools that are specifically designed to channel credit to the real economy (infrastructure, SMEs, etc.) Main premises
C. The main hypothesis of this Project is that structural collaboration between the Eurosystem and the European Investment Bank – or national promotional banks or agencies- would be an excellent tool for significantly improving the efficiency of monetary expansion operations in the Eurosystem, maximising efficiency at their final destination, the real economy. Main premises
D. As said before, this collaboration could be achieved through: .. Involvement of the EIB or / and of national promotional banks or agencies from member states. .. Involvement of the EIB could be in a substantial part of the monetary expansion or in a limited amount. Main premises
.. Transferring resources to the EIB balance: a) Directly: ECB loans to the EIB b) Indirectly: Purchase by the ECB of debt issued by the EIB .. Without transferring resources to the EIB balance: - Setting up a Fund managed by the EIB but under the Eurosystem / ECB ownership - Setting up a fund –or an entity- managed and owned by the EIB - Making use of the EIB expertise through advice, formal reports or delegation in allocation of resources. Main premises. Some options
F. This involvement of the EIB should be compatible with the objectives of monetary expansion, namely: .. to increase money supply; .. to support price stability and economic recovery. Main premises
G. This involvement of the EIB should be a way to: a) Achieving similar results with lower resources or risk b) Achieving better results with similar resources or risk Main premises
.. TECHNICAL DIFFICULTIES .. INSTITUTIONAL RELATIONS .. DISSEMINATION Main Challenges for the Project
European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank (EIB) POLICY ISSUES
.. MONETARY EXPANSION. SOME POLITICAL ISSUES A. OVERALL RISK OF THE EU INSTITUTIONS B. MONETARY EXPANSION VS. RESTRICTIVE POLICIES C. DIFFERENT VIEWS AND INTERESTS BETWEEN MEMBER STATES D. MONETARY RISK VS. FISCAL RISK E. PUBLIC RISK VS. PRIVATE RISK .. MONETARY POLICY AND INVESTMENT POLICY .. LIMITS OF MONETARY POLICY .. PRICE STABILITY POLICY .. POLICY QUALIFICATION .. MONETARY POLICY AND GROWTH POLICY INDEX
.. Involving national promotional banks or agencies could include criteria for allocating resources between those institutions, as well as implementation and monitoring of the management of the operations. .. The EIB could be in charge of the definition and monitoring of the implementation by promotional banks or agencies of these criteria and requirements Involving national promotional banks or agencies
.. The main activity of monetary expansion (ECB) and EU investment (EIB) may be similar: “INJECTING MONEY IN THE ECONOMY” .. However, the main policies to which these activities respond look different: - Monetary policy (ECB) - Investment policy (EIB) .. But, as we´ll see: - both policies cannot be separated. - Monetary Policy is neither an objective of the main receptor of Monetary Expansion (the Banking System) Monetary expansion and investment policy
.. Involving EIB in monetary expansion would be quite an opportunity for EU investment policy. .. Just remember that the Asset Purchase Programme of the Eurosystem (1,14 trillion €) is 50 times bigger than the Juncker Plan (21.000 million €) .. If needed by the dimension of the resources or for other reasons, the EIB would collaborate with public promotional banks or agencies of member states An Opportunity for Investment Policy
Objectives of the Eurosystem So, main criteria: 1. PRIMARY OBJECTIVE: PRICE STABILITY 2. General economic policies of the Union (art. 3) 3. Principle of an open market economy with free competition 4. Efficient allocation of resources 5. Principles Art. 119 (Coordination of Member States’ economic policies, internal market, sound public finances, sustainable balance of payments).
So, for our purpose, these requisites must be fulfilled: 1. Price stability as objective (Art. 3 objectives only in a secondary plane). 2. Take the form of one of the monetary policy instruments (buying and selling financial instruments, credit operations) Limits of Monetary Policy The EU Treaty
FROM EUROSYSTEM TO MONEY SUPPLY Monetary Policy ▲ MONEY SUPPLY / M3 BANKING SECTOR E U R O S Y S T E M MONETARY EXPANSION ▲ MONETARY BASE
Money Supply and Credit are directly related
Monetary Expansion is less and less related to Money Supply
Monetary Expansion is also less and less related to credit to private sector
.. Monetary policy is not “a matter of the banking sector”, of providing liquidity to it. The financial sector is only an instrument. .. The effects on money supply are only achieved when –and if- the banks reinvest the funds in the real economy. There is no Price Stability Policy without Credit to Real Economy
“Monetary policy transmission channels do not function as mechanisms producing immediate effect but as a framework through which the ECB sends out a series of ‘impulses’ or signals with a view to them reaching the real economy.”. (OPINION of Advocate General EU Court of Justice Jan 14 2015) There is no Price Stability Policy without Credit to Real Economy
FROM EUROSYSTEM TO REAL ECONOMY Monetary Policy OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M REAL ECONOMY
FROM EUROSYSTEM TO REAL ECONOMY Monetary Policy OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M EIB REAL ECONOMY
The link between Monetary Policy and Price Stability PRICE STABILITY +/- MONEY SUPPLY BANKING SECTOR E U R O S Y S T E M +/- LOANS +/- Interest rates / Liquidity
The link between Monetary Policy and Price Stability AND WHAT ABOUT EIB? PRICE STABILITY +/- MONEY SUPPLY EIB E U R O S Y S T E M +/- LOANS +/- Interest rates / Liquidity
.. From a qualitative point of view, the link between Monetary Policy and Price Stability works IN THE SAME WAY through the Banking Sector or through the EIB. .. As we´ll see, the impact on Price Stability through the EIB would be, anyway, far more efficient. EIB role and Price Stability Policy
EIB role and Price Stability OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M EIB REAL ECONOMY PRICE STABILITY
The main difference is: .. Through the EIB, resources are ALWAYS channeled to productive economy .. Through the Banking Sector, sometimes it´s so and sometimes not. . EIB role and Price Stability
TWO MAIN REQUISITES OF MONETARY POLICY A. INSTRUMENT: Credit / Asset acquisition B. GOAL: Price Stability Policy Qualification
Policy Qualification. POINT OF VIEW OF THE INSTRUMENTS OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M MONETARY POLICY MONETARY POLICY MONETARY POLICY EIB MONETARY POLICY EU POLICY
Policy Qualification. POINT OF VIEW OF PRICE STABILITY OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M FINANCIAL SECTOR STABILITY POLICY FINANCIAL SECTOR STABILITY POLICY MONETARY POLICY EIB MONETARY POLICY EU POLICY
Monetary Policy and Growth Policy INFLATIONARY IMPACT MONETARY EXPANSION E U R O S Y S T E M NON- PRODUCTIVE ACTIVITIES PRODUCTIVE ACTIVITIES GROWTH ( MONEY DEMAND) MONEY SUPPLY NO GROWTH ( MONEY DEMAND) MONEY SUPPLY NO INFLATIONARY IMPACT
.. Improving the link between monetary expansion and productive economy through the structural collaboration between the Eurosystem and the European Investment Bank seems coherent with the main objectives of both the ECB and the EIB and with different EU policies: - Investment Policy - Growth Policy - Monetary Policy Final remark
.. Furthermore, it seems that the structural collaboration between the Eurosystem and the EIB would be a significant instrument to improve the efficiency of monetary policy, clarifying the link between monetary policy and broad money supply, real economy and price stability. Final remark
Efficiency of Monetary Policy OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M PRODUCTIVE ECONOMY EIB PRODUCTIVE ECONOMY REAL BUT NON- PRODUCTIVE ECONOMY Monetary inefficiency Monetary inefficiency Monetary efficiency but inflationary impact Non- -inflationary impact Monetary efficiency
European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank TECHNICAL AND LEGAL ISSUES
.. Transferring resources to the EIB balance: a) Directly: ECB loans to the EIB b) Indirectly: Purchase by the ECB of debt issued by the EIB .. Without transferring resources to the EIB balance: - Setting up a Fund managed by the EIB but under the Eurosystem / ECB ownership - Setting up a fund –or an entity- managed and owned by the EIB - Making use of the EIB expertise through advice, formal reports or delegation in allocation of resources. Starting point. Some options
.. Legal capacity of the EIB .. “Independence of the ECB”: Autonomy of the ECB to define monetary policy. .. Geographical scope: Eurozone (ECB) / European Union (EIB) .. Ability to delegate to the EIB the approval of operations .. Formalization of the collaboration ECB-EIB Legal issues
Ability to delegate in the EIB the approval of operations. OPTION A ECB Fund without legal personality (ECB Assets) EIB Funding
Ability to delegate in the EIB the approval of operations. OPTION B ECB New entity or subsidiary EIB Loans at key interest rates
Ability to delegate in the EIB the approval of operations. OPTION C ECB EIB If EIB capital is not enough: .. an specific reserve fund could be created .. in some cases, financed by the differential in interest rates Loans at key interest rates
SOME TECHNICAL ISSUES .. Constrained credit demand .. Technical capacity of the EIB .. Key differences in investment policies between ECB and EIB .. Risk concentration
Constrained credit demand. To which point? CHANGES IN DEMAND FOR LOANS OR CREDIT LINES TO ENTERPRISES (net percentages of banks reporting positive demand) SOURCE: ECB. BANK LENDING SURVEY APRIL 2015
Constrained credit demand. To which point? PURPOSES FOR WHICH EURO AREA BANKS USE THE ADDITIONAL LIQUIDITY FROM THE EXPANDED APP (average percentage of respondents per category) SOURCE: ECB. BANK LENDING SURVEY APRIL 2015
Constrained credit demand. To which point? PURPOSES FOR WHICH EURO AREA BANKS USE THE ADDITIONAL LIQUIDITY FROM THE EXPANDED APP. GRANTING LOANS (percentage of respondents) SOURCE: ECB. BANK LENDING SURVEY APRIL 2015
If we compare ECB and EIB policies … Key differences in investment policies ECB EIB LIQUIDITY High Low TERM Short - Medium Medium - Long INTEREST RATES Far lower than retail market Close to retail market CREDIT RISK Usually lower (Banks, Securities) Usually higher (SMEs, Banks, Public banks) RISK ABSORPTION .. ECB .. Monetary risk .. Fiscal risk .. EIB (or EIFund) .. Fiscal risk
But if we compare EIB and private banks policies … Key differences in investment policies PRIVATE BANKS EIB LIQUIDITY Low Low TERM Medium - Long Medium - Long INTEREST RATES Retail market Close to retail market CREDIT RISK Usually higher (Businesses, Households, Securities, …) Usually lower (SMEs, Banks, Public banks) RISK ABSORPTION .. Own balance sheet .. EIB (or EIFund) .. Fiscal risk
Credit risk in ECB expansionary policies is usually lower than risk in EIB loans. (Usually, through collateralized loans to banks) The point is WHY? CREDIT RISK
.. Two main reasons: a) The image / reputation factor It is understood that the reputation of the ECB solvency is key for the reputation of the Euro itself. b) The “risk-sharing” factor .. Monetary risk falls on the entire Eurozone. .. Fiscal risk may fall on the entire Eurozone or on member states. CREDIT RISK
.. The differential in credit risk can be compensated: - Through the differential in interest rates. - Through lower risks in ECB operations not linked to the EIB CREDIT RISK
EIB-EIF. Credit Rating Fitch Moody’s Standard & Poor’s Long term AAA Aaa AAA Short term F1+ P-1 A-1+
BREAKDOWN OF OBLIGORS 2013 Source: Fitch / EIB. Based on the ultimate obligor If necessary, EIB also knows how to work through banks
DEGREE OF PROTECTION IN CREDIT TO BANKS 2013 Source: Fitch EIB also knows how to work with banks in a very secure way:
Liquidity risk
APP Programme. Bonds average maturity: 8 years Source: ECB / BBVA Research
ECB Long term operations, more and more important Source: Nomura / ECB
Source: ECB. Consolidated financial statement of the Eurosystem as at May 29th 2015 ECB Long term operations, more and more important
.. For the ECB, this higher liquidity can be reached just buying bonds that EIB or other institutions transform into loans. .. If necessary, the higher liquidity risk could be compensated through lower liquidity risks in ECB operations not linked to the EIB. .. Anyway, from the point of view of containing inflation, less liquidity in EIB operations can be clearly compensated by the impact of these investments in growth. Liquidity risk
THEORETICAL OPTIONS A. Make use of key interest rates B. Make use of rates close to retail market C. Intermediate rates Possible criterion: Starting from key rates, elevate them as necessary to compensate for credit risk. Interest rates
.. Another option: The Eurosystem / ECB compensates credit risk of the operations channeled through collaboration with EIB –directly focused to real economy- with higher interest rates in the rest of the operations. Interest rates
So: .. there are different ways to make compatible or solve the differences in maturity, liquidity, risk and usual interest rates of EIB and ECB .. if appropriate, new maturity and risk criteria could be established by the EIB-ECB Agreement for the purposes of managing these resources, different from the usual EIB and the usual ECB criteria. Final remarks
.. Apart from the considerations before, it looks like, from a macroeconomic point of view, credit focused in real productive economy should be privileged by the Eurosystem, both in accesibility and in interest rates. These criteria should be taken into account when defining the collaboration between EIB and ECB. Final remarks
.. It looks like the main legal and technical issues concerning the different options for the structural collaboration between ECB and EIB can be easily solved. .. The concretions and technical options should be analysed and agreed between ECB and EIB. .. These positions / criteria will be adapted as the Project goes on, according to the institutional positions and the evolution of the analysis. Final remarks
European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank MAIN PROVISIONAL CONCLUSIONS
.. Efficiency of Eurozone monetary policy transmission – its link to real economy- should be improved .. Particularly, making sure that resources get to the real economy and do not stay remained in the financial system, out of the Eurozone or in financial speculation .. Without increasing the overall risk of the Eurosystem, the highest proportion of monetary expansion should finance productive activities, related to sustainable growth. 1. Monetary policy should be more focused
.. The involvement of the European Investment Bank (EIB) or other public promotional banks or agencies from the EU or the member states seems to be a good way to improve the efficiency of monetary expansion, its relationship with real economy and with productive activities. 2. Involving the EIB, a good solution
.. The collaboration ECB-EIB should increase the efficiency of monetary policy and so, should make possible that better results and impact in real economy are achieved with a lower risk. 3. Better results with fewer resources and risk (I)
For this purpose: A. ECB and EIB should make an intensive use of the different positions that EIB can take in monetary policy transmission without increasing risks usually taken with banks: - Through loans channeled by EIB to banks - Providing funds to EIB and national promotional banks or agencies in similar ways as they are provided to commercial banks. - Buying EIB and NPBs bonds or accepting them as collateral in similar ways as government bonds are bought or accepted. 3. Better results with fewer resources and risk (II)
B. ECB and EIB should accept operating through EIB even in a more risky way than in other ECB operations. It could be acceptable taking account of the higher efficiency of these funds from the point of view of monetary policy transmission. This higher risk with funds provided to EIB would be compensated with lower risks directly taken with commercial banks. This way, the overall Eurosystem risk would not increase or would decrease. 3. Better results with fewer resources and risk (III)
C. The ECB-EIB collaboration could go further. Systematic advice from the EIB could be of the greatest importance for a better focusing of the monetary expansion, even in operations directly related to commercial banks. This advice could be mainly related to the conditionalities to be established when banks receive funds generated in monetary expansion, to ensure that these funds are channeled to real and productive economy. 3. Better results with fewer resources and risk (IV)
.. Even with a restrictive interpretation of the independence principle of the Eurosystem, the structural collaboration between the Eurosystem and the EIB can be implemented –by free decision of the ECB- through different ways. .. The ECB-EIB collaboration should be subjected to the monetary policy objectives and, just for this purpose, it should establish a more efficient transmission mechanism between Eurosystem and money supply, stability of prices, real economy and growth. 3. Legal issues can be solved (I)
ECB and EIB should work together in exploring the specific characteristic of this collaboration. Some options can be envisaged: .. Transferring resources to the EIB balance: a) Directly: ECB loans to the EIB b) Indirectly: Purchase by the ECB of debt issued by the EIB .. Without transferring resources to the EIB balance: - Setting up a Fund managed by the EIB but under the Eurosystem / ECB ownership - Setting up a fund –or an entity- managed and owned by the EIB - Making use of the EIB expertise through advice, formal reports or delegation in allocation of resources. 3. Legal issues can be solved (II)
.. Risk-sharing: Through the involvement of public promotional banks or agencies in member states .. Interest rates: The differential in rates is more an opportunity than a problem .. Liquidity: Through EIB bonds and/or more liquid investments in the rest of monetary expansion 4. Technical issues can be solved (I)
.. An adequate framework for a structural collaboration .. It reflects that the collaboration obeys to the free decision of both institutions and so, that their independence is fully respected. .. There are similar Collaboration Agreements between the EIB and other European institutions .. It may be an adequate framework for sharing views, strategic and operational issues and establishing a climate of mutual collaboration. 5.Why not a Collaboration Agreement between ECB and EIB?
.. The European Parliament, as representative of the general interest of the European people, and according to its interinstitutional role, should be the adequate body to take the initiative in promoting this kind of mutual collaboration between the ECB and the EIB. .. In this way, the European Parliament should make sure that the EU institutions adequately develope their main functions both in investment policy and in monetary policy. 6. On the role of the European Parliament
.. Of course, as parts of the collaboration we propose, ECB and EIB should play an active role in starting the necessary negotiations to prepare the collaboration agreement. 7. On the role of the European Central Bank (ECB) and the European Investment Bank (EIB)
.. In particular, the Board of Governors of the ECB and the Board of Governors of the EIB should take a first declarative decision in favor of such an approach. For that aim, a common working team should be created between ECB and EIB so as to clarifying the interest and the feasibility of the proposed collaboration and, in other case, to propose alternative measures to improve the efficiency of Eurozone monetary policy and investment policy. In particular, to guarantee that monetary expansion is adequately committed to real economy, development and growth. 7. On the role of the European Central Bank (ECB) and the European Investment Bank (EIB)
Thank you for your attention
European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank (EIB) PRESENTATION OF THE PROJECT CCMI – Group III July 14th 2015

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presentation-ccmi-group-iii-july-14-2015.ppt

  • 1.
    European Economic andSocial Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank (EIB) PRESENTATION OF THE PROJECT CCMI – Group III July 14th 2015
  • 2.
    .. The mainpurpose of this project is to collect, elaborate and disseminate information on the legal, technical and economic feasibility of different mechanisms of cooperation between the Eurosystem and the European Investment Bank (and National Promotional banks and agencies) as a potential way of improving the efficiency of monetary expansion in the Eurozone. Main goal of the Project
  • 3.
    EIB know howcould be useful in improving efficiency of ECB policies, that impact economy through: .. Key interest rates .. Expansion of Eurosystem Balance Sheet Monetary expansion is achieved in an indirect way, channeling liquidity to the banking system. Involving the EIB could ensure that key interest rates and monetary expansion impact as directly as possible in real economy. Monetary expansion
  • 4.
    Quantitative monetary expansionhas evolved in an irregular but clearly expansionary way during the financial crisis. EUROSYSTEM CONSOLIDATED BALANCE SHEET 2008 – 2015 (million EUR) Monetary expansion Source: ECB/Saxo Group
  • 5.
    EUROSYSTEM CONSOLIDATED BALANCESHEET 1999 – 2008 (million EUR) Monetary Expansion is not only a matter of QE programmes Source: ECB/Depth Dynamics
  • 6.
    .. The mainobjective of the Eurosystem - Keeping inflation under but close to the 2%- means that, in the long term, monetary expansion will increase over the GDP increase rate. CENTRAL BANKS BALANCE SHEET AS A % OF GDP (2000-08) Monetary Expansion is not only a matter of QE programmes Source: ECB / FED / Hinde Capital
  • 7.
    .. So, theECB-EIB collaboration should be articulated through mechanisms that do not increase the overall risk of the Eurosystem consolidated balance sheet. .. As opposed to that, increasing the efficiency of monetary expansion implies: a) Achieving similar results with lower resources and risk b) Achieving better results with similar resources or risk Overall risk level of monetary expansion
  • 8.
    • This programme,which began in March at a monthly rate of EUR 60 000 million and will last “at least” until September 2016, will be implemented through the acquisition of financial assets. • So, “at least” it will reach 1,14 trillion EUR (As a reference: more than 50 times the EC Investment Plan for Europe or Juncker Plan). Expanded Asset Purchase Programme 2015-2016
  • 9.
    Long Term Programs LTROs 2011-2012 ASSETPURCHASE PROGRAM 2015-2016 - 1 trillion € - Loans to European banks - Term: 3 years - Rate: 1% - 60.000 Million € / month (“At least” 1,14 Trillion €: 11% / Eurozone GDP) - Public and private securities .. “Shared Risk”: 20% .. “Non shared risk”: 80% (national central banks).
  • 10.
    • The mainproblem with monetary expansion is its lack of focus. Funds are provided to banks and it´s up to the banks to decide if these funds are or not invested and, if so, if they are invested in or out of the Eurozone and in productive or speculative activities. Indirect nature of monetary expansion
  • 11.
    .. There arediffering opinions about the extent to which the banking sector will redirect the resources obtained through monetary expansion into local economic activity. However, it is generally accepted that this redirection is only partial. .. It seems that a significant proportion of the resources generated through monetary expansion remain stuck on bank balance sheets, are invested outside the territory or are channelled into speculative bubbles. Indirect nature of monetary expansion
  • 12.
    This involvement ofthe EIB should further four basic objectives: a) making the transmission mechanism of monetary policy more efficient in terms of its direct connection with the real economy; b) establishing a more direct relationship between monetary policy, money supply and price stability; c) establishing a more direct relationship between money supply expansion and increasing productive capacity; d) providing more resources for policies to promote investment in the eurozone. A more focused monetary expansion
  • 13.
    We can visualisedifferent potential operational options: .. establishing some kind of systematic advice from EIB on the allocation of resources generated through monetary expansion. .. loans from the Eurosystem to the EIB .. acquisition by the Eurosystem of securities issued by the EIB .. setting up a fund held by the Eurosystem/ECB, but managed by the EIB .. setting up a fund or entity managed –and owned- by the EIB How to involve the EIB expertise
  • 14.
    The role ofthe EIB • In theory, there may be different ways to make monetary expansion more focused in real and productive economy. • But, from our point of view, the collaboration with the European Investment Bank is a practical, realistic and feasible way of achieving this goal.
  • 15.
    EIB. Credit Rating EUROPEANINVESTMENT BANK Fitch Moody’s Standard & Poor’s Long term AAA Aaa AAA Short term F1+ P-1 A-1+ EUROPEAN INVESTMENT FUND Fitch Moody’s Standard & Poor’s Long term AAA Aaa AAA Short term F1+ A-1+
  • 16.
    BREAKDOWN OF OBLIGORS2013 Source: Fitch / EIB. Based on the ultimate obligor If necessary, EIB also works through banks
  • 17.
    DEGREE OF PROTECTIONIN CREDIT TO BANKS 2013 Source: Fitch EIB also knows how to work with banks in a very secure way:
  • 18.
    .. Aside fromregulatory considerations, the European Investment Bank would seem to be an ideal repository of the know-how required to redirect resources generated by monetary expansion to the real economy. .. Its objectives, as defined in Article 309 of the Treaty on the Functioning of the European Union, ensure the general interest of its activity. The role of the EIB
  • 23.
    .. Main questionshad to be answered: A. CAN IT BE DONE? B. HOW? C. IN WHICH AMOUNT? D. WHEN? .. Our position / goals should be adapted as the Project goes on, according to the positions of the European stakeholders, EU institutions, technical issues, … Starting point
  • 24.
    .. Preliminary Draft(february 2015) .. Decision of the EESC Board (march 2015) .. Power point presentations on “Some Basic Concepts “ and “Main Issues” (march 2015) .. First contacts with EIB and ECB (march 2015) .. Checking with experts in different EU countries (april 2015): - 70 experts checked - At the moment, 39 answers Main steps
  • 25.
    .. Four mainpower point presentations (to be continuously updated) (may 2015): - PRESENTATION OF THE PROJECT - POLICY ISSUES - LEGAL AND TECHNICAL ISSUES - MAIN PROVISIONAL CONCLUSIONS Main steps
  • 26.
    .. Next steps: -Small presentations with stakeholders in Brussels: .. September 1st: IndustryAll - 3 local events (Vilnius, Bilbao, …) - Brussels Round Table: November 12th Main steps
  • 27.
    A. One ofthe major barriers to increasing the efficiency of monetary expansion policies is the indirect nature of their transfer to the real economy, which is achieved by injecting liquidity into the banking system, either through loans to financial institutions or acquisition of assets owned by those institutions. But banks are not subjected to conditions that ensure the correct destination of the funds. It is hoped that financial institutions will move this liquidity into the real economy, but this happens only partially. Main premises
  • 28.
    B. The EIBis the EU institution that has the know-how and the tools that are specifically designed to channel credit to the real economy (infrastructure, SMEs, etc.) Main premises
  • 29.
    C. The mainhypothesis of this Project is that structural collaboration between the Eurosystem and the European Investment Bank – or national promotional banks or agencies- would be an excellent tool for significantly improving the efficiency of monetary expansion operations in the Eurosystem, maximising efficiency at their final destination, the real economy. Main premises
  • 30.
    D. As saidbefore, this collaboration could be achieved through: .. Involvement of the EIB or / and of national promotional banks or agencies from member states. .. Involvement of the EIB could be in a substantial part of the monetary expansion or in a limited amount. Main premises
  • 31.
    .. Transferring resourcesto the EIB balance: a) Directly: ECB loans to the EIB b) Indirectly: Purchase by the ECB of debt issued by the EIB .. Without transferring resources to the EIB balance: - Setting up a Fund managed by the EIB but under the Eurosystem / ECB ownership - Setting up a fund –or an entity- managed and owned by the EIB - Making use of the EIB expertise through advice, formal reports or delegation in allocation of resources. Main premises. Some options
  • 32.
    F. This involvementof the EIB should be compatible with the objectives of monetary expansion, namely: .. to increase money supply; .. to support price stability and economic recovery. Main premises
  • 33.
    G. This involvementof the EIB should be a way to: a) Achieving similar results with lower resources or risk b) Achieving better results with similar resources or risk Main premises
  • 34.
    .. TECHNICAL DIFFICULTIES ..INSTITUTIONAL RELATIONS .. DISSEMINATION Main Challenges for the Project
  • 35.
    European Economic andSocial Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank (EIB) POLICY ISSUES
  • 36.
    .. MONETARY EXPANSION.SOME POLITICAL ISSUES A. OVERALL RISK OF THE EU INSTITUTIONS B. MONETARY EXPANSION VS. RESTRICTIVE POLICIES C. DIFFERENT VIEWS AND INTERESTS BETWEEN MEMBER STATES D. MONETARY RISK VS. FISCAL RISK E. PUBLIC RISK VS. PRIVATE RISK .. MONETARY POLICY AND INVESTMENT POLICY .. LIMITS OF MONETARY POLICY .. PRICE STABILITY POLICY .. POLICY QUALIFICATION .. MONETARY POLICY AND GROWTH POLICY INDEX
  • 37.
    .. Involving nationalpromotional banks or agencies could include criteria for allocating resources between those institutions, as well as implementation and monitoring of the management of the operations. .. The EIB could be in charge of the definition and monitoring of the implementation by promotional banks or agencies of these criteria and requirements Involving national promotional banks or agencies
  • 38.
    .. The mainactivity of monetary expansion (ECB) and EU investment (EIB) may be similar: “INJECTING MONEY IN THE ECONOMY” .. However, the main policies to which these activities respond look different: - Monetary policy (ECB) - Investment policy (EIB) .. But, as we´ll see: - both policies cannot be separated. - Monetary Policy is neither an objective of the main receptor of Monetary Expansion (the Banking System) Monetary expansion and investment policy
  • 39.
    .. Involving EIBin monetary expansion would be quite an opportunity for EU investment policy. .. Just remember that the Asset Purchase Programme of the Eurosystem (1,14 trillion €) is 50 times bigger than the Juncker Plan (21.000 million €) .. If needed by the dimension of the resources or for other reasons, the EIB would collaborate with public promotional banks or agencies of member states An Opportunity for Investment Policy
  • 40.
    Objectives of theEurosystem So, main criteria: 1. PRIMARY OBJECTIVE: PRICE STABILITY 2. General economic policies of the Union (art. 3) 3. Principle of an open market economy with free competition 4. Efficient allocation of resources 5. Principles Art. 119 (Coordination of Member States’ economic policies, internal market, sound public finances, sustainable balance of payments).
  • 41.
    So, for ourpurpose, these requisites must be fulfilled: 1. Price stability as objective (Art. 3 objectives only in a secondary plane). 2. Take the form of one of the monetary policy instruments (buying and selling financial instruments, credit operations) Limits of Monetary Policy The EU Treaty
  • 42.
    FROM EUROSYSTEM TOMONEY SUPPLY Monetary Policy ▲ MONEY SUPPLY / M3 BANKING SECTOR E U R O S Y S T E M MONETARY EXPANSION ▲ MONETARY BASE
  • 43.
    Money Supply andCredit are directly related
  • 44.
    Monetary Expansion isless and less related to Money Supply
  • 45.
    Monetary Expansion isalso less and less related to credit to private sector
  • 46.
    .. Monetary policyis not “a matter of the banking sector”, of providing liquidity to it. The financial sector is only an instrument. .. The effects on money supply are only achieved when –and if- the banks reinvest the funds in the real economy. There is no Price Stability Policy without Credit to Real Economy
  • 47.
    “Monetary policy transmissionchannels do not function as mechanisms producing immediate effect but as a framework through which the ECB sends out a series of ‘impulses’ or signals with a view to them reaching the real economy.”. (OPINION of Advocate General EU Court of Justice Jan 14 2015) There is no Price Stability Policy without Credit to Real Economy
  • 48.
    FROM EUROSYSTEM TOREAL ECONOMY Monetary Policy OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M REAL ECONOMY
  • 49.
    FROM EUROSYSTEM TOREAL ECONOMY Monetary Policy OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M EIB REAL ECONOMY
  • 50.
    The link betweenMonetary Policy and Price Stability PRICE STABILITY +/- MONEY SUPPLY BANKING SECTOR E U R O S Y S T E M +/- LOANS +/- Interest rates / Liquidity
  • 51.
    The link betweenMonetary Policy and Price Stability AND WHAT ABOUT EIB? PRICE STABILITY +/- MONEY SUPPLY EIB E U R O S Y S T E M +/- LOANS +/- Interest rates / Liquidity
  • 52.
    .. From aqualitative point of view, the link between Monetary Policy and Price Stability works IN THE SAME WAY through the Banking Sector or through the EIB. .. As we´ll see, the impact on Price Stability through the EIB would be, anyway, far more efficient. EIB role and Price Stability Policy
  • 53.
    EIB role andPrice Stability OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M EIB REAL ECONOMY PRICE STABILITY
  • 54.
    The main differenceis: .. Through the EIB, resources are ALWAYS channeled to productive economy .. Through the Banking Sector, sometimes it´s so and sometimes not. . EIB role and Price Stability
  • 55.
    TWO MAIN REQUISITESOF MONETARY POLICY A. INSTRUMENT: Credit / Asset acquisition B. GOAL: Price Stability Policy Qualification
  • 56.
    Policy Qualification. POINTOF VIEW OF THE INSTRUMENTS OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M MONETARY POLICY MONETARY POLICY MONETARY POLICY EIB MONETARY POLICY EU POLICY
  • 57.
    Policy Qualification. POINTOF VIEW OF PRICE STABILITY OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M FINANCIAL SECTOR STABILITY POLICY FINANCIAL SECTOR STABILITY POLICY MONETARY POLICY EIB MONETARY POLICY EU POLICY
  • 58.
    Monetary Policy andGrowth Policy INFLATIONARY IMPACT MONETARY EXPANSION E U R O S Y S T E M NON- PRODUCTIVE ACTIVITIES PRODUCTIVE ACTIVITIES GROWTH ( MONEY DEMAND) MONEY SUPPLY NO GROWTH ( MONEY DEMAND) MONEY SUPPLY NO INFLATIONARY IMPACT
  • 59.
    .. Improving thelink between monetary expansion and productive economy through the structural collaboration between the Eurosystem and the European Investment Bank seems coherent with the main objectives of both the ECB and the EIB and with different EU policies: - Investment Policy - Growth Policy - Monetary Policy Final remark
  • 60.
    .. Furthermore, itseems that the structural collaboration between the Eurosystem and the EIB would be a significant instrument to improve the efficiency of monetary policy, clarifying the link between monetary policy and broad money supply, real economy and price stability. Final remark
  • 61.
    Efficiency of MonetaryPolicy OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR E U R O S Y S T E M PRODUCTIVE ECONOMY EIB PRODUCTIVE ECONOMY REAL BUT NON- PRODUCTIVE ECONOMY Monetary inefficiency Monetary inefficiency Monetary efficiency but inflationary impact Non- -inflationary impact Monetary efficiency
  • 62.
    European Economic andSocial Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank TECHNICAL AND LEGAL ISSUES
  • 63.
    .. Transferring resourcesto the EIB balance: a) Directly: ECB loans to the EIB b) Indirectly: Purchase by the ECB of debt issued by the EIB .. Without transferring resources to the EIB balance: - Setting up a Fund managed by the EIB but under the Eurosystem / ECB ownership - Setting up a fund –or an entity- managed and owned by the EIB - Making use of the EIB expertise through advice, formal reports or delegation in allocation of resources. Starting point. Some options
  • 64.
    .. Legal capacityof the EIB .. “Independence of the ECB”: Autonomy of the ECB to define monetary policy. .. Geographical scope: Eurozone (ECB) / European Union (EIB) .. Ability to delegate to the EIB the approval of operations .. Formalization of the collaboration ECB-EIB Legal issues
  • 65.
    Ability to delegatein the EIB the approval of operations. OPTION A ECB Fund without legal personality (ECB Assets) EIB Funding
  • 66.
    Ability to delegatein the EIB the approval of operations. OPTION B ECB New entity or subsidiary EIB Loans at key interest rates
  • 67.
    Ability to delegatein the EIB the approval of operations. OPTION C ECB EIB If EIB capital is not enough: .. an specific reserve fund could be created .. in some cases, financed by the differential in interest rates Loans at key interest rates
  • 68.
    SOME TECHNICAL ISSUES ..Constrained credit demand .. Technical capacity of the EIB .. Key differences in investment policies between ECB and EIB .. Risk concentration
  • 69.
    Constrained credit demand.To which point? CHANGES IN DEMAND FOR LOANS OR CREDIT LINES TO ENTERPRISES (net percentages of banks reporting positive demand) SOURCE: ECB. BANK LENDING SURVEY APRIL 2015
  • 70.
    Constrained credit demand.To which point? PURPOSES FOR WHICH EURO AREA BANKS USE THE ADDITIONAL LIQUIDITY FROM THE EXPANDED APP (average percentage of respondents per category) SOURCE: ECB. BANK LENDING SURVEY APRIL 2015
  • 71.
    Constrained credit demand.To which point? PURPOSES FOR WHICH EURO AREA BANKS USE THE ADDITIONAL LIQUIDITY FROM THE EXPANDED APP. GRANTING LOANS (percentage of respondents) SOURCE: ECB. BANK LENDING SURVEY APRIL 2015
  • 72.
    If we compareECB and EIB policies … Key differences in investment policies ECB EIB LIQUIDITY High Low TERM Short - Medium Medium - Long INTEREST RATES Far lower than retail market Close to retail market CREDIT RISK Usually lower (Banks, Securities) Usually higher (SMEs, Banks, Public banks) RISK ABSORPTION .. ECB .. Monetary risk .. Fiscal risk .. EIB (or EIFund) .. Fiscal risk
  • 73.
    But if wecompare EIB and private banks policies … Key differences in investment policies PRIVATE BANKS EIB LIQUIDITY Low Low TERM Medium - Long Medium - Long INTEREST RATES Retail market Close to retail market CREDIT RISK Usually higher (Businesses, Households, Securities, …) Usually lower (SMEs, Banks, Public banks) RISK ABSORPTION .. Own balance sheet .. EIB (or EIFund) .. Fiscal risk
  • 74.
    Credit risk inECB expansionary policies is usually lower than risk in EIB loans. (Usually, through collateralized loans to banks) The point is WHY? CREDIT RISK
  • 75.
    .. Two mainreasons: a) The image / reputation factor It is understood that the reputation of the ECB solvency is key for the reputation of the Euro itself. b) The “risk-sharing” factor .. Monetary risk falls on the entire Eurozone. .. Fiscal risk may fall on the entire Eurozone or on member states. CREDIT RISK
  • 76.
    .. The differentialin credit risk can be compensated: - Through the differential in interest rates. - Through lower risks in ECB operations not linked to the EIB CREDIT RISK
  • 77.
    EIB-EIF. Credit Rating FitchMoody’s Standard & Poor’s Long term AAA Aaa AAA Short term F1+ P-1 A-1+
  • 78.
    BREAKDOWN OF OBLIGORS2013 Source: Fitch / EIB. Based on the ultimate obligor If necessary, EIB also knows how to work through banks
  • 79.
    DEGREE OF PROTECTIONIN CREDIT TO BANKS 2013 Source: Fitch EIB also knows how to work with banks in a very secure way:
  • 80.
  • 81.
    APP Programme. Bonds averagematurity: 8 years Source: ECB / BBVA Research
  • 82.
    ECB Long termoperations, more and more important Source: Nomura / ECB
  • 83.
    Source: ECB. Consolidatedfinancial statement of the Eurosystem as at May 29th 2015 ECB Long term operations, more and more important
  • 84.
    .. For theECB, this higher liquidity can be reached just buying bonds that EIB or other institutions transform into loans. .. If necessary, the higher liquidity risk could be compensated through lower liquidity risks in ECB operations not linked to the EIB. .. Anyway, from the point of view of containing inflation, less liquidity in EIB operations can be clearly compensated by the impact of these investments in growth. Liquidity risk
  • 85.
    THEORETICAL OPTIONS A. Makeuse of key interest rates B. Make use of rates close to retail market C. Intermediate rates Possible criterion: Starting from key rates, elevate them as necessary to compensate for credit risk. Interest rates
  • 86.
    .. Another option:The Eurosystem / ECB compensates credit risk of the operations channeled through collaboration with EIB –directly focused to real economy- with higher interest rates in the rest of the operations. Interest rates
  • 87.
    So: .. there aredifferent ways to make compatible or solve the differences in maturity, liquidity, risk and usual interest rates of EIB and ECB .. if appropriate, new maturity and risk criteria could be established by the EIB-ECB Agreement for the purposes of managing these resources, different from the usual EIB and the usual ECB criteria. Final remarks
  • 88.
    .. Apart fromthe considerations before, it looks like, from a macroeconomic point of view, credit focused in real productive economy should be privileged by the Eurosystem, both in accesibility and in interest rates. These criteria should be taken into account when defining the collaboration between EIB and ECB. Final remarks
  • 89.
    .. It lookslike the main legal and technical issues concerning the different options for the structural collaboration between ECB and EIB can be easily solved. .. The concretions and technical options should be analysed and agreed between ECB and EIB. .. These positions / criteria will be adapted as the Project goes on, according to the institutional positions and the evolution of the analysis. Final remarks
  • 90.
    European Economic andSocial Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank MAIN PROVISIONAL CONCLUSIONS
  • 91.
    .. Efficiency ofEurozone monetary policy transmission – its link to real economy- should be improved .. Particularly, making sure that resources get to the real economy and do not stay remained in the financial system, out of the Eurozone or in financial speculation .. Without increasing the overall risk of the Eurosystem, the highest proportion of monetary expansion should finance productive activities, related to sustainable growth. 1. Monetary policy should be more focused
  • 92.
    .. The involvementof the European Investment Bank (EIB) or other public promotional banks or agencies from the EU or the member states seems to be a good way to improve the efficiency of monetary expansion, its relationship with real economy and with productive activities. 2. Involving the EIB, a good solution
  • 93.
    .. The collaborationECB-EIB should increase the efficiency of monetary policy and so, should make possible that better results and impact in real economy are achieved with a lower risk. 3. Better results with fewer resources and risk (I)
  • 94.
    For this purpose: A.ECB and EIB should make an intensive use of the different positions that EIB can take in monetary policy transmission without increasing risks usually taken with banks: - Through loans channeled by EIB to banks - Providing funds to EIB and national promotional banks or agencies in similar ways as they are provided to commercial banks. - Buying EIB and NPBs bonds or accepting them as collateral in similar ways as government bonds are bought or accepted. 3. Better results with fewer resources and risk (II)
  • 95.
    B. ECB andEIB should accept operating through EIB even in a more risky way than in other ECB operations. It could be acceptable taking account of the higher efficiency of these funds from the point of view of monetary policy transmission. This higher risk with funds provided to EIB would be compensated with lower risks directly taken with commercial banks. This way, the overall Eurosystem risk would not increase or would decrease. 3. Better results with fewer resources and risk (III)
  • 96.
    C. The ECB-EIBcollaboration could go further. Systematic advice from the EIB could be of the greatest importance for a better focusing of the monetary expansion, even in operations directly related to commercial banks. This advice could be mainly related to the conditionalities to be established when banks receive funds generated in monetary expansion, to ensure that these funds are channeled to real and productive economy. 3. Better results with fewer resources and risk (IV)
  • 97.
    .. Even witha restrictive interpretation of the independence principle of the Eurosystem, the structural collaboration between the Eurosystem and the EIB can be implemented –by free decision of the ECB- through different ways. .. The ECB-EIB collaboration should be subjected to the monetary policy objectives and, just for this purpose, it should establish a more efficient transmission mechanism between Eurosystem and money supply, stability of prices, real economy and growth. 3. Legal issues can be solved (I)
  • 98.
    ECB and EIBshould work together in exploring the specific characteristic of this collaboration. Some options can be envisaged: .. Transferring resources to the EIB balance: a) Directly: ECB loans to the EIB b) Indirectly: Purchase by the ECB of debt issued by the EIB .. Without transferring resources to the EIB balance: - Setting up a Fund managed by the EIB but under the Eurosystem / ECB ownership - Setting up a fund –or an entity- managed and owned by the EIB - Making use of the EIB expertise through advice, formal reports or delegation in allocation of resources. 3. Legal issues can be solved (II)
  • 99.
    .. Risk-sharing: Throughthe involvement of public promotional banks or agencies in member states .. Interest rates: The differential in rates is more an opportunity than a problem .. Liquidity: Through EIB bonds and/or more liquid investments in the rest of monetary expansion 4. Technical issues can be solved (I)
  • 100.
    .. An adequateframework for a structural collaboration .. It reflects that the collaboration obeys to the free decision of both institutions and so, that their independence is fully respected. .. There are similar Collaboration Agreements between the EIB and other European institutions .. It may be an adequate framework for sharing views, strategic and operational issues and establishing a climate of mutual collaboration. 5.Why not a Collaboration Agreement between ECB and EIB?
  • 101.
    .. The EuropeanParliament, as representative of the general interest of the European people, and according to its interinstitutional role, should be the adequate body to take the initiative in promoting this kind of mutual collaboration between the ECB and the EIB. .. In this way, the European Parliament should make sure that the EU institutions adequately develope their main functions both in investment policy and in monetary policy. 6. On the role of the European Parliament
  • 102.
    .. Of course,as parts of the collaboration we propose, ECB and EIB should play an active role in starting the necessary negotiations to prepare the collaboration agreement. 7. On the role of the European Central Bank (ECB) and the European Investment Bank (EIB)
  • 103.
    .. In particular,the Board of Governors of the ECB and the Board of Governors of the EIB should take a first declarative decision in favor of such an approach. For that aim, a common working team should be created between ECB and EIB so as to clarifying the interest and the feasibility of the proposed collaboration and, in other case, to propose alternative measures to improve the efficiency of Eurozone monetary policy and investment policy. In particular, to guarantee that monetary expansion is adequately committed to real economy, development and growth. 7. On the role of the European Central Bank (ECB) and the European Investment Bank (EIB)
  • 104.
    Thank you foryour attention
  • 105.
    European Economic andSocial Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank (EIB) PRESENTATION OF THE PROJECT CCMI – Group III July 14th 2015