EU economies to receive €57bn but could do with 'a bit more'

European Union lending arms create rescue package to fund projects across member states
Click to follow
The Independent Online

The European Investment Bank (EIB) will lend €57bn (£51bn) to the continent's nations this year, having provided the core of a banking rescue package to eastern and central European states last week.

On Friday, the EIB agreed to provide €11bn of loans to the states as part of the €24.5bn package. The European Bank for Reconstruction and Development (EBRD) and the World Bank contributed the remainder, as the groups moved to stimulate lending.

The announcement came after the Hungarian Prime Minister, Ferenc Gyurcsany, had called for a €100bn fund to help the region's economies, leading to speculation that the new deal does not go far enough.

A senior source close to the EIB conceded "a bit more" could end up being lent to the region, and that overall debt packages for Europe would be €57bn this calendar year, up from €52bn in 2008.

About £2bn of the loans will help fund major projects in the UK. This is in addition to the £1.3bn that the EIB and Lord Mandelson, the Business Secretary, agreed in January as part of the car industry rescue package.

The EIB is the long-term lending arm of the EU, and was established by the Treaty of Rome in 1958. It typically lends to member countries on a 25- to 30-year basis – and in some cases up to 50 years – and raises its finance at extremely low rates. Most state banking markets cannot lend on such a long-term, inexpensive basis.

The source added: "Brussels is very big on the EIB supporting eastern Europe. This is proving to be the answer to everyone's prayers in the current economic environment. The EIB doesn't make a profit, and its whole purpose is to make a difference in Europe."

The president of the EBRD, Thomas Mirow, said: "The institutions are working together to find practical, efficient and timely solutions to the crisis in eastern Europe. We are acting because we have a special responsibility for the region and because it makes economic sense.

"For many years the growing integration of Europe has been a source of mutual benefit and we must not allow this process to be reversed."

There are fears that the global recession could end up splitting the EU. The European Commission has forecast that the bloc's $17 trillion economy will fall by 1.8 per cent this year. Eastern European states including Latvia and Poland have been among the hardest hit.

The EIB model of raising cheap finance for specific projects is being examined as a possible basis for a $60bn infrastructure bank in the US. At least one City figure has spoken to President Barack Obama's administration about how to set up a bank dedicated to rebuilding America's creaking transportation system.