Obama's team turn to EU bank for inspiration

Mark Leftly
Sunday 25 January 2009 01:00 GMT

President Barack Obama's administration is looking to establish a $60bn (£43.5bn) infrastructure bank based on the European Investment Bank (EIB), which is bailing out small UK businesses hit by the financial crisis.

The President's transition team has met at least one City figure close to the EIB to discuss how to set up a bank dedicated to rebuilding America's creaking transportation infrastructure. It is estimated that the backlog of road repairs is close to $5 trillion.

A spokesman for the Federal Highway Administration said on Friday: "There are no plans currently in place, as the US Secretary of Transportation was only sworn in yesterday. [But] I can tell you that state infrastructure banks are being considered."

These banks would have lent states cash for roads projects, but instead the new transport team, led by former congressman Ray LaHood, have been impressed by the EIB model. Rather than just act as a middleman directing money from central government, the EIB can raise funds from the capital markets through a mix of commercial paper and bonds. In 2007, the EIB borrowed €55bn.

Also, the EIB lends to specific projects rather than to individual EU states. This, said one EU source, has intrigued the Obama team, which originally planned to lend money to states rather than to specific transport schemes. If the US bank follows the EIB's lead, it could look at infrastructure projects beyond roads, such as housing and hospitals. Bridges are also likely to be highlighted, as more than a quarter across the US are in a state of serious disrepair.

The source added: "Obama's new government is talking about a $50bn-to-60bn infrastructure bank. The EIB is going to lend more than that this year, so the US is now looking at how the bank operates."

The Chancellor, Alistair Darling, announced in November that the EIB, as well as providing £300m to the programme to rebuild every secondary school in the UK, had pledged £4bn to small UK businesses by 2011.

Ailing infrastructure is one of the big problems facing Mr Obama. According to a survey by KPMG, 75 per cent of US executives claim that their companies will face an operating cost rise as a result of poor infrastructure. The report cites communications giant AT&T, which moved its headquarters from San Antonio to Dallas for better air travel links. More than half those surveyed in North America were concerned that local workforces lacked the training to improve local infrastructure.

Last month, California governor Arnold Schwarzenegger argued in Newsweek: "Our infrastructure is more than just a quality-of-life issue. It is an economic issue.... We are a dinosaur economy trying to compete in a space-age global environment."

More than 300 directors – 47 per cent chief executives – from 21 countries were surveyed by KPMG last November and December. Roads were in the top two areas of infrastructure in most urgent need of investment in every region of the world. Energy generation, schools and hospitals were all widespread concerns, though water infrastructure was considered particularly poor in India and China.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in