Climate Change, Development & Aid, Economy & Trade, Environment, Europe, Headlines

EUROPE: Green Finance Wise, or Otherwise

David Cronin

BRUSSELS, Mar 8 2010 (IPS) - A plan to give the European Union’s lending arm a beefed-up mandate for financing the fight against climate change has drawn a sceptical response from campaigners on green and economic justice issues.

As part of a series of reforms being considered for the European Investment Bank (EIB), a team of so-called wise persons recommended in late February that the Luxembourg-based institution should distribute loans worth 2 billion euros (2.7 billion dollars) to projects focusing on climate change between 2011 and 2013. The recipients of these loans would include schemes aimed at helping poor countries adapt to droughts and other extreme weather conditions.

The team, led by Michel Camdessus, a former managing director of the International Monetary Fund, believes that releasing these loans would have “an exemplary value” as it would give the EIB’s work a greater prominence in Asia, Africa and Latin America.

Camdessus had been asked to evaluate activities financed by the bank outside the EU’s borders after its work encountered severe criticism from the European Parliament. This criticism was reflected in a 2008 ruling by the European Court of Justice, which ordered a redesign of the bank’s lending facility for foreign countries because it did not respect the stated objective of the EU’s international development work, namely to reduce poverty.

Since that ruling, the EIB has been eager to increase its lending and has identified climate change as one of its priorities. During 2009, its total loan portfolio came to 79 billion euros, an increase of 37 percent over the previous year, with almost 9 billion euros of its loans going to countries outside the EU.

Campaigners who have exposed many of the bank’s flaws say that efforts to give it greater responsibility for social development or environmental projects could prove detrimental. Alex Wilks, a veteran anti-poverty activist, argued that some of the suggestions of the “wise persons” are “not so wise” because they fail to realise that loans, which have to be repaid, are not the best means for financing healthcare or sanitation improvements.

“The EIB is primarily an investment bank,” he told IPS. “It should not and cannot try to transform itself overnight into a social development institution.”

Wilks is the author of a report titled ‘Corporate welfare and development deceptions: Why the European Investment Bank is failing to deliver outside the EU’. It says that allowing the EIB to have a greater say on climate change projects would be a “mistake” because the governments of developing countries have stressed that the resources they need must be provided through grants, not loans.

Furthermore, his paper highlights how the bank lacks the expertise needed to take on greater responsibility for protecting the environment or fighting poverty. Over 90 percent of the energy-related projects it finances in developing countries rely on fossil fuels, a principal source of greenhouse gas emissions, while it has routinely paid greater attention to promoting the interests of European firms, than on nurturing local industry. In 2008, just 7 percent of the bank’s loans to countries in Africa, the Caribbean and the Pacific went to their home-grown companies.

Philippe Maystadt, the EIB president, said last month that the bank “has already substantially increased its lending in support of the EU’s climate goals and stands ready to do more if asked.”

The idea of allocating more loans to climate-related projects is being discussed as part of efforts to secure a new international agreement on global warming – something that the world’s leaders were unable to achieve during the United Nations-sponsored talks in Copenhagen at the end of last year. But Wilks said that policy-makers are suffering from a “delusion” if they think that releasing more EIB loans will increase the likelihood that such an accord can be pieced together.

Caterina Amicucci from the Campaign for the Reform of the World Bank in Rome indicated she had no confidence in the EIB’s claims to be concerned about the environment. She cited several examples, in which the EIB had allocated money to controversial projects, without properly consulting the communities who would be directly affected by them and without properly assessing their likely impacts on the environment.

One “clear case of incoherence” between the EIB’s work and the EU’s broader development aid activities, she said, was the bank’s support for mining in Zambia. Whereas a plan drawn up by EU officials identified transport, infrastructure, health and other areas of “human development” as the priorities for the Union’s aid activities for Zambia in the 2008-13 period, most of the EIB’s loans for that country have gone to mining. That was despite how the mining sector was not viewed as an official priority in the EU’s aid plan.

Camdessus’ team has also advocated that a feasibility study should be undertaken on establishing a new European bank for international development that would carry out many of the EIB’s tasks.

Anders Lustgarten, a campaigner with the Bretton Woods Project, which monitors the activities of major financial institutions said he was not convinced that a new “mega-bank” of the type suggested by Camdessus would bring tangible improvements to the lot of the poor.

“Deng Xiaoping (the late Chinese leader) said: ‘It doesn’t matter if a cat is black or white, so long as it catches mice’,” Lustgarten added. “If – instead of cats catching mice – you have pigeons ignoring mice, you are not going to reach your objectives. The question is one of whether a new mega-bank would be capable of delivering real development for poor people. Based on our experience with other mega-banks, we have serious questions.”

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