British infrastructure projects seeking funds from the European Investment Bank will need to insure the bank against the risks of Brexit, its president said at the weekend, as he warned that Britain’s departure from the EU would damage its ability to fund infrastructure.
Werner Hoyer, president of the EIB, denied that the EU’s development lender had frozen new lending to Britain but highlighted the difficult legal challenges that Brexit already posed when finalising contracts which potentially run until the 2050s with oversight from the European Court of Justice.
He echoed warnings last week from the National Infrastructure Commission that the UK’s efforts to overhaul energy and transport infrastructure would be damaged by ejection from the EIB, as he signalled the bank would take a larger role in future in financing eurozone projects.
Speaking to the Financial Times on the sidelines of the IMF annual meetings, Mr Hoyer insisted that lending to UK projects would continue “while the UK is a shareholder and a member”, but said it was inevitable that lending to the UK would fall from recent levels of about £7bn a year.
“[Lending] is going down anyway because the demand is going down. Project promoters are less interested in what we do because they do not know what kind of legal relationship we will have after Brexit,” Mr Hoyer said.
Unless current EU treaties are amended, Britain would have to leave the EIB after Brexit even though the Treasury would like to continue to have access to the funds and the bank itself values the strong performance of its loan book in Britain.
Recent level of annual EIB lending to UK projects
The bank has become stuck in the middle of the increasingly acrimonious Brexit negotiations with the UK government threatening that, after the UK leaves the EU, the EIB will need to gain a banking licence and lose its immunities from taxation and expropriation, while the EU27 demand Britain pays upfront for billions of contingent liabilities on the bank’s books.
The EIB is seeking guarantees that its outstanding loans in Britain will not be affected in any way by Brexit.
Philip Hammond, chancellor, has suggested that Britain might remain a member of the EIB after Brexit and, if not, set up a domestic equivalent, a plan the EIB thinks is fanciful in the short term because it would need to be of the size of Germany’s KfW development bank to have the same impact as the EIB. “It would take at least a decade to reach that stage,” Mr Hoyer said.
The EIB recognises that Britain’s departure will leave a hole in its finances, which will need to be supplemented from its accumulated reserves and potentially an increase in callable capital from other European countries. It wants to see certainty over its future soon, before investors start asking awkward questions about its capital base after Brexit.
After Britain leaves the EU, Mr Hoyer said he could see the EIB taking a larger role in eurozone affairs and this could be a means of meeting the desires of Emmanuel Macron, French president, for a more centralised eurozone budget process.
“With the biggest non-euro country leaving the union, it will be necessary to find a way to mobilise the firepower of the big institutions of the EU for the benefit of progress in the eurozone in full agreement with the non-euro countries,” he said.
His vision of a bigger role for the EIB in the eurozone is significant as Mr Hoyer, a former German politician from the Free Democratic Party, is a potential candidate to become the next finance minister in a coalition with the German CDU and Green parties. He has just started a second term as EIB president but has not ruled out a return to German politics.
“I firmly believe that the cautious approach that many politicians on the conservative side, or even my own party, the Free Democrats, can be reconciled with Mr Macron’s thinking because he has a positive agenda,” he said.