The EIB or why politicians should ask industry/entrepreneurs

Dear reader,

in these days of turbulences in the eurozone two things seem to be extremely difficult:

One is to finish blog entries which should maintain a certain standard, requiring lots of research, needs combining of many sources and yielding some new or additional knowledge to the Internet community.

The other impossibility is to stay calm and ignore certain news flashes out of the constant stream of new news highlighting certain aspects of the European project and concerning the eurozone as a whole.

Sometimes such stories like this one:

EIB chief warns about too high expectations on EU growth impulses (reuters_de) (Ger)

EIB chief since this year's beginning is Werner Hoyer (ger) (eng), a liberal politician. Nothing wrong with that career so far the author here has to admit, but the modesty expressed in the Reuters article above expresses a fundamental problem somewhat typical for the demise of the eurozone at least, maybe even for the whole European Community.
It reflects this authors darkest visions about a looming repetition of the collapse of the Comecon, the economic union of the states under control of the soviet imperial might, consisting of ideological communists with little or no knowledge of markets.  
Please don't understand it in the way that the author here wants to put Mr Hoyer somewhere near the communists from beyond the iron curtain back then. It's more the idea that institutions are manned by politicians and staff with excellent theoretical background, but who didn't serve so far in companies. Institutions (not individuals) which lack the spirit of exploring opportunities, see future markets, see possible advantages of saving resources.

Mr Hoyer is of course right, when he wants to dampen expectations arising from remarks of Mr Hollande.

>>Die Investitionsbank werde bisweilen als Allheilmittel gepriesen, "auch weil man sich in Europa auf vieles andere nicht ohne weiteres verständigen kann", bemängelte Hoyer. Sie sei aber nur ein Teil der Problemlösung. Geplant ist, im Rahmen der Wachstumsinitiativen das Eigenkapital der EIB durch Einzahlungen der EU-Staaten um 10 Milliarden Euro zu erhöhen. Damit könnte die weltweit größte Förderbank neue Kredite in Höhe von rund 60 Milliarden Euro vergeben.<< engl.: The EIB is sometimes praised as a panacea, "also because the inability of Europe to find common ground on other issues", Hoyer criticized. It is however only a part of a solution. It is intended to enhance the equity of the EIB by payments of about 10 bn of EU states in the context of growth initiatives. Thereby the world's largest promotion bank could hand out new loans amounting to 60 bn €  

By referring earlier to Mr Hollande he condemns blind spending programs as usual are certainly only a repetition of errors of the past which contributed to towering state debts. He dampens expectations resulting from statements made by Mr Hollande during his election campaign. Mr Hoyer is right when he refers to short term effects of infrastructure programs and given the so far limited scale of the EIB enhancement mentioned above. It won't do any good to currently struggling banks in Spain, Greece and possibly elsewhere. Mr Hoyer is economist and of course right when he addresses the shortcomings of mid to long term effects.

The author of this blog however has vastly different sums in mind, based on the needs for infrastructure for the energy sector alone of approx. 1000 bn € as expressed by  Mr Oettinger here (pdf) & 2. The EIB has projected the amount of 2 trillion € needed for all infrastructure to be build when outlining its 'project bonds' as you can read here.

This author has suggested already not only to collect fresh funding by those infrastructure bills issued by the EIB but to enhance funding by an unlimited banking license provided to it by the ECB. The goal is not only to achieve significant improvements of infrastructure in continental Europe, to finance projects such as power stations, power lines in advance to later sell shares of those to private investors, to use massive reductions in import bills for e.g. fossil fuels to 'payback' and to fund infrastructure projects in other regions of the world to be refinanced by reduced bills for commodities imports from those regions. 

This will not contribute to the immediate rescue of some banks, but will contribute to funding of the real economy to the benefit not only of construction companies involved but also to deliver longer term benefit by enhanced trade, reduced energy bills and by conquering new markets in the underdeveloped parts of the globe. It's much more useful not to waste hundreds of billions on saving financial institutions, which contribute in some economies like the US & UK to some 8 % (much less in other economies) of total GDP but to concentrate funding on traditional sectors with much larger share in GDP and with much more effect on work force and thereby budgets (tax revenues & reduced spending on social benefits). 

Mr Hoyer and others must get the European industrial firms 'on board'. Enterprises such as EADS, Airbus, Siemens, ABB, Alstom, Areva, Philips, Arcelor, DESERTEC, FIAT, VW, Vattenfall, EdF, France Telecom, ACS and others to present their plans for improving European infrastructure and preparing new markets in the so far underdeveloped regions of the planet and their plans for finance and refinance of those projects. Forget the banks, concentrate on real economy again and provide them with sufficient funding. Politicians should see their role in supporting them, not try to outsmart 'market oriented thinking'   

There are enough projects out there which need funding: Whether it is power lines in Poland and Czech Republic which are being 'abused' by German power transmitting firms for transporting their peaks of green electricity, or lack of power exporting 'bridges' from Dutch grid to e.g. German grid and some 20% of Dutch power production is wasted instead, or the massive delays of trans alpine freight trains which ought to deliver goods from Italy to the north just in time, but are often delayed. Or the current dependence of Italian power grid on foreign electricity production capacity etc etc etc. There is plenty of room for improvement. Outlining a major plan for production and trade of the EU alone would be much more convincing to financial markets than keeping insolvent banks alive by providing artificially cheap money to them or bail them out every 2-3 years. The former is very promising the latter sheer idiocy !

update June 6th 2012:

Where Paul Krugman got it wrong (EZROpinion)

Prof. Danny Blanchflower (UK) on Twitter:

>>"It would be amazing if were not many public investment projects with certain equivalent real returns well above zero" http://on.ft.com/JLZ10y<< (@D_Blanchflower June 4th 2012 13:54 CET)

Nov 29th 2011: Osborne Prepares $46 Billion U.K. Infrastructure Program
(Link also 1 topic among others:European growth initiatives (Eurozoneremarks))
Jun 18th 2012: Stimulating European growth (Financial Times)
[/update]

Earlier related pieces by this author:
Economists and medics (importance real economy vs financial sector)
Overcoming the Euro crisis (part XXIV)
Eurozone looking South (to Africa) 
Greece: Project Helios doesn't need exports to the North
Advice to politicians: Be Superman not Clark Kent ! (eng)(Nov 2011)

Some energy projects in need of funding:

Energy companies in fear of power outages (DFTelegraaf) (dut)
Italian power import/export 2012 (Terna,eng)
Italy spends record amount on foreign energy
Fuel costs in Italy hit all-time high
European Power im/export (Wiki, ger)
Spacial distribution of transalpine flows (Zurich process, eng)
Spacial distribution of transalpine flows (Zurich process, ger)
Transalpine freight traffic (Swiss confederation, ger)
DESERTEC project (solar power to Europe,Wiki,eng)
Bid to overhaul Europe power grid (BBC,eng)
Building the Rotterdam of the South (Ekathimerini,eng)



    
References:  
European Union- Energy infrastructure 2011 (pdf) 
Analysis: Troubled euro zone states most at risk from high oil
Opportunities for Dutch companies in developing countries (MVO Nederland)(dut)


related pieces:
Yannis Varoufakis: Depression in the Eurozone’s Periphery and how to restore Aggregate Demand without creating new bubbles
Eijffinger,Sinke,van Egmond,Wijffels,Witschge: Re-Energizing the Eurozone