Europe’s unwillingness to invest in public services and meet the greatest need is creating second-class citizens.
Public investment is high on the political agenda in the European Union—but not for those who need it the most. The companies, often very profitable, extracting or refining critical raw materials or developing green, digital, military and other strategic technologies have ample access to it. While all this shiny technology gets a lot of political attention, the public services citizens rely on to live decent lives—such as affordable housing, energy, water, healthcare or food—are however rather ignored.
We can see this selectivity of public spending in many high-profile EU investment plans: the Recovery and Resilience Facility, InvestEU, the Strategic Technologies for Europe Platform (STEP) and the Global Gateway. The European Investment Bank (EIB) plays a crucial role in the implementation of these investment programmes and the appointment of a new president later this year is a big opportunity for civil society to call for structural reform of the bank.
Eroded social fabric
Recently in France we have been able to witness up close the disruptive consequences of large groups in society being structurally deprived of basic human needs. Beyond the police violence that led to the riots are the quasi-second-class citizens struggling to pay their bills in neighbourhoods suffering from chronic lack of investment and local governments stripped of resources by earlier bouts of austerity.
This process is eating away at the social fabric all over Europe. The latest Eurobarometer shows inflation and the cost-of-living crisis are the highest concerns among a public who may reasonably fear being sidelined by European decision-makers’ current priorities for public investment.
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Investment in public services is however set to suffer more, as high interest rates are making it more expensive for governments to borrow and the EU’s fiscal rules will come back into force in 2024. Unless these are overhauled, they will once again institutionalise austerity. Only four European countries will have the fiscal capacity to make the investments needed to stay within the ceiling of 1.5C global heating from preindustrial times and Germany recently slashed a whopping 34 per cent from its healthcare budget.
Faulty business model
Tackling this problem requires action on different fronts but it all comes down to political will. EU member states—and thus ultimately EU citizens—own one of the world’s largest public banks. Civil-society organisations and individual citizens can legitimately demand the EIB deliver for our needs. It has the financial firepower to do so, but its faulty business model means it fails to focus on the most pressing needs.
This was perfectly encapsulated by an EIB board member during the bank’s annual civil-society event: ‘We are a bank; you should not come here for social justice.’ While the bank makes €2.5 billion in profits a year, it rarely sticks its neck out to finance projects with high social benefits but very modest long-term financial returns. Much of the financing goes to larger companies, such as Iberdrola or Repsol, and big banks, such as Société Générale and Unicredit, that do not need cheap public money because they already make billions themselves—their ‘greedflation‘ feeding the cost-of-living crisis.
The EIB often says it cannot take on more risk because its prudence allows it to borrow cheaply. But other public banks, such as the European Bank for Reconstruction and Development established after the collapse of the Soviet bloc or the Kreditanstalt für Wiederaufbau set up to finance German postwar reconstruction take a lot more risk than the giant in the woods of Luxembourg—and still have a triple-A credit rating. The bank can do much more with its available means to invest in projects that tackle the cost-of-living crisis, such as those providing affordable housing, transport and energy.
In its current ‘strategic foresight’ report, the European Commission agrees that the EIB could take on much more risk. According to Politico, there is even talk of changing the EIB’s mandate to get the bank to lend more.
The commission however wants to go in the opposite direction: the bank should take more risks to catalyse private investments in innovative projects and related manufacturing capacities in the EU. Such strategic investments would include once again raw materials, green technologies and biotechnology. The commission recognises the need for more public services but it does not propose measures to ensure sufficient investment in them.
Policy-makers cling desperately to the private sector to provide solutions to the many crises we are facing—even though private companies and investors often simply do not want to take the risks that come with respecting environmental limits. The current strategy of, for example, seducing highly profitable fossil-fuel companies to invest in green technologies by giving them subsidies or cheap loans is not working. Yet in the middle of the cost-of-living crisis the EIB lent billions to fossil giants extracting huge rents from soaring energy prices.
Public finance lever
The limit of the current European Green Deal—the EIB is a key institution in its implementatiom—is the lack of willingness to change our economy more profoundly and to use the lever of public finance to protect the environment and provide solutions for lower-income households. Instead of throwing subsidies at car makers for electrical SUVs, or seemingly fix-it-all hydrogen projects that extend the life of oil and gas infrastructure, public funds should build up green public transport and support energy companies that have affordable green energy at the core of their business model.
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The EIB could make a large contribution to this shift. A structural reform lowering its profit target would allow the bank to use its financial resources at full strength but with the clear purpose of financing projects in energy, transport, housing and health that respect environmental limits and have long-term economic viability.
It should find ways to enhance collaboration with the public and small, not-for-profit entities that play a crucial role in providing these services—from cities to housing co-operatives, state to municipal public-service companies. There is also much unrealised potential in the co-funding of projects, creating more synergies and applying the concept of subsidiarity between the EIB and national and regional public-investment banks.
In this year’s reports on the EIB, the European Parliament told the bank to step up its support for affordable and energy-efficient housing and building renovations, and projects designed to combat energy poverty. MEPs demanded the bank invest more in social-housing providers, healthcare, public services and community-led initiatives.
These parliamentary reports are non-binding but we can build on them. Changing the EIB’s business model requires creating bridges between trade unions and climate non-governmental organisations, housing movements and healthcare workers, organisations calling for green public transport and those fighting against energy poverty.
Solidarity is also required with movements in the global south defending themselves against the extreme amount of extraction of raw materials—primarily for the global north—needed for a climate transition along the lines of ‘business as usual’. This new form of ‘green’ exploitation is the other side of the coin that is the blatant neglect of the public services we need.
Frank Vanaerschot is director of Counter Balance, a non-profit organisation which works to make European public finance support the creation of socially and environmentally sustainable and equitable societies, within Europe and beyond.