The European Financial Architecture for Development: Fit for purpose?

The Wise Persons Group was established by the EU in 2019, on the initiative of France and Germany. The group was asked to look at how the European financial architecture for development could be strengthened and become more efficient. The report should be independent, outlining challenges and possible scenarios for the future.

This initiative should be seen in light of the migrant pressure on Europe, the heavy presence of China, (and increasingly Russia and India) in Africa, and China`s Belt and Road Initiative. Thus, one saw a need for Europe to combine it`s fragmented financial development strengths to increase influence and coordinate policies to become a more influential player in development finance outside Europe, especially in Africa, with a focus on climate finance and job creation.

The Wise Persons Group of nine presented their report “Europe in the World, The future of the European financial architecture for development” in November 2019. https://www.consilium.europa.eu/media/40967/efad-report_final.pdf.  (see Executive Summary page 3).

The report points at overlaps, gaps and inefficiencies, both sectoral and geographical, especially in terms of presence and experience in Africa, between the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and national development banks – and points to the fact that there is no EU strategy to facilitate synergies. Based on this, the report outlines three options for a consolidation.

  1. Transferring the extra-EU activities of the EIB to the EBRD.
  2. Create a new mixed-ownership bank with the EIB, the EBRD, Member States and the European Commission as shareholders.
  3. Task the EIB with creating a subsidiary for its extra-EU activities and participating in it as a minority shareholder alongside Member States, the European Commission and national development banks (NDBs).

All options imply challenging institutional changes and require significant financial resources. None of the options comes without obstacles, including legal. EIB is owned by EU (and is an EU institution), while EBRD’s shareholders include countries from outside of EU (e.g. US, Canada, China, Norway and countries of operation). EU countries/institutions hold a majority stake in EBRD (63,1%), but with Brexit, this share will be reduced to 54,5%. The Wise Persons Group did not reach consensus in endorsing any of the three options. This may reflect strong disagreement within the European development finance community, including between shareholders in the different banks.

Some Issues for Discussion:

  • Is a discussion about institutional change along these lines bound to fail, given the disagreements already exposed? Which positions are emerging? Should EBRD and EIB be allowed to change/expand their mandates at the same time as the WPG strongly urges them not to at this time in the process?
  • Are there other (short term) ways to increase synergies and cooperation to develop a more coordinated, strategic and influential European development finance, especially in Africa?
  • Which of the options (or other interventions) could best facilitate closer cooperation and coordination with other MDBs, especially the WBG and African Development Bank? Which alternative(s) would best serve financial interventions in low income countries and fragile states?