The EIB in the city: Investment on the agenda (Volume 9)

Jake Nunley, Tim Moonen, Greg Clark

• Publisher: European Investment Bank
• Year: 2019
• eBook ISBN: 9789286139017
• Topic: Business
• Subtopic: Finance
• Index: Business

"City, transformed" has shown how Europe's cities have developed over the last 50 years. The European Investment Bank has adapted alongside them, building a greater, more focused role in urban development that takes it into truly innovative areas. Future cities need to face up to challenges in climate, productivity, knowledge, social mobility and resilience. Here's how the EU bank is setting up to be a partner on that path.

1. The first cycle: early urban environment efforts (1988-1996)

Prior to 1988, the EIB only financed infrastructure components of urban development projects in the less-developed EU regions. This is because the eligibility criterion used for the early loans was regional development and, therefore, the Bank only financed projects located in designated regional development areas. Outside these areas, urban development was seldom financed, although other criteria, such as the environment or rational use of energy, were applied to finance building rehabilitation.

The EIB made the environment one of its priorities in 1984. At the end of the 1980s, the Bank began to concentrate its efforts on the urban environment. This was especially welcome, as many European cities had been negatively affected by deindustrialisation, the deterioration of living conditions in city centres, large vacant industrial sites, and the sprawl of poorly equipped suburbs.

The Bank extended the eligibility criteria to cover “investment related to urban renewal, where important imbalances exist, and in the context of urban economic adjustment and revitalisation programmes” throughout the whole European Community. The basic objectives of this policy were improvement of the urban quality of life and promotion of greater economic and social cohesion within the Community through the reduction of social disparities within large conurbations. These objectives had to conform to the overall goal of making efficient use of scarce resources. In this way, it came to be considered that the usual requirements of technical, economic and financial soundness could only be achieved if the projects were part of a comprehensive urban renewal plan, with a welldefined economic and social framework.

At this time, the most important EIB financing tool available to cities and regions was the traditional investment loan, provided as a long-term loan to the private and public sectors. Investment loans were direct loans for a specific investment project or programme, with all investment components identified and appraised up-front. As a result, the main investments in cities in this period were for single items, often visitor economy infrastructure – for example upgrades to the Cologne Trade Fair, Dublin Castle, Cardiff Trade Centre and Dublin Temple Bar. In general, though, the vast majority of EIB urban investments continued to be in transport infrastructure.

Although the overall volumes of urban lending were modest by comparison with today, the EIB’s approach to integrated urban development continues to be derived in part from the initial lending criteria for heritage-related investments first endorsed in 1988.

2. The second cycle: expanding the scope and scale of investment in cities (1997-2000)

A step change in the EIB’s momentum for investment in cities occurred in 1997 with the European Council of Amsterdam on growth and employment. The Council drew particular attention to the challenge of urban renewal and resolved to widen eligibility beyond the initial lending criteria for heritage-related investments endorsed in 1988 to a broader “urban environment” concept. Its resolution called on the EIB to step up lending for investment to help job creation. The subsequent Amsterdam Special Action Programme resulted in a widening and deepening of EIB action, from transport and heritage into strategic areas such as efficient infrastructure, SMEs, education, healthcare and housing investment in well-defined urban renewal schemes. This in turn led to the formal adoption of the urban sector as a key area for EIB involvement and to the establishment of an urban division within the Bank’s Projects Directorate.

The main elements of the EIB’s special action programme consisted of:

• A special window for new instruments to help finance technology-related and high-growth SMEs by recourse to the EIB’s surpluses. The Bank’s Governors agreed that the EIB would commit up to a total of €1 billion of its surpluses over three years to support such initiatives, and the EIB also developed new financing schemes under which SMEs could benefit from risk-sharing or subordinated finance and venture capital facilities. A European Technology Facility was immediately launched with a budget of €125 million to provide venture and equity capital for high-technology and fast-growing SMEs, with immediate impact on the innovation eco-systems in Madrid and Barcelona.
• Expansion of EIB financing in the areas of education, health, urban renewal and environmental protection. The Bank began examining larger education and health projects in Germany, Greece and Spain. Global loans (lines of credit to a local bank for supporting small-scale ventures) were arranged for such investment in Belgium, France and the Netherlands. Existing global loans for infrastructure projects were extended in this period to include health and education schemes. Noteworthy projects included significant hospital modernisation schemes in Berlin and Mecklenburg-Vorpommern, and the construction of a new hospital in Thessaloniki.
• New impetus in the financing of Trans-European Networks (TENs) and other large infrastructure investment, by developing aspects of the EIB’s TENs Special Window, including extra-long grace periods and maturities, special tailor-made financing packages, earlier involvement in project preparation, and strengthened support for public-private partnerships.

This funding period also saw the emergence of flexible financing tools that would become critical for the EIB’s ability to invest in cities. The most important of these proved to be the framework loan. Introduced in the mid-1990s, the use of this flexible instrument began in Italian cities. One of the largest operations was the “Roma 2000” project, designed to help Rome prepare for the new millennium. Through six intermediary banks, the EIB lent the Rome municipality and wider Lazio region a total of €730 million to cover around 500 coordinated works to improve tourism, urban transport, local heritage and water and waste management. [1]

Within the EU-27, framework loans have grown from less than 1% of EIB operations in 1999 to nearly 20% today, with the average framework loan now worth over €200 million. Framework loans allow the EIB to cover a portfolio of projects across multiple sectors by authorising the counterpart city or region to manage the allocation and disbursement of funds over a three- to five-year investment period. They create leverage by blending with national, regional, EU grant or loan funding. As a result, they can overcome common barriers relating to small project size, enabling the EIB to reach out to smaller city schemes in the transport, telecommunications, wate...

Table of contents

• Cover
• Introduction
• 1. The first cycle: early urban environment efforts (1988-1996)
• 2. The second cycle: expanding the scope and scale of investment in cities (1997-2000)
• 3. The third cycle: priming for EU enlargement (2001-2006)
• 4. The fourth cycle: crisis and innovation in instruments to support cities (2007-2013)
• 5. The fifth cycle: an experienced and mature urban lender (2014-2020)
• 6. The future