Market Analysis

The head of the European Union's EIB lending arm is urging member states to eliminate a spending cap currently enforced on the development bank. The European Investment Bank is under pressure to increase funding for the EU's key priorities, but it's bound by a rule limiting lending to 2.5 times the value of member states' committed capital.

With member states' capital currently at 248 billion euros and the bank's balance sheet at around 600 billion euros, the cap is nearing its limit. Nadia Calvino, the EIB's president, argues that this cap, dating back to the 1950s, hampers capital investment and the growth of EU startups. She is calling on the finance and treasury ministers, who govern the bank, to scrap the limit at the annual meeting on June 21.

Calvino emphasizes that removing this constraint would allow the EIB to invest more without burdening European taxpayers. EU policymakers are pushing the bank to allocate more funds for priorities such as climate change and support for Ukraine in its conflict with Russia.

Regarding the cap's replacement, Calvino hasn't provided specifics, but discussions are expected at the June meeting. The EIB, which provided 88 billion euros in funding last year, aims to preserve its triple-A credit rating and avoid costly capital injections. Calvino reassures that the bank's current 32% core capital ratio should prevent such measures.

Paraphrasing text from "Investing" all rights reserved by the original author.