1. European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank (EIB) PRESENTATION OF THE PROJECT Bratislava Nov 6th 2015

2. Main goal of the Project.. To explore how to improve the efficiency of European monetary policy in its impact on industry and real economy, mainly through the collaboration between the European Central Bank and the European Investment Bank.

3. .. The main purpose of this project is to collect, elaborate and disseminate information on the legal, technical and economic feasibility of different mechanisms of cooperation between the Eurosystem and the European Investment Bank (and national promotional banks and agencies) as a potential way of improving the efficiency of monetary expansion in the Eurozone. Main goal of the Project

4. .. Our goal is economic/productive, not institutional.. Any idea or proposal to increase efficiency of monetary expansion can be of interest... Even the involvement of the EIB is a tool, not the ultimate goal by itself. Main goal of the Project

5. EIB know how could be useful in improving efficiency of ECB policies, that impact economy through:.. Key interest rates.. Expansion of Eurosystem Balance Sheet Monetary expansion is achieved in an indirect way, channeling liquidity to the banking system. Involving the EIB could ensure that key interest rates and monetary expansion impact as directly as possible in real economy. Monetary expansion

6. Quantitative monetary expansion has evolved in an irregular but clearly expansionary way during the financial crisis. EUROSYSTEM CONSOLIDATED BALANCE SHEET 2008 – 2015 (million EUR) Monetary expansion Source: ECB/Saxo Group

7. EUROSYSTEM CONSOLIDATED BALANCE SHEET 1999 – 2008 (million EUR) Monetary Expansion is not only a matter of financial crisis expansionary programmes Source: ECB/Depth Dynamics

8. .. The main objective of the Eurosystem - Keeping inflation below but close to the 2%- means that, in the long term, monetary expansion will increase over the GDP increase rate. CENTRAL BANKS BALANCE SHEET AS A % OF GDP (2000-08) Monetary Expansion is not only a matter of financial crisis expansionary programmes Source: ECB / FED / Hinde Capital

9. .. The economic debate about monetary expansion operations has so far focused mainly on the effectiveness of those strategies. Various data have been provided on the results achieved by QE regarding credit, growth, unemployment, etc... While supporters of monetary expansion / QE defend the effectiveness of these operations, using the U. S. case as an example, critics question those results... However, for the purposes of this study we are not interested in the effectiveness of monetary expansion, but in its efficiency, in other words the relationship between the results obtained and the resources used. Monetary expansion: Effectiveness and efficiency

10. .. Anyway, as we will explain throughout this presentation, our aim is not to analyse or assess the overall effectiveness or efficiency of such monetary expansion operations, but only to examine the feasibility of specific adjustments being introduced to improve the efficiency of the transmission mechanisms of the monetary policy, through different collaboration options between the ECB and the EIB. Main goal of the Project

11. .. We don´t pretend to interfere in the debate about the overall risk level of the EU Institutions... Our research pretends to ensure that monetary expansion risk is more related to real economy -and, so, more efficient- without increasing the overall risk of the Eurosystem. Overall risk level of the EU Institutions

12. .. So, the ECB-EIB collaboration should be articulated through mechanisms that do not increase the overall risk of the Eurosystem consolidated balance sheet... As opposed to that, increasing the efficiency of monetary expansion implies: a)Achieving similar results with lower resources and risk b)Achieving better results with similar resources or risk Overall risk level of the EU Institutions

13. On 22 nd January 2015, the European Central Bank announced a new phase of monetary expansion, basically justified by the fall in inflation rates in the eurozone to below the target set by the ECB itself, namely lower but close to 2% annually. Expanded Asset Purchase Programme 2015-2016

14. In fact, both the minutes of the meeting of the Governing Council of the ECB and the public statements of the Bank´s representatives repeatedly mention both price stability and the impetus provided by bank credit to growth or economic recovery as main reasons for this quantitative expansion programme. Expanded Asset Purchase Programme 2015-2016

15. This programme, which began in March at a monthly rate of EUR 60 000 million and will last “at least” until September 2016, will be implemented through the acquisition of financial assets. So, “at least” it will reach 1,14 trillion EUR (As a reference: more than 50 times the EC Investment Plan for Europe or Juncker Plan). Expanded Asset Purchase Programme 2015-2016

16. Juncker Plan and Long Term Monetary Programs

17. ECB APP PLAN IS 55 TIMES BIGGER THAN JUNCKER PLAN The 3 long term monetary programs of the last years are 121 TIMES bigger than Juncker Plan What’s happening here? In both cases, we are speaking about public resources channeled to the EU economy. Is there no relationship between both of them? Juncker Plan and Long Term Monetary Programs

18. Whereas the monetary expansion launched by the European Central Bank in 2011/2012 took the form of loans to the banking sector, the programme now approved by the ECB is based on acquisition of: –asset-backed securities; –covered bonds; –securities issued by governments and agencies of the eurozone and supranational institutions. Expanded Asset Purchase Programme 2015-2016

19. .. In this Programme, monetary expansion takes place through the purchase of assets and not through loans to financial institutions. This does not alter the fundamental concerns about the extent to which monetary expansion reaches the real economy... Even though it should be easier for public and private entities to place new issues of securities while the programme lasts and they are beneficiaries of it, the main and fundamental effect of the programme is to provide liquidity to the financial institutions from which the securities are purchased. Expanded Asset Purchase Programme 2015-2016

20. .. The European Central Bank has also insisted that the aim of new acquisitions of public debt is not to provide debt financing for the Member States but rather to inject financial resources into the European economy through general expansionary monetary policies... It looks very clear that the main beneficiaries of the Programme are not the entities issuers of the assets but the banking system as owner of the assets purchased. Expanded Asset Purchase Programme 2015-2016

21. .. Thus the problem is similar to the one described above: namely to what extent this liquidity provided to financial institutions is either transferred to the productive economy, or remains stuck in financial institutions or is reinvested in speculative activities outside the Eurozone... The aim of supporting the productive economy through monetary expansion is therefore the same under this programme as in the framework of long-term refinancing operations (LTRO) in 2011-2012. Expanded Asset Purchase Programme 2015-2016

22. Long Term Programs LTROs 2011-2012 TLTROs (2014-2016) ASSET PURCHASE PROGRAM 2015-2016 - 1 trillion € (10% / Eurozone GDP) - Loans to European banks - Term: 3 years - Rate: 1% - 0,4 trillion € (4% / Eurozone GDP) - Loans to European banks - Term:.. 4 years conditioned to increasing credit.. 2 years with no conditions -“At least”, 1,14 Trillion € (11% / Eurozone GDP) - Public and private securities

23. During 2014, the ECB launched a “targeted” program: LTROs, based on loans provided to banks with the condition of an increase in the loan stock of the bank 400 million have been channeled to the banking system through this programme. The “targeting” goal of this program is limited. The case of the targeted TLTROs

24. There is no “targeting” for two years financing Only if banks want to keep the funds after 29.09.2016, then they must respect the “targeting” requisites. For half of the loans to banks (200 Million) the only requisite is to increase the net financing, without any specific amount So, it´s not strange that, according to the ECB July 2015 Survey, only 56% of this financing seems being channeled to credit. The case of the targeted TLTROs

25. SOURCE: ECB. BANK LENDING SURVEY JULY 2015 The case of the targeted TLTROs

26. So, according to the ECB Survey, even in this “targeted” program:.. 25% is being channeled to “refinancing” of the banks.. 16% to assets buying.. only 59% is channeled to credit The case of the targeted TLTROs

27. Anyway, the TLTRO program may be a very good conceptual reference: establishing conditionalities to ensure the link with the real economy is not incoherent with Eurozone monetary policy The case of the targeted TLTROs

28. We believe this is a key moment for European public- and private-sector stakeholders –in particular European industry represented by the EESC- in terms of defending the interests of industry and the real economy in the face of this programme, which will amount to at least 11% of Eurozone GDP. Expanded Asset Purchase Programme 2015-2016

29. The main problem with monetary expansion is its lack of focus. Funds are provided to banks and it´s up to the banks to decide if these funds are or not invested and, if so, if they are invested in or out of the Eurozone and in productive or speculative activities. Indirect nature of monetary expansion

30. ..In monetary expansion, central banks do not finance the real economy directly, but through the financial sector, either through key interest rates, through loans to financial institutions or through liquidity provided by acquiring financial assets held by them... By providing liquidity to the financial sector, it is hoped that banks will redirect that liquidity into the real economy, boosting credit, investment and aggregate demand... But no conditions are required to the beneficiary banks so as to make sure that the resources provided attend the real economy. Indirect nature of monetary expansion

31. ..We believe that, in the current environment, only channeling these funds towards productive investments – and generally speaking the real economy – would justify this undertaking. Indirect nature of monetary expansion

32. .. There are differing opinions about the extent to which the banking sector will redirect the resources obtained through monetary expansion into local economic activity. However, it is generally accepted that this redirection is only partial... It seems that a significant proportion of the resources generated through monetary expansion remain stuck on bank balance sheets, are invested outside the territory or are channelled into speculative bubbles. Indirect nature of monetary expansion

33. .. In response to bank credit contraction and financial instability since the outbreak of the financial crisis, earlier monetary expansion programmes have provided more and more liquidity at key interest rates for European banks...This is an important objective by itself, but there are significant doubts as to how much of this stimulus has reached industry and the real economy. Indirect nature of monetary expansion

34. .. It is important now to ensure that the direct or indirect support to the banking sector – through direct financing or acquisition of debt currently held by banks – is submitted to the necessary changes to maximise its impact for industry and productive investment... In other words, we believe it is important to ensure that monetary expansion as far as possible is allocated to financing Europe's productive economy. Indirect nature of monetary expansion

35. .. The basic purpose of this project is to examine the extent to which this objective of financing the productive economy can be realised through collaboration in the implementation of monetary expansion policies between the Eurosystem and entities specialised in lending to the productive sector, which at EU level means above all the European Investment Bank (EIB)... This would obviously not encroach on the competence of the European Central Bank with regard to the objectives and the amount of monetary expansion. A more focused monetary expansion

36. This involvement of the EIB should further four basic objectives: a) making the transmission mechanism of monetary policy more efficient in terms of its direct connection with the real economy; b) establishing a more direct relationship between monetary policy, money supply and price stability; c) establishing a more direct relationship between money supply expansion and increasing productive capacity; d) providing more resources for policies to promote investment in the eurozone. A more focused monetary expansion

37. The role of the EIB In theory, there may be different ways to make monetary expansion more focused in real and productive economy. But, from our point of view, the collaboration with the European Investment Bank is a practical, realistic and feasible way of achieving this goal in an efficient way.

38. We can visualise different potential operational options:..establishing some kind of systematic advice from EIB on the allocation of resources generated through monetary expansion... loans from the Eurosystem to the EIB.. acquisition by the Eurosystem of securities issued by the EIB.. setting up a fund held by the Eurosystem/ECB, but managed by the EIB.. setting up a fund of entity managed –and owned- by the EIB How to involve the EIB expertise

39. The European Investment Bank is probably the key institutional locus of know-how about policy on investment in the productive economy for the purposes of the European Union.. The role of the EIB

40. .. Annual lending 2014: 80.3 bn €.. Consolidated capital 2014: 243 bn €.. Geographical scope: EU (90% of funding) and other countries (10%) European Investment Bank (EIB)

41. .. Fund managed by the EIB.. Ownership: EIB (majority shareholder) / European Commission / Public and private financial institutions... Capital: 3.000 m €.. Main objective: Venture capital for small and medium enterprises. European Investment Fund

42. EIB. Credit Rating EUROPEAN INVESTMENT BANK FitchMoody’sStandard & Poor’s Long termAAAAaaAAA Short termF1+P-1A-1+ EUROPEAN INVESTMENT FUND FitchMoody’sStandard & Poor’s Long termAAAAaaAAA Short termF1+A-1+

43. BREAKDOWN OF OBLIGORS 2013 Source: Fitch / EIB. Based on the ultimate obligor If necessary, EIB also works through banks

44. DEGREE OF PROTECTION IN CREDIT TO BANKS 2013 Source: Fitch EIB also knows how to work with banks in a very secure way:

45. .. Aside from regulatory considerations, the European Investment Bank would seem to be an ideal repository of the know-how required to redirect to the real economy the resources generated by monetary expansion... Its objectives, as defined in Article 309 of the Treaty on the Functioning of the European Union, ensure the general interest of its activity. The role of the EIB

46. .. Its activities are clearly focused on innovation, training, industrial investment, access to funds for small and medium-sized enterprises, and investing in energy and infrastructure. This is exactly what Europe needs, and more urgently than ever... If we look at the usual beneficiaries of European Investment Bank (EIB) operations during the period 2010-2014, it is clear that industry, energy and transport are the main priorities of EIB activity: The role of the EIB

49. .. We can see that investments are related directly (industrial sectors) or indirectly (energy, transport, telecommunications, etc.) to industrial activity... For the "industrial sectors" category, financing provided during the reference period is further broken down as follows: The role of the EIB

52. .. The EIB's experience with redirecting financial resources to the real economy is self-evident... By the same token, EIB involvement in managing resources generated by monetary expansion could also be an appropriate tool for ensuring that those resources are channelled to industry, infrastructure, technological investment, SMEs and to the real and productive economy in general,..... This way, we could ensure that the Eurozone institutions serve the general interest, which ultimately is the main goal of both the Eurosystem and the EIB.

53. .. Main questions have to be answered: A.CAN IT BE DONE? B.HOW? C.IN WHICH AMOUNT? D.WHEN?.. Our position / goals are being adapted as the Project goes on, according to the positions of the European stakeholders, EU institutions, technical issues, … Starting point

54. .. Preliminary Draft (February 2015).. Decision of the EESC Board (march 2015).. Presentations on “Some Basic Concepts “ and “Main Issues” (march 2015).. First contacts with EIB and ECB (march 2015).. Checking with experts in different EU countries (april 2015): -70 experts checked -At the moment, 47 answers Main steps

55. .. Four main power point presentations (to be continuously updated) (may 2015): - PRESENTATION OF THE PROJECT - POLICY ISSUES - LEGAL AND TECHNICAL ISSUES - MAIN PROVISIONAL CONCLUSIONS Main steps

56. .. Next steps: - Small presentations with stakeholders in Brussels. -Brussels Round Table: November 12 th - 3 local events (Vilnius, Bilbao, …) Main steps

57. A.One of the major barriers to increasing the efficiency of monetary expansion policies is the indirect nature of their transfer to the real economy, which is achieved by injecting liquidity into the banking system, either through loans to financial institutions or acquisition of assets owned by those institutions. But banks are not subjected to conditions that ensure the correct destination of the funds. It is hoped that financial institutions will move this liquidity into the real economy, but this happens only partially. Main premises

58. B. The EIB is the EU institution that has the know-how and the tools that are specifically designed to channel credit to the real economy (infrastructure, SMEs, etc.) Main premises

59. C. The main hypothesis of this Project is that structural collaboration between the Eurosystem and the European Investment Bank – or national promotional banks or agencies- would be an excellent tool for significantly improving the efficiency of monetary expansion operations in the Eurosystem, maximising efficiency at their final destination, the real economy. Main premises

60. D. As said before, this collaboration could be achieved through:.. Involvement of the EIB or / and of national promotional banks or agencies from member states... Involvement of the EIB could be in a substantial part of the monetary expansion or in a limited amount. Main premises

61. .. Transferring resources to the EIB balance: a)Directly: ECB loans to the EIB b)Indirectly: Purchase by the ECB of debt issued by the EIB.. Without transferring resources to the EIB balance: - Setting up a Fund managed by the EIB but under the Eurosystem / ECB ownership - Setting up a Fund –or an entity- managed and owned by the EIB - Making use of the EIB expertise through advice, formal reports or delegation in allocation of resources. Main premises. Some options

62. F. This involvement of the EIB should be compatible with the objectives of monetary expansion, namely:.. to increase / decrease money supply;.. to support price stability and economic recovery. Main premises

63. G. This involvement of the EIB should be a way to: a)Achieving similar results with lower resources or risk b)Achieving better results with similar resources or risk Main premises

64. European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank (EIB) POLICY ISSUES Bratislava Nov 06 2015

65. A.OUR PROJECT IS NOT RELATED TO SOME USUAL POLITICAL DEBATES ON MONETARY POLICY B.INVOLVING EIB IS COMPATIBLE WITH THE OBJECTIVES OF MONETARY POLICY C.INVOLVING EIB IN MONETARY POLICY IS A VERY CLEAR WAY FOR IMPROVING MONETARY EFFICIENCY AND NON-INFLATIONARY IMPACT OF MONETARY EXPANSION POLICY ISSUES. Why it matters: To clarify that …

66. .. MONETARY EXPANSION. SOME POLITICAL ISSUES A.MONETARY EXPANSION VS. RESTRICTIVE POLICIES B.DIFFERENT VIEWS AND INTERESTS BETWEEN MEMBER STATES C.MONETARY RISK VS. FISCAL RISK D.PUBLIC RISK VS. PRIVATE RISK.. MONETARY POLICY AND INVESTMENT POLICY.. LIMITS OF MONETARY POLICY.. PRICE STABILITY POLICY.. POLICY QUALIFICATION.. MONETARY POLICY AND GROWTH POLICY..FINAL REMARK INDEX

67. SOME POLITICAL ISSUES

68. .. There are some issues related to different political perceptions of monetary expansion... Our project shouldn´t and needs not to get involved in these issues: A.OVERALL RISK OF THE EU INSTITUTIONS B.MONETARY EXPANSION VS. RESTRICTIVE POLICIES C.DIFFERENT VIEWS AND INTERESTS BETWEEN MEMBER STATES D.MONETARY RISK VS. FISCAL RISK E.PUBLIC RISK VS. PRIVATE RISK Monetary Expansion. Some political issues.

69. .. Our project should not get involved in the political debate about to which point the overall risk of the EU Institutions should increase or decrease... The collaboration we propose between ECB / Eurosystem and EIB (+national promotional banks or agencies) pretends to make monetary policy more efficient ensuring a more direct link to real economy. Overall risk and efficiency of the EU Institutions

70. .. Higher efficiency in monetary expansion may suppose: a)a lower risk with similar results on real economy or b)better results on real economy with similar risk... So, there is not any reason to think that the results of this collaboration could –by themselves- increase the overall risk of the EU Institutions unless a political decision in this sense is agreed.Just the opposite should happen. Overall risk and efficiency of the EU Institutions

71. .. This approach will be taken account of, concerning: -Monetary Risk allocation between national banks and ECB -Relationship between monetary risk and fiscal risk -Different risk policies in ECB and EIB operations Overall risk and efficiency of the EU Institutions

72. .. There are different political views about to which point monetary policy should be more expansionary or more restrictive. Different views in different countries also... That´s not our point. The aim of this EESC Project is related to how monetary expansion is managed, not to the amount of this expansion. Monetary Expansion vs. Restrictive Policies

73. .. Risk-sharing scheme in the 2015-16 Programme.. Monetary expansion is usually related to higher monetary risk. But, in an 80% of the new Programme, risks are taken not by the ECB but by the national central banks. In this case, it´s more a matter of fiscal risk than of monetary one... Fiscal risk falls on the member states more than on the whole Eurozone... The 20% of shared risk includes possible losses on purchases of bonds of supranational institutions by the National Central Banks (12%), and possible losses on additional asset purchases of the ECB (8%). Monetary Risk vs. Fiscal Risk

74. .. This EESC project must not become involved in this dialectic. The same criteria defined for each monetary expansion programme could be applied to the collaboration between EIB and ECB... For this purpose, public promotional banks or agencies in member states can get involved. If necessary in the same proportion on risks (80%) as national central banks are now involved. Monetary Risk vs. Fiscal Risk

75. .. Involving national promotional banks or agencies could include criteria for allocating resources between those institutions, as well as implementation and monitoring of the management of the operations... The EIB could be in charge of the definition and monitoring of the implementation by promotional banks or agencies of these criteria and requirements Involving national promotional banks or agencies

76. ..ECB: The aim of acquisitions of public debt is not financing governments but injecting resources into the economy through the financial system... So, it´s not clear if resources managed by the EIB should be subject to requirements regarding whether they ultimately reach public or private entities...If necessary, an specific proportion between private and public sector financing could be agreed. Public Risk vs. Private Risk

77. MONETARY POLICY AND INVESTMENT POLICY

78. .. The main activity of monetary expansion (ECB) and EU investment (EIB) may be similar: “INJECTING MONEY IN THE ECONOMY”.. However, the main policies to which these activities respond look different: -Monetary policy (ECB) -Investment policy (EIB).. But, as we´ll see: - both policies cannot be separated. - Monetary Policy is neither an objective of the main receptor of Monetary Expansion (the Banking System) Monetary expansion and investment policy

79. .. Involving EIB in monetary expansion would be quite an opportunity for EU investment policy... Just remember that the Asset Purchase Programme of the Eurosystem (1,14 trillion €) is 50 times bigger than the Juncker Plan (21.000 million €).. If needed by the dimension of the resources or for other reasons, the EIB would collaborate with public promotional banks or agencies of member states An Opportunity for Investment Policy

80. .. From the point of view of the demand of credit, there should be no much concern... Because of the differential between key interest rates of the ECB and retail interest rates, there is a huge capacity for providing credit to industry – and, very specially, to SMEs, cooperatives, …- at lower interest rates. That would ensure demand. Investment Policy and Demand of Credit

81. LIMITS OF MONETARY POLICY The EU Treaty

82. .. The tasks of the European System of Central Banks(ESCB) include the "definition and implementation of monetary policy" (Art. 127.2 EU Treaty) within the primary objective of maintaining "price stability“ (Art. 127.1 EU Treaty). Art. 127.1: “1. The primary objective of the European System of Central Banks (hereinafter referred to as “the ESCB”) shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Union with a view to contributing to the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European Union. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 119”. Objectives of Monetary Policy The EU Treaty

83. Objectives of the Eurosystem So, main criteria: 1.PRIMARY OBJECTIVE: PRICE STABILITY 2.General economic policies of the Union (art. 3) 3.Principle of an open market economy with free competition 4.Efficient allocation of resources 5.Principles Art. 119 (Coordination of Member States’ economic policies, internal market, sound public finances, sustainable balance of payments).

84. 130. ”… if a measure belongs to the category of instruments which the law provides for carrying out monetary policy, there is an initial presumption that such a measure is the result of … monetary policy … a presumption that could be rebutted if … the measure were to pursue objectives other than those specifically listed in Articles 127(1) TFEU and 282(2) TFEU”. 132. ”… in order for a measure of the ECB actually to form part of monetary policy, it must specifically serve the primary objective of maintaining price stability and it must also take the form of one of the monetary policy instruments expressly provided for in the Treaties and not be contrary to the requirement for fiscal discipline and the principle that there is no shared financial liability”. (OPINION of Advocate General EU Court of Justice Jan 14 2015) Limits of Monetary Policy The EU Treaty EU Court of Justice Advocate General OPINION Jan 14 2015

85. So, for our purpose, these requisites must be fulfilled: 1.Price stability as objective (Art. 3 objectives only in a secondary plane). 2.Take the form of one of the monetary policy instruments (buying and selling financial instruments, credit operations) Limits of Monetary Policy The EU Treaty

86. .. The point is not if Price Stability is an objective for the EIB. It is not. But it is neither so for the main receptor of ECB funds: the Banking System... The main point is if channeling funds through the EIB can be a tool for Price Stability in a similar way as doing so through the Banking System, as usual. Limits of Monetary Policy. Price Stability

87. PRICE STABILITY POLICY

88. What´s Price Stability Policy?.. EU Justice Court: “Fight against inflation”.. ECB: “Fight against inflation” or “fight against deflation”, with the aim of keeping inflation “below but close to 2%”... Usually, it is done by Central Banks through impulses aimed at ▲/▼ money supply

89. What´s Price Stability Policy?.. Monetary policy impulses work through interest rates and through the increase / decrease of the monetary base, hoping that banks make use of this monetary base to increase the “broad money” (M3) through credit.

90. FROM EUROSYSTEM TO MONEY SUPPLY Monetary Policy ▲ MONEY SUPPLY / M3 BANKING SECTOR EUROSYSTEMEUROSYSTEM CREDIT MONETARY EXPANSION ▲ MONETARY BASE ▼ INTEREST RATES

91. Money Supply and Credit are directly related

92. Monetary Expansion is less and less related to Money Supply

93. Monetary Expansion is also less and less related to credit to private sector

94. .. Monetary policy is not “a matter of the banking sector”, of providing liquidity to it. The financial sector is only an instrument... The effects on money supply are only achieved when –and if- the banks reinvest the funds in the real economy. There is no Price Stability Policy without Credit to Real Economy

95. “Monetary policy transmission channels do not function as mechanisms producing immediate effect but as a framework through which the ECB sends out a series of ‘impulses’ or signals with a view to them reaching the real economy.”. (OPINION of Advocate General EU Court of Justice Jan 14 2015) There is no Price Stability Policy without Credit to Real Economy EU Court of Justice Advocate General OPINION Jan 14 2015

96. .. There are differing opinions about the extent to which the banking sector redirects the ECB funds into economic activity... However, it is generally accepted that this redirection is only partial. A significant proportion of the resources remain stuck on banks balance sheets, are invested outside the eurozone or are channeled into speculative bubbles. In these cases, the objectives of money supply, stability of prices and monetary policy are not achieved. There is no Price Stability Policy without Credit to Real Economy

97. .. So, as the EESC Project proposes, making sure that monetary expansion gets to real economy is not only good for investment policy but also for monetary policy... When funds channeled through the banking system don´t arrive to the real economy, they become mere subsidies to the banks without purpose. Or, if we try to qualify it, they would be a result of “Banking Sector Stability Policy”, but this policy should not be an objective of Monetary Policy according to the EU Treaty. There is no Price Stability Policy without Credit to Real Economy

98. FROM EUROSYSTEM TO REAL ECONOMY Monetary Policy OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR EUROSYSTEMEUROSYSTEM REAL ECONOMY

99. FROM EUROSYSTEM TO REAL ECONOMY Monetary Policy OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR EUROSYSTEMEUROSYSTEM REAL ECONOMY EIB REAL ECONOMY

100. .. Price Stability (Fight against deflation at the moment) is achieved through the increase / decrease of Money Supply.. The increase in Money Supply is achieved not through ECB expansionary impulses (low interest rates / QE) but only when these impulses are transmitted to the real economy through bank credit.. Money Supply does not evolve through expansio- nary impulses. Only through bank credit.

101. Bank credit is the link between Monetary Policy and Price Stability PRICE STABILITY +/- MONEY SUPPLY BANKING SECTOR EUROSYSTEMEUROSYSTEM +/- LOANS +/- Interest rates / Liquidity

102. The link between Monetary Policy and Price Stability AND WHAT ABOUT EIB? PRICE STABILITY +/- MONEY SUPPLY EIB EUROSYSTEMEUROSYSTEM +/- LOANS +/- Interest rates / Liquidity

103. .. From a qualitative point of view, the link between Monetary Policy and Price Stability works IN THE SAME WAY through the Banking Sector or through the EIB... As we´ll see, the impact on Price Stability through the EIB would be, anyway, far more efficient. EIB role and Price Stability Policy

104. EIB role and Price Stability OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR EUROSYSTEMEUROSYSTEM REAL ECONOMY EIB REAL ECONOMY PRICE STABILITY

105. The main difference is:.. Through the EIB, resources are ALWAYS channeled to real and productive economy.. Through the Banking Sector, sometimes it´s so and sometimes not.. EIB role and Price Stability

106. POLICY QUALIFICATION

107. TWO MAIN REQUISITES OF MONETARY POLICY A.INSTRUMENT: Credit / Asset acquisition B.GOAL: Price Stability Policy Qualification

108. Policy Qualification. POINT OF VIEW OF THE INSTRUMENTS OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR EUROSYSTEMEUROSYSTEM MONETARY POLICY EIB MONETARY POLICY EU POLICY

109. Policy Qualification. POINT OF VIEW OF PRICE STABILITY OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR EUROSYSTEMEUROSYSTEM FINANCIAL SECTOR STABILITY POLICY MONETARY POLICY EIB MONETARY POLICY EU POLICY

110. From the point of view of the instruments:.. The EIB channel is Monetary Policy in the same way as the Banking Sector channel From the point of view of the goals (Price Stability):.. As part of a program of monetary expansion, its purpose is linked to price stability in the same way as credits to the financial system or buying assets owned by it... Furthermore: Involving the EIB would make monetary policy far more efficient, as it would ensure the link between the impulse of monetary expansion (Monetary Base) and real economy (M3). POLICY QUALIFICATION

111. MONETARY POLICY AND GROWTH POLICY

112. .. Price Stability, of course, is a result not only of the evolution of Money Supply but also of the evolution of Money Demand... So, it would be also part of Monetary Policy any policy: a)Making use of monetary policy tools (monetary expansion …). b)Having the purpose of increasing / decreasing money demand. Monetary Policy is not only related to Money Supply but also to Money Demand.

113. Bank credit is also the link between Monetary Policy and Money Demand PRICE STABILITY +/- MONEY DEMAND BANKING SECTOR EUROSYSTEMEUROSYSTEM +/- LOANS +/- Interest rates / Liquidity +/- GROWTH

114. Bank credit is also the link between Monetary Policy and Money Demand PRICE STABILITY +/- MONEY DEMAND BANKING SECTOR EUROSYSTEMEUROSYSTEM +/- LOANS TO REAL ECONOMY +/- GROWTH +/- MONEY SUPPLY

115. .. In the middle / long term, growth is the most important factor in the evolution of money demand... So taking account of the impact of policies in growth is not only an option for monetary policy. It´s a need. Monetary Policy is not only related to Money Supply but also to Money Demand.

116. .. It has been said that monetary policy should be linked only to price stability and, so, it cannot be linked to growth policy... But: -The EU Treaty indicates that price stability is the first but not the only goal of monetary policy, -Price stability itself is not only related to money supply but also to money demand and, so, it is also related to growth. Monetary Policy and Growth Policy

117. .. So: -If credit reaches real economy (consumption, expenditure …) but no productive activities, the result will be money supply expansion but no money demand expansion and so, we´ll achieve an inflationary impact -By contrast, if credit reaches not only the real economy but also productive activities –as EIB operations do- the result will be expansionary both in money supply and in money demand. So, the inflationary impact will be neutralized. Monetary Policy and Growth Policy

118. INFLATIONARY IMPACT MONETARY EXPANSION EUROSYSTEMEUROSYSTEM NON- PRODUCTIVE ACTIVITIES PRODUCTIVE ACTIVITIES GROWTH ( MONEY DEMAND) MONEY SUPPLY NO GROWTH ( MONEY DEMAND) MONEY SUPPLY NO INFLATIONARY IMPACT

119. .. So, if monetary expansion achieves its objective of increasing money supply (M3) in, let us say, a 10% but not achieving growth in the economy, then the result will be clearly inflationary... In the opposite way, if this increase of a 10% in money supply is matched by a 10% growth in the economy, then there will be no inflationary impact in the economy... So, the impact of monetary expansion in growth should be one of its main purposes. Monetary Policy and Growth Policy

120. POLICY ISSUES. FINAL REMARK

121. .. Improving the link between monetary expansion and productive economy through the structural collaboration between the Eurosystem and the European Investment Bank seems coherent with the main objectives of both the ECB and the EIB and with different EU policies: -Investment Policy -Growth Policy -Monetary Policy Policy Issues. Final remark

122. .. Furthermore, it seems that the structural collaboration between the Eurosystem and the EIB would be a significant instrument to improve the efficiency of monetary policy, clarifying the link between monetary policy and broad money supply, real economy and price stability. Policy Issues. Final remark

123. Efficiency of Monetary Policy OUT OF THE EUROZONE INVESTMENTS FINANCIAL SECTOR BANKING SECTOR EUROSYSTEMEUROSYSTEM PRODUCTIVE ECONOMY EIB PRODUCTIVE ECONOMY REAL BUT NON- PRODUCTIVE ECONOMY Monetary inefficiency Monetary efficiency but inflationary impact Monetary efficiency + Non-inflatio- nary impact

124. .. All these objectives can be achieved through different procedures. The specific collaboration tools between the Eurosystem and the EIB should maximize the efficiency of the assignment of resources, either a) achieving better results (more investment in productive activities) with the same resources or b) achieving a similar impact in the real economy with a lower investment of resources. Policy Issues. Final remark

125. European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank TECHNICAL AND LEGAL ISSUES Bratislava Nov 06 2015

126. .. Technical and legal issues of a "Cooperation Agreement" between the ECB and the EIB through which the EIB would get involved in the investment decisions on monetary expansion Starting point

127. As said before, this collaboration could be achieved in different ways:.. Involvement of the EIB or / and of national promotional banks or agencies from member states... Involvement of the EIB could be in a substantial part of the monetary expansion or in a limited amount. Starting point

128. .. Transferring resources to the EIB balance: a)Directly: ECB loans to the EIB b)Indirectly: Purchase by the ECB of debt issued by the EIB.. Without transferring resources to the EIB balance: - Setting up a Fund managed by the EIB but under the Eurosystem / ECB ownership - Setting up a fund –or an entity- managed and owned by the EIB - Making use of the EIB expertise through advice, formal reports or delegation in allocation of resources. Starting point. Some options

129. LEGAL ISSUES

130. ..Legal capacity of the EIB.. “Independence of the ECB”: Autonomy of the ECB to define monetary policy... Geographical scope: Eurozone (ECB) / European Union (EIB).. Ability to delegate to the EIB the approval of operations.. Formalization of the collaboration ECB-EIB Legal issues

131. RESOURCES The EIB can make use of its own resources as well as of capital markets. ACCOUNT OPENING As a public entity, the EIB is able to open accounts with the ECB and with national central banks. (Article 17 of the Statute of the ESCB and of the ECB) CREDIT OPERATIONS As a credit institution, the EIB is able to conduct credit operations with other credit institutions and market participants, with lending being based on adequate collateral. (Article 18.1 of the Statute of the ESCB and of the ECB) Legal capacity of the EIB

132. OPEN MARKET OPERATIONS Securities issued by the EIB can be acquired by the ECB like those of any other entity. (Article 18.1 of the Statute of the ESCB and of the ECB) OPERATIONS WITH PUBLIC ENTITIES As a publicly owned credit institution, the EIB is not subject to the restrictions that apply to other entities with regard to credit operations or direct purchase of debt by the ECB. (Article 123 (2) of the EU Treaty and Article 21.3 of the Statute of the ESCB and of the ECB) Legal capacity of the EIB

133. IF SOME CHANGES ARE NEEDED: It is possible that appropriate participation of the EIB in the implementation of ECB monetary policy could require certain changes, major or minor, in the operation of the Eurosystem. It is important to note that, apart from the criteria defined in the Treaty, the monetary policy of the Eurosystem can be adapted or amended by the ECB itself. NOTE: Section 1.6 of the Guideline of the ECB on monetary policy instruments and procedures of the Eurosystem (2011/817/EU): "MODIFICATIONS TO THE MONETARY POLICY FRAMEWORK The Governing Council of the ECB may, at any time, change the instruments, conditions, criteria and procedures for the execution of Eurosystem monetary policy operations“. Legal capacity of the EIB

134. .. According to the Article 17 of the Statute of the EIB, interest rates in the operations of the EIB must be “linked” to the capital market rates... So, it can be a reason for the collaboration to be implemented not through the EIB itself but through an specific found or entity managed by the EIB. In other case, nearly the whole rates differential would remain in the EIB itself. Legal capacity of the EIB

135. “STATUTE OF THE EIB Article 17 1. Interest rates on loans to be granted by the Bank and commission and other charges shall be adjusted to conditions prevailing on the capital market and shall be calculated in such a way that the income there from shall enable the Bank to meet its obligations, to cover its expenses and risks and to build up a reserve fund as provided for in Article 22. 2. The Bank shall not grant any reduction in interest rates. Where a reduction in the interest rate appears desirable in view of the nature of the investment to be financed, the Member State concerned or some other agency may grant aid towards the payment of interest to the extent that this is compatible with Article 107 of the Treaty on the Functioning of the European Union." Legal capacity of the EIB

136. .. Monetary policy operations feed into the economy at clearly preferential (“key”) rates. We need to consider whether or not the requirement to use market interest rates is likely to hinder the redirection of resources generated by monetary expansion operations...Of course, this would not affect resources that are not included in the EIB's balance sheet. Legal capacity of the EIB

137. Independence of the ECB EU TREATY: Art. 130: ‘When exercising the powers and carrying out the tasks and duties conferred upon them by the Treaties and the Statute of the ESCB and of the ECB, neither the European Central Bank, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body. The Union institutions, bodies, offices or agencies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the European Central Bank or of the national central banks in the performance of their tasks”

138. Independence of the ECB The purpose of the Independence Principle is to protect the ECB from governments trying to finance themselves in an easy way through monetary expansion. The purpose of the Independence Principle cannot be protecting the ECB “from real economy”

139. Independence of the ECB So, we think that:.. An inappropriate use of the independence principle should not be accepted.. The Governing Council of the ECB should not make use of this principle in an inadequate way

140. Independence of the ECB Our proposal: An adequate interpretation of the “Independence Principle”, should be limited to the use of monetary expansion to governments budget financing Anyway, “just in case”, for the purpose of this project, we have accepted, as a basis for the analysis, the restrictive interpretation of the Independence Principle. So, we understand that any decision concerning the management of monetary expansion or the collaboration with the EIB should be approved by the ECB

141. Independence of the ECB What’s Independence? Ref.: “Central bank independence under European Union and other international standards” Robert Sparve. ECB 2005: -Institutional Independence -Personal Independence -Financial Independence -Functional Independence (on the relationship between NCBs and the Eurosystem) Only “Institutional Independence” might be of concern in our case.

142. Independence of the ECB INSTITUTIONAL INDEPENDENCE. Some criteria: -The right of third parties to approve, suspend, annul or defer decisions by the NCBs -The right to censor decisions on legal grounds and subsequently submit them to political authorities for final decision -The right to be consulted (ex ante) on an NCB’s decisions - “The right of representatives of external political authorities to participate in the decision-making bodies of an NCB with a right to vote is, even if not decisive, incompatible with the Treaty and the Statute; no voting rights for such representatives at board meetings may be acceptable”.

143. Independence of the ECB MAIN CONCLUSION -There might be some doubts if the collaboration between EIB and ECB is channeled through some kind of “delegation” in the EIB to take decisions on funds created through monetary expansion -But: -“Delegate” is not the same as give “a right to participate in the decision making- bodies” -EIB is not a “political authority” -Delegating some decisions on an specific fund is not the same as “to participate in the decision-making bodies”. Anyway: JUST IN CASE, the limits of the delegation capacity of the ECB in the EIB concerning investment decisions should be specifically analysed.

144. Ability to delegate in the EIB the approval of operations There may be some doubts about the ability of the ECB to delegate the approval of operations But there are different ways to solve this issue:.. Ratification “a posteriori” of the operations approved by the EIB.. Operations approved by EIB don´t concern ECB funds but funds provided by the ECB to an specific entity (perhaps a subsidiary of the EIB)

145. Ability to delegate in the EIB the approval of operations. OPTION A ECB Fund without legal personality (ECB Assets) EIB Loans to real economy Approval of operations Funding Ratification (If necessary)

146. Ability to delegate in the EIB the approval of operations. OPTION B ECB New entity or subsidiary EIB Loans to real economy Approval of operations Loans at key interest rates

147. Ability to delegate in the EIB the approval of operations. OPTION C ECB EIB If EIB capital is not enough:.. an specific reserve fund could be created.. in some cases, financed by the differential in interest rates Loans to real economy Loans at key interest rates

148. .. The eurozone is the geographical scope of the ECB. Obviously, EIB involvement in implementing monetary policy should not modify this... Once the mechanisms of cooperation are sufficiently established, the EIB could decide to set up a section or subsidiary specifically for this purpose, whose activity would be limited to the eurozone. (Article 28 of the Statute of the EIB).. Monitoring of this section or subsidiary could be assigned to an specific committee consisting of representatives of the eurozone members. Geographical scope

149. TECHNICAL ISSUES

150. SOME TECHNICAL ISSUES.. Constrained credit demand.. Technical capacity of the EIB.. Key differences in investment policies between ECB and EIB.. Risk concentration

151. Constrained credit demand. To which point? CHANGES IN DEMAND FOR LOANS OR CREDIT LINES TO ENTERPRISES (net percentages of banks reporting positive demand) SOURCE: ECB. BANK LENDING SURVEY OCTOBER 2015

152. Constrained credit demand. To which point? PURPOSES FOR WHICH EURO AREA BANKS USE THE ADDITIONAL LIQUIDITY FROM THE EXPANDED APP (average percentage of respondents per category) SOURCE: ECB. BANK LENDING SURVEY OCTOBER 2015

153. Constrained credit demand. To which point? PURPOSES FOR WHICH EURO AREA BANKS USE THE ADDITIONAL LIQUIDITY FROM THE EXPANDED APP. GRANTING LOANS (percentage of respondents) SOURCE: ECB. BANK LENDING SURVEY OCTOBER 2015

154. Constrained credit demand. To which point? USE OF FUNDS FROM THE PAST AND FUTURE TLTROs (percentage of respondents) SOURCE: ECB. BANK LENDING SURVEY JULY 2015

155. Constrained credit demand. To which point?.. According to the ECB data, it looks like credit demand is increasing and is expected to increase.. In a significant part, banks are using the additional liquidity from the APP Programme to granting loans to enterprises. So, enterprises do need it... Anyway, even in a context of constrained credit, it would not be a reason against the collaboration between EIB and ECB. It is not a temporary short- term issue.

156. Technical capacity of the EIB (I).. Very specially, in the context of EIB commitments related to the Juncker Plan. To which point can EIB expand its capacities for the management of new funds?.. The issue is not EIB capacity but the joint capacity of EIB + National promotional banks and agencies... We are not in a short-term issue. Capacities can be expanded in a progressive way... Anyway, investment capacities of an expanded EIB would be, in any case, stronger than ECB capacities to allocate resources to real economy.

157. Technical capacity of the EIB (II).. If necessary, EIB can also work as an advisor for a better link of ECB operations to real economy.. If necessary, EIB can work in a similar way as ECB: Just providing liquidity to banks, but establishing the necessary conditions to ensure their destination to real economy.

158. Key differences in investment policies.. Depending on the position taken by the EIB in the collaboration with the ECB, we should compare its investment policies with the ECB policies or with the policies of the private banks that receive funds from the ECB... Of course, taking into account that policies developed in the framework of the ECB-EIB collaboration should not necessarily be the same as the usual ones in these institutions.

159. If we compare ECB and EIB policies … Key differences in investment policies ECBEIB LIQUIDITYHighLow TERMShort - MediumMedium - Long INTEREST RATES Far lower than retail market Close to retail market CREDIT RISK Usually lower (Banks, Securities) Usually higher (SMEs, Banks, Public banks) RISK ABSORPTION.. ECB.. Monetary risk.. Fiscal risk.. EIB (or EIFund).. Fiscal risk

160. But if we compare EIB and private banks policies … Key differences in investment policies PRIVATE BANKSEIB LIQUIDITYLow TERMMedium - Long INTEREST RATES Retail marketClose to retail market CREDIT RISK Usually higher (Businesses, Households, Securities, …) Usually lower (SMEs, Banks, Public banks) RISK ABSORPTION.. Own balance sheet.. EIB (or EIFund).. Fiscal risk

161. .. If risk falls on the EIB, its capital would be a very strict limit for the collaboration...But, as we know, the point is not EIB but EIB + National Promotional Banks and Agencies... But, as we have seen, in an “expanded EIB”, differentials in interest rates could allow to compensate this risk through an specific reserve fund. Risk absorption

162. .. If risk falls on the ECB / Eurosystem, delegation in the EIB would have to be agreed. But, as we have seen, there are different ways for this. Risk absorption

163. .. “Central banks cannot bankrupt”. Why?.. If necessary, ECB can pay its debts just issuing new currency... ECB debts are not debts against the ECB itself but rather against the European economy... So, risks accepted by central banks use to be “monetary” risks, affecting the value of the currency. Risk policy

164. .. However, the European monetary sistem is a “mixed” one... Risks taken by national central banks are not “monetary” risks but “fiscal” risks. Their deficits cannot be covered by currency emission. If resources are needed, their respective government should provide them. Risk policy

165. Eurosystem. Loss absorption capacity in European central banks. (billions €) 2013

166. Credit risk in ECB expansionary policies is usually lower than risk in EIB loans. (Usually, through collateralized loans to banks) The point is WHY? CREDIT RISK

167. .. Two main reasons: a) The image / reputation factor It is understood that the reputation of the ECB solvency is key for the reputation of the Euro itself. b) The “risk-sharing” factor.. Monetary risk falls on the entire Eurozone... Fiscal risk may fall on the entire Eurozone or on member states. CREDIT RISK

168. .. The differential in credit risk can be compensated: -Through the differential in interest rates. -Through lower risks in ECB operations not linked to the EIB CREDIT RISK

169. .. On the other hand, if EIB activity is limited to "managing" funding owned by the ECB or the Eurosystem, the risk is borne by the Eurosystem itself, even if the decisions are taken by the EIB... In this case, the EIB could follow the necessary criteria for defining asset quality. Guarantee

170. EIB-EIF. Credit Rating FitchMoody’s Standard & Poor’s Long termAAAAaaAAA Short termF1+P-1A-1+

171. BREAKDOWN OF OBLIGORS 2013 Source: Fitch / EIB. Based on the ultimate obligor If necessary, EIB also knows how to work through banks

172. DEGREE OF PROTECTION IN CREDIT TO BANKS 2013 Source: Fitch EIB also knows how to work with banks in a very secure way:

173. .. Many Eurosystem operations “were” short-term. The 2011-2012 LTRO wasbased on three year maturities. Under the new APP programme the maximum maturity is 30 years... EIB operations are usually for a longer term than the operations of the Eurosystem “were” before the crisis. Looking at the portfolio of funding maturity on 31.12.2013, it is clear that a large proportion of EIB loans mature in over five years. Liquidity risk

175. APP Programme. Bonds average maturity: 8 years Source: ECB / BBVA Research

176. ECB Long term operations, more and more important Source: Nomura / ECB

177. Source: ECB. Consolidated financial statement of the Eurosystem as at Oct 30 th 2015 ECB Long term operations, more and more important

178. .. Management of monetary policy may require an easier asset liquidity for the purposes of restrictive strategies... This would mean: a)Investing in shorter terms or … b)Investing in easy to liquidate assets (securities).. Liquidity standards may be difficult to fit by direct loans to SMEs. Liquidity risk

179. .. For the ECB, this higher liquidity can be reached just buying bonds that EIB or other institutions transform into loans... If necessary, the higher liquidity risk could be compensated through lower liquidity risks in ECB operations not linked to the EIB... Anyway, from the point of view of containing inflation, less liquidity in EIB operations can be clearly compensated by the impact of these investments in growth. Liquidity risk

180. .. Asset Purchase Program: -20% shared risk -80% risk in the national central banks.. Unless a different agreement is achieved, the agreed level of risk sharing should be applied or taken into account. On “risk-sharing”

181. .. For that purpose, member states could also get involved in decisions / risks taken, through different options... A very clear option would be involving public promotional banks or agencies in member states. On “risk-sharing”

182. .. Key interest rates are, by themselves, main tools for expansionary or restrictive monetary policies... In theory, providing lower interest rates for productive investments identified by EIB could be by itself a way to promote a stronger relationship between monetary expansion and industry or real economy. Interest rates

183. .. EIB: close to retail rates... ECB: “key” interest rates. (Or government bonds rates in APP Programme).. So, could it be an opportunity to provide real economy not only with more funds but also with lower rates? Interest rates

184. .. Because of the AAA rating of EIB, ECB key interest rates are not always lower than other alternative funding for EIB... But if the EIB tries to significantly expand its resources, the rates differential would progressively increase. Interest rates

185. .. If necessary, EIB could make use of its balance sheet for ECB funds only in the amount compatible with the AAA qualification (and with cheaper funding), and make use of a separate fund or entity for the rest of the ECB funds. Interest rates

186. THEORETICAL OPTIONS A.Make use of key interest rates B.Make use of rates close to retail market C.Intermediate rates Possible criterion: Starting from key rates, elevate them as necessary to compensate for credit risk. Interest rates

187. .. Another option: The Eurosystem / ECB compensates credit risk of the operations channeled through collaboration with EIB –directly focused to real economy- with higher interest rates in the rest of the operations. Interest rates

188. So:.. there are different ways to make compatible or solve the differences in maturity, liquidity, risk and usual interest rates of EIB and ECB.. if appropriate, new maturity and risk criteria could be established by the EIB-ECB Agreement for the purposes of managing these resources, different from the usual EIB and the usual ECB criteria. Final remarks

189. .. Apart from the considerations before, it looks like, from a macroeconomic point of view, credit focused in real productive economy should be privileged by the Eurosystem, both in accesibility and in interest rates. These criteria should be taken into account when defining the collaboration between EIB and ECB. Final remarks

190. .. It looks like the main legal and technical issues concerning the different options for the structural collaboration between ECB and EIB can be easily solved... The concretions and technical options should be analysed and agreed between ECB and EIB... These positions / criteria will be adapted as the Project goes on, according to the institutional positions and the evolution of the analysis. Final remarks

191. European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank MAIN PROVISIONAL CONCLUSIONS Bratislava Nov 06 2015

192. .. Efficiency of Eurozone monetary policy transmission – its link to real economy- should be improved.. Particularly, making sure that resources get to the real economy and do not stay remained in the financial system, out of the Eurozone or in financial speculation.. Without increasing the overall risk of the Eurosystem, the highest proportion of monetary expansion should finance productive activities, related to sustainable growth. 1. Monetary policy should be more focused

193. .. The involvement of the European Investment Bank (EIB) or other public promotional banks or agencies from the EU or the member states seems to be a good way to improve the efficiency of monetary expansion, its relationship with real economy and with productive activities. 2. Involving the EIB, a good solution

194. .. The collaboration ECB-EIB should increase the efficiency of monetary policy and so, should make possible that better results and impact in real economy are achieved with a lower risk. 3. Better results with fewer resources and lower risk (I)

195. For this purpose: A.ECB and EIB should make an intensive use of the different positions that EIB can take in monetary policy transmission without increasing risks usually taken with banks: -Through loans channeled by EIB to banks -Providing funds to EIB and national promotional banks or agencies in similar ways as they are provided to commercial banks. -Buying EIB and NPBs bonds or accepting them as collateral in similar ways as government bonds are bought or accepted. 3. Better results with fewer resources and lower risk (II)

196. B. ECB and EIB could accept operating through EIB even with a higher risk than in other ECB operations. It could be acceptable taking account of the higher efficiency of these funds from the point of view of monetary policy transmission. This higher risk with funds provided to EIB would be compensated with lower risks directly taken with commercial banks. This way, the overall Eurosystem risk would not increase or would decrease. 3. Better results with fewer resources and lower risk (III)

197. C. The ECB-EIB collaboration could go further. Systematic advice from the EIB could be of the greatest importance for a better focusing of the monetary expansion, even in operations directly related to commercial banks. This advice could be mainly related to the conditionalities to be established when banks receive funds generated in monetary expansion, to ensure that these funds are channeled to real and productive economy. 3. Better results with fewer resources and lower risk (IV)

198. ..Even with a restrictive interpretation of the independence principle of the Eurosystem, the structural collaboration between the Eurosystem and the EIB can be implemented –by free decision of the ECB- through different ways... The ECB-EIB collaboration should be subjected to the monetary policy objectives and, just for this purpose, it should establish a more efficient transmission mechanism between Eurosystem and money supply, stability of prices, real economy and growth. 3. Legal issues can be solved (I)

199. ECB and EIB should work together in exploring the specific characteristic of this collaboration. Some options can be envisaged:.. Transferring resources to the EIB balance: a)Directly: ECB loans to the EIB b)Indirectly: Purchase by the ECB of debt issued by the EIB.. Without transferring resources to the EIB balance: - Setting up a Fund managed by the EIB but under the Eurosystem / ECB ownership - Setting up a fund –or an entity- managed and owned by the EIB - Making use of the EIB expertise through advice, formal reports or delegation in allocation of resources. 3. Legal issues can be solved (II)

200. .. Risk-sharing: Through the involvement of public promotional banks or agencies in member states.. Interest rates: The differential in rates is more an opportunity than a problem.. Liquidity: Through EIB bonds and/or more liquid investments in the rest of monetary expansion operations. 4. Technical issues can be solved (I)

201. .. An adequate framework for a structural collaboration.. It reflects that the collaboration obeys to the free decision of both institutions and so, that their independence is fully respected... There are similar Collaboration Agreements between the EIB and other European institutions... It may be an adequate framework for sharing views, strategic and operational issues and establishing a climate of mutual collaboration. 5.Why not a Collaboration Agreement between ECB and EIB?

202. .. The European Parliament, as representative of the general interest of the European people, and according to its interinstitutional role, should be the adequate body to take the initiative in promoting this kind of mutual collaboration between the ECB and the EIB... In this way, the European Parliament should make sure that the EU institutions adequately develope their main functions both in investment policy and in monetary policy. 6. On the role of the European Parliament

203. .. Of course, as parts of the collaboration we propose, ECB and EIB should play an active role in starting the necessary negotiations to prepare the collaboration agreement. 7. On the role of the European Central Bank (ECB) and the European Investment Bank (EIB)

204. .. In particular, the Board of Governors of the ECB and the Board of Governors of the EIB should take a declarative decision in favor of such an approach. For that aim, a common working group should be created between ECB and EIB so as to clarify the interest and the feasibility of the proposed collaboration and, in other case, to propose alternative measures to improve the efficiency of the transmission of Eurozone monetary policy to the real economy. In particular, EU institutions should guarantee that monetary expansion is adequately committed to real economy, development and growth. 7. On the role of the European Central Bank (ECB) and the European Investment Bank (EIB)

205. Thank you for your attention

206. European Economic and Social Committee EUROPEAN INDUSTRY AND MONETARY POLICY The role of the European Investment Bank (EIB) PRESENTATION OF THE PROJECT Bratislava Nov 06 2015