EU challenges, investment in the EU and the role of the European Investment Group

Since the financial crisis, Europe has made tremendous progress. Countries have adjusted macroeconomic policies and implemented structural reforms, while economic policy co-ordination has been strengthened. A modest economic recovery is underway, but uncertainty is high and productivity growth and competitiveness are still weak, affecting the medium-term growth outlook. Following the recession triggered by the sovereign debt crisis, the recovery began in most EU member states in early 2013. It started as an export-driven upswing but has been increasingly supported by domestic demand, particularly consumption. Growth of domestic demand has been sustained by falling oil prices and overall inflation, as well as by a very accommodating monetary policy and the phasing-out of fiscal retrenchment. Against this backdrop, and when compared with past recoveries, this rally is disappointing. It also appears vulnerable given the downside risks and limited policy space. While monetary policy is close to the limits of what it can achieve, consensus on a more active fiscal policy is still lacking. Indeed, on the political front, Europe stands at something of a crossroads, facing growing social, economic and political challenges. Efforts are now focused on pragmatically advancing on key common priorities. The urgency and ambition with which this cooperation proceeds will be critical to success

Foreign Direct Investment in the Banking Sector: A Transitional Economy Perspective

In this paper we use new statistics on Foreign Direct Investments (FDI) in Transitional Economies (TEs) to analyze the issue of foreign ownership in the banking sector, examining the implications for the host banking sector. After considering the potential benefits and risks associated with foreign investment on the banking sector, and on the basis of some empirical results, we reach the conclusion that foreign direct investment is associated with higher profitability; however a substantial foreign ownership is necessary if there is to be a positive effect on cost efficiency. We also analyze the determinants of FDI location choices in TEs providing new empirical evidence, and distinguishing among different levels of foreign partnership.FDI, banking sector, transitional economies.

Properly pricing country risk: a model for pricing long-term fundamental risk applied to central and eastern European countries

The private sector has used proxies such as sovereign credit ratings, spreads on sovereign bonds and spreads on sovereign credit default swaps (CDS) to gauge country risk, even though these measures are pricing the risk of default of government bonds, which is different from the risks facing private participants in cross-border financing. Under normal market conditions, the CDS spreads are a very useful source of information on country risk. However, the recent crisis has shown that the CDS spreads might lead to some underpricing or overpricing of fundamentals in the case of excessively low or excessively high risk aversion. In this paper we develop an alternative measure of country risk that extracts the volatile, short-term market sentiment component from the sover eign CDS spread in order to improve its reliability in periods of market distress. We show that adverse market sentiment was a key driver of the sharp increase in sovereign CDS spreads of central and eastern European (CEE) countries during the most severe phase of the crisis. We also show that our measure of country risk sheds some light on the observed stability of cross-border bank flows to CEE banks during the crisis.country risk, credit default swaps, credit ratings, cross-border flows, financial crisis, central and eastern Europe, foreign-owned banks

EIB Working Papers 2019/02 - How energy audits promote SMEs’ energy efficiency investment (Volume 2019/2)

Energy audits play an important role in promoting energy-efficiency measures in SMEs. This paper uses EIB Investment Survey data about energy audits and energy-efficiency investments of some 12,500 signatures from EU28 Member States per year. It suggests that: Energy audits are a useful tool for overcoming the information barriers and facilitating investments in energy-efficiency measures They are more important for small firms and for investments in things such as such as lighting, wall insulation etc. than in production processes such as the replacement of machinery and equipment The beneficial impact of energy audits ceases to exist, however, when firms are finance constrained Information campaigns are one of the most efficient available instruments among other instruments (regulatory, financial and voluntary agreements) for promoting energy audits in SMEs

Corporate Governance in Central and Eastern Europe: Transition management is a tough job

1) Financing Firms in East European Countries: An Asymmetric Information and Agency Costs Approach, by Debora Revoltella 2) Seven Years of Financial Market Reform in Central Europe, by Peter H. Haiss and Gerhard Fink

Infrastructure investment in Europe and international competitiveness

Infrastructure investment in Europe has been adversely affected by the economic crisis, undermining both the immediate recovery and longer-term growth potential. This paper discusses recent trends before focusing on how transport infrastructure - arguably the hardest hit sector during the crisis - contributes to regional growth. It shows that firms in regions with a more developed transport network are better placed to benefit from positive growth opportunities than firms in other regions. This advantage is most pronounced in times of economic stress, making a good transport infrastructure a key ingredient for economic recovery. This indicates one channel through which the activities of the EIB can foster growth and enhance competitiveness in Europe

How policymakers can support EU cohesion in the post-pandemic environment

Support for economic, social, and territorial cohesion has been at the heart of the EU since its inception. However, the Covid-19 pandemic risks deepening inequalities between citizens and territories across the EU. Patricia Wruuck, Julie Delanote, Peter McGoldrick, Emily Sinnott and Debora Revoltella use a unique combination of survey data from businesses and municipalities to identify investment needs and gaps across EU regions. They suggest that a combination of finance, capacity support for project planning, and the implementation and lowering of investment barriers will be key to helping regions catch up following the pandemic

EIB Working Paper 2022/01

During the COVID-19 crisis, the European corporate ecosystem avoided major disruptions, and corporate bankruptcy rates even declined. This outcome mostly resulted from the strength of support from monetary, financial supervisory and fiscal policies. Using the 2021 vintage of the EIB Investment Survey (EIBIS) matched with balance sheet data on firms' profits and losses, this paper investigates what has driven the allocation of fiscal policy support and the impact of this support during the investment recovery. It finds that support was largely directed towards firms that were most affected by the crisis in terms of lost sales, and was not tilted firms already weak before the crisis. It also shows that the firms that benefitted from this support tend to be more optimistic in their investment plans, especially with regard to digital technologies

The Future of Banking in CESEE after the Financial Crisis

On 23 June 2010, the Magyar Nemzeti Bank and SUERF jointly organised a conference on "The Future of Banking in CESEE after the Financial Crisis", incorporating the SUERF Annual Lecture, delivered by Manfred Schepers, Vice President, Finance at the European Bank for Reconstruction and Development, on "The role of domestic financial markets in an integrated Europe". This SUERF Study compiles selected papers presented at this conference. To capture a full picture of the information and views collected at the conference, the introduction also summarises findings from presentations given orally at the conference only