New Counter Balance report on the European Guarantee Fund
On behalf of Counter Balance, I am delighted to share with you our new report ‘The European Guarantee Fund – the unknown tool of the EU Economic Recovery Package’.
In this report, produced under the “Recovery Watch” project, we have analysed the first year of implementation of the European Guarantee Fund (EGF), the main tool put in place by the European Investment Bank (EIB) Group as part of the EU economic recovery package.
The EGF is a €25 billion fund put together by EU governments in order to mobilise €200 billion for the European economy, particularly for small and medium enterprises. The EIB Group provides massive credit lines, guarantees and other complex financial instruments to commercial banks and investment funds across Europe.
After monitoring the setting up of the EGF and its first year of operation, some lessons can already be learned:
- The whole EGF lacks transparency. From decision-making processes to who the final beneficiaries are, substantial volumes of public money are being approved upon and disbursed in a secretive manner and outside of public scrutiny. This transparency issue reflects broader trends of the EIB Group, whose intermediated operations remain for the most part a mystery.
- The risk is that the EIB Group, with the aim of supporting SMEs across Europe during the COVID-19 pandemic, ends up providing blank cheques to big banks and investment funds with few strings attached. This could happen behind closed doors with minimal transparency.
- There is little information and evidence in the public domain about how this instrument really makes a difference, and if similar results could not have been achieved without the use of public resources. The future will tell if the EGF is a hidden bailout of the financial sector, or if it creates breathing space for small enterprises across Europe.
- Under the EGF, the EIB Group supports risky financial engineering, such as the use of asset-based securities. It is noticeable that the use of questionable financial engineering has been rolled-out without a real public debate taking place, and with limited publicity. The use of techniques that have been part of the causes of the previous financial crisis to solve the new one should certainly be further discussed by democratically elected representatives.
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We wish you a pleasant reading, and of course remain available in case you have any comments or questions.