The United Kingdom is one of the four largest shareholders in the European Investment Bank (EIB) who each provide just over 16% of the EIB’s capital and guarantee that proportion of its global financing. In 2016, the EIB’s overall annual lending was over €76bn.
In the UK, total investment by the EIB and its offshoot the European Investment Fund in 2016 was €8.1 billion. The EIB invests primarily in infrastructure assets and examples of its projects in the UK include the Thames Tideway Tunnel, offshore windfarms, university accommodation and hospitals.
The EIB was established by the Treaty on the Functioning of the European Union: this agreement also states that the EIB’s members are solely the EU member states. Therefore, unless an alternative is negotiated and the laws changed, the United Kingdom will cease to be a shareholder of the EIB once it is no longer a member state. But even when Brexit does occur, withdrawal from the EIB will not be as simple as just ceasing to be a shareholder and cashing out the UK’s share - this would be likely to leave the EIB without enough working capital although it could give a boost to the UK’s own infrastructure spending.
Ongoing liabilities post Brexit
The situation is complex because the durations of many current and pre-Brexit pipeline investments extend past the UK’s withdrawal date. In its recent paper titled “Essential Principles on the Financial Settlement”, the EU’s Brexit task force stated that, although the UK would cease to be a member on withdrawal from the EU, their negotiating position is that the UK’s liability should continue in respect of all guarantees made while it was a member state, decreasing in line with the amortisation of the EIB portfolio (as in place on the withdrawal date). Only once this liability is extinguished will the paid-in capital be reimbursed.
Given the substantial profits of the EIB, the UK may try and negotiate that, in addition to the refund of its capital, accumulated profits should be paid – it has been estimated that the UK’s capital with its share of profits could total approximately €10bn.
How are the UK and EIB preparing?
In his recent Mansion House speech, the Chancellor stated that he is keen that the relationship with the EIB continues after Brexit. However, if the outcome of the negotiations means the EIB funding stops when the UK is no longer a member state of the EU, the Chancellor announced expanded capital funding support for infrastructure investments as follows:
- UK Guarantees Scheme to offer construction guarantees.
- Consideration of other credit enhancement schemes to reduce the financial risks of complex projects (e.g. first loss guarantees).
The EIB has been more quiet about its plans, only stating that it is “very well prepared” and that Brexit would mean “a complicated departure from a very complex institution”.
We await with interest the outcome of the negotiations relating to the EIB.