1. Introduction: background and general overview
1. The Council of Europe Development Bank (“the CEB”
or “the Bank”) is the oldest development bank in Europe. It was
set up in 1956 by the Council of Europe’s Committee of Ministers
as a partial agreement to assist the resettlement of refugees and
displaced persons in post-war western Europe. Originally called
“the Resettlement Fund”, it was later renamed “the Council of Europe
Social Development Fund” and, since 1999, the “Council of Europe
Development Bank”. The CEB now has 40 member states
and
is increasingly engaged in new areas of activity.
Eight Council
of Europe member states – Andorra, Armenia, Austria, Azerbaijan, Monaco,
the Russian Federation, Ukraine and the United Kingdom – are not
(yet) members of the Bank.
2. The Parliamentary Assembly has followed the Bank’s activities
since the beginning: first through its Committee on Migration, Refugees
and Population, and, since 2000, mainly through its Committee on Economic
Affairs and Development. In this context, the rapporteur recalls
the importance of the Assembly’s oversight of several international
organisations that do not have a parliamentary branch (such as the Organisation
for Economic Co-operation and Development (OECD) and the European
Bank for Reconstruction and Development (EBRD)) through regular
debates on their activities and future orientations. As the action
of the CEB and the Council of Europe is complementary, this relationship
could and should be further enhanced, for example with regard to
the identification and preparation of projects.
3. With the financial crisis lingering around the world, the
role of international financial institutions and multilateral development
banks – such as the CEB – has come to the fore, not least because
of their potential to cushion the negative social impact of the
crisis that has seriously disrupted the development of the less mature
European economies and has made their borrowing very onerous. The
first semester of 2010 has also seen a significant degradation of
the economic situation and credit ratings of several eurozone states
that are important clients of the CEB.
4. Moreover, as the CEB is undergoing a major strategic review,
the Assembly must contribute its views on the shaping of the Bank’s
future.
5. This report will review the Bank’s work over the period 2007-2009,
follow-up given to earlier recommendations of the Assembly, the
reform proposals made by the Committee of Eminent Persons, challenges
for the CEB’s future work and the Bank’s co-operation with partner
institutions. Other Assembly committees may wish, in due course,
to submit their views on the Bank’s activities in favour of migration,
social cohesion, environmental and education-related projects.
6. For the purposes of this report, the rapporteur held meetings
with the representatives of the Bank (Acting Chairperson and selected
members of the Governing Board, the Chairperson of the Administrative
Council, the Governor and two of the three Vice-Governors, as well
as several directors), the Secretariat of the Partial Agreement
on the CEB and some ambassadors of the Council of Europe member
states that are not members of the Bank. The rapporteur is most
grateful to all these people for the information and assistance
they provided in the preparation of this report.
2. The Bank’s mission, resources and functioning
Mission and main areas of activity
7. As a multilateral development bank with a social
vocation, the CEB has a remit to finance social development and
reconstruction projects in favour of disadvantaged populations and
regions. In practice, this means that the Bank chooses to invest
in projects that promote social cohesion and human development,
help to deal with the consequences of migration, support environment-friendly
growth and participate in reconstruction after natural disasters
or help to prevent them. Following a call contained in the Action
Plan of the 3rd Council of Europe Summit (Warsaw, May 2005), the
Bank undertook to widen its mission by explicitly embracing policies
aimed at strengthening democracy, human rights and the rule of law
through projects in the field of judicial and civil services and
infrastructure.
8. The CEB-supported projects cover various fields. They range
from education, vocational training, public health, social housing,
job creation and conservation (especially in small and medium-sized
enterprises), to urban and rural development, environmental protection,
heritage conservation and prison infrastructure. All projects approved
are aimed at the improvement of living standards of the vulnerable
segments of the population in the Bank’s member states, with an
increasing focus on central and south-eastern Europe – the so-called
“target countries”. With 12 out of 21 target countries having direct
access to the European Union’s financing instruments, the CEB has
even more reason to co-operate with the European Union on the co-financing
of development projects in these countries and to shift more of
its own funding to non-European Union countries.
Resources
9. Maintaining a good balance between sound banking
and social purpose is essential for the CEB in order to provide
“good value for money” loans for socially oriented projects. The
Bank receives no annual contributions from its member states and
lends from its own resources (namely, paid-up capital, reserves
and profits) and funds raised on financial markets, in particular
in East and South-East Asian countries. The Bank currently owns
€4.75 billion of assets (equity).
The
last formal capital increase was in 1999. As agreed under the Bank’s
Development Plan for 2010-2014, discussions are under way on the
next capital increase. In addition, the CEB’s financial basis is
strengthened by the accumulation of reserves from annual profits (between
€75 and €100 million per year) and occasionally the subscriptions
of capital by new members such as Georgia and Montenegro, when they
joined the Bank in 2007, and its target group of countries.
10. Despite the prolonged turbulence in financial markets and
economic recession affecting many of its member states, the CEB
has managed to preserve its top credit rating, “AAA”, with Standard
& Poor’s, Fitch Ratings and Moody’s, which allows the Bank to
obtain resources at minimal cost for further lending to its clients. The
Bank’s prudential ratios somewhat deteriorated recently, but they
remain within acceptable limits. Net profits have increased over
recent years (€93.3 million in 2007, €95.8 million in 2008 and €107
million in 2009 – see tables in the appendix), with generally steady
net banking income, moderate increases in operating expenses and
relatively low releases from provisions.
Functioning and management
11. The Bank issues long-term loans to its members, local
or regional authorities and financial institutions (public or private),
but not to private persons or enterprises. The loan approval process
takes into account a set of specific criteria from a sectorial,
geographic and social point of view. Moreover, all requests for
project financing must be endorsed
by
the national authorities of the country concerned and be supported
by sufficient guarantees.
They
have to be submitted via the Secretary General of the Council of
Europe who assesses the political and social contents. The Bank
may assist its clients in the preparation of projects.
12. The terms of lending are based on the Bank’s cost of funds
and fixed or variable rates. In reality, the CEB can offer advantageous
“AAA” conditions (comparable to the London Inter-Bank Offer Rate
or “LIBOR”) with a small margin that can be further lowered under
certain conditions through an interest rate subsidy facility called the
Selective Trust Account (see description below). Loans may extend
to fifteen years and might include a grace period of up to five
years. At present, the Bank is two to four times more competitive
in terms of margins on the cost of funds (on average 0.2%-0.25%)
than similar institutions – such as the World Bank and the EBRD –
that provide loans with margins of, respectively, 0.57% and 1%.
13. After scrutiny from the financial and technical angles by
the Bank’s staff, loan applications are examined by the Bank’s Administrative
Council and by the Secretary General of the Council of Europe. The
latter submits an opinion on the political admissibility of project
applications on the basis of information supplied by the Bank’s staff.
The CEB can finance up to 50% of the project cost and up to 90%
in the countries of central and South-Eastern Europe and in priority
fields of action. Projects selected must be subject to tenders in
accordance with the relevant regulations.
14. As was mentioned above, the CEB mainly issues loans, but it
can – exceptionally – grant interest rate subsidies and donations
through the Selective Trust Account for high priority projects or
in response to financing needs in case of emergency situations in
eligible countries. As of November 2009, these countries are Albania,
Bosnia and Herzegovina, Georgia, Moldova, “the former Yugoslav Republic
of Macedonia”, Croatia, Poland, Lithuania, Latvia, Turkey, Romania,
Bulgaria, Serbia and Montenegro. The Selective Trust Account is
replenished with allocations from the Bank’s profits and voluntary
contributions.
15. Since 2003, the Bank also administers the Norway Trust Account
(endowed with €3 million) which usefully supplements the CEB’s technical
assistance activities in favour of the western Balkan countries (Albania,
Bosnia and Herzegovina, Croatia, Montenegro, Serbia and “the former
Yugoslav Republic of Macedonia”). Some 34 initiatives were supported
and €2.8 million were disbursed by the end of 2009. In 2008, the
CEB, the Council of Europe and the Norwegian authorities created
a Human Rights Trust Fund of €2 million in support of activities
meant to strengthen the rule of law and human rights protection
through technical assistance to prepare projects relating to infrastructure
of administrative and judicial public services. Moreover, in September
2009, Spain and the CEB set up a Spanish Social Cohesion Account,
endowed with €2 million, which will finance technical assistance
conducive to CEB projects in central and South-East European countries.
16. The CEB’s management structure consists of the Governing Board,
with an elected Chairperson and representatives of the Bank’s member
states (mostly ambassadors to the Council of Europe), the Administrative
Council, chaired by Mr Rainer Steckhan and comprising one representative
per member state (in most cases from a national ministry of finance
or a central bank), the Governor, Mr Raphaël Alomar, assisted by
three Vice-Governors, and the Auditing Board with three members
that are chosen from among the member states. The Administrative
Council sets up and delegates some decision-making powers to a subordinate
body – the Executive Committee of 13 members. Currently, this Executive
Committee is subject to discussion and may be abolished.
17. This management structure has been in place since 1994 (when
the Bank had 20 member states), after irregularities in the operation
of the Bank were revealed by an internal audit. Further to the auditors’ recommendations
and with the consent of the Council of Europe Committee of Ministers,
the revised Articles of Agreement better defined the responsibilities
and powers of the Bank’s organs, strengthened voting procedures
and top management oversight, established the Executive Committee
within the Administrative Council, limited the term of office of
the Chairperson of the Governing Board, created the posts of Vice-Governor;
made the Governor the legal representative of the Bank and extended
his term of office to five years (renewable), formalised the relationship
with the Council of Europe, etc. This essential reform opened a
new era for the Bank ahead of the major enlargement in its membership
with the accession of states from central and eastern Europe.
18. The decision-making process is very complex. It is mainly
based on a consensus or, if necessary, on a voting system that entitles
every member on the Governing Board and the Administrative Council
to one vote for each participating certificate held by their countries
(the number of certificates held depends on a member state’s share
in the Bank’s subscribed capital). Decisions are, for instance,
adopted by a majority of the members voting and holding two thirds
of the votes cast (so-called “double majority” voting) in the Governing Board
and by a simple majority in the Administrative Council, depending
on the subject matter. In some cases, a majority of three quarters
is required in the Governing Board and a double majority
is necessary in the Administrative
Council.
19. Council of Europe staff (10 people) provide the secretariat
of this partial agreement in Strasbourg. In addition, 154 permanent
staff members from 26 countries work in Paris for the Bank’s administration
under the authority of the Governor. We should note continued efforts
to diversify staff from the nationality point of view, even if still
a big proportion of staff members working in Paris are French (41%
in November 2009). Although it is attached to the Council of Europe
and subject to its supreme authority, the Bank enjoys full operational autonomy
in decision making and management. This dual structure means that
the Council of Europe is the CEB’s owner, but the Bank’s day-to-day
running is essentially in the hands of its executive and administrative organs.
20. Pursuant to the decisions of the CEB Governing Board in June
2009, it was proposed that some “technical” secretarial functions
of the partial agreement based in Strasbourg be transferred to the
CEB services in Paris, thus generating budgetary savings of some
€717 700. However, the practical aspects of implementing this proposal
are not quite clear as a large number of member states have expressed
strong reservations about the interpretation of Governing Board
and Administrative Council decisions relating to this matter. Your
rapporteur understands the wish to rationalise the budgetary side
of the functioning of the partial agreement, but also shares the
concern that the secretariat in Strasbourg should be sufficient
in size to preserve – and even strengthen – the relationship between
the Council of Europe and the Bank.
3. The Bank’s activities in 2007-2009
21. Over the last three years, the CEB has been working
in a very unstable and worsening economic climate. The first signs
of trouble became apparent early in 2007 as imploding sub-prime
loans started intoxicating financial markets in the United States,
with spill-over effects rippling towards Europe. In the autumn of
2008, the financial storm began crippling European economies. The
unfavourable economic outlook brought lending to record lows and
public finances had to shift more or less significant funds to finance
rescue packages.
22. Many of the central and eastern European countries have had
to face the consequences of net capital outflows, sinking credit
ratings, deteriorating economic performance and social conditions,
as well as hurdles in mobilising financial resources. As a result,
the needs of 21 countries of the CEB’s target group (Albania, Bosnia
and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia,
Georgia, Hungary, Latvia, Lithuania, Malta, Moldova, Montenegro,
Poland, Slovak Republic, Romania, Serbia, Slovenia, “the former Yugoslav
Republic of Macedonia” and Turkey) rose dramatically, whilst borrowing
opportunities diminished or became more costly.
23. It is reassuring that the CEB’s lending was only mildly affected
and, by the end of 2009, only one CEB borrower from Iceland defaulted
on its payments. If the volume of commitments (projects approved)
shrank over 20% between 2006 and 2008, the level of disbursements
remained stable (around €1.5 billion per year) and even grew in
respect of target countries (up by 58% in 2008 alone). At the same
time, funds employed in projects totalled €12.2 billion at the end
of 2009, which is nearly the highest level since the Bank’s creation
(see tables in the appendix). Considering that the bank financed
on average 40% per project, the total funds mobilised in social
investment reached €30 billion through the so-called multiplier
effect of the Bank’s effort.
24. The target group of countries
was
the greatest beneficiary, receiving 70% of funds allocated by the CEB
in 2008. Overall, from 2005 to 2009, the Bank’s activities in these
countries represented 58% of disbursements and 60% of projects approved
– well ahead of the expectations laid out in the CEB’s Development
Plan for 2005-2009, notably as regards the redeployment of activity
in favour of target countries. We hope that this trend will continue,
although risk management from 2009 onwards has become more complex
as some of the Bank’s member states have seen their credit rating
decline.
25. As early as 2004, the CEB was the first international financial
institution to implement new prudential standards in line with the
Basel Committee recommendations (Basel II) on measuring solvency,
strengthening the liquidity level and building capacity through
improved risk control. This, no doubt, well equipped the CEB for
hard times. However, it is now likely that the banking regulations
will be tightened even further as regards capital-versus-loans ratios.
26. In 2007, the CEB approved 37 new projects worth €2.4 billion.
About a third of all financing (€810 million) was earmarked for
projects relating to the protection of the environment, the rehabilitation
of damaged infrastructures and improvements in living conditions,
especially energy saving and efficiency measures. Turkey, Iceland
and Hungary were the largest beneficiaries of this funding. Social
housing projects in Denmark, Spain, Finland, France, Hungary, Italy,
Serbia and Poland attracted nearly a quarter of all commitments
(€662 million), with yet additional funds (€154 million) benefiting
rural and urban modernisation activities, essentially in central
Europe. Support for job creation and preservation concerned another
largest expenditure item totalling €401 million, with micro, small
and medium-sized enterprises in the CEB’s target group countries
being the main recipients.
27. In 2008, the Bank committed itself to supporting 39 projects
for a total of €1.86 billion and gave €1.73 million in donations
(to Bosnia and Herzegovina, Georgia, Moldova and Serbia) in partnership
with the United Nations agencies. Some 27 of these projects – worth
€1.2 billion or 65% of the total commitments – were approved for
target group countries. Overall, social cohesion projects reaped
two thirds of the funds committed (€1.2 billion), with the largest
share going to employment supporting activities (€901 million) and
rural-urban infrastructures (€245 million). Two other lines of action
earmarked just over €300 million each for environmental projects
and human development activities. Importantly, the level of disbursements
for the year came close to the level of new commitments, thus narrowing
the gap seen a number of years before.
28. We shall note that in the wake of its blitz war with Russia
in August 2008, Georgia received €1 million from the CEB in immediate
humanitarian relief and further donations followed (€173 000) in
early 2009. The Bank has since been considering a larger scale of
commitments with a view to reconstruction works together with other
international donors, but no project has since been approved in
respect of Georgia.
29. Throughout 2009, the Bank faced a steep growth in demand for
project financing. The volume of projects approved thus reached
some €2.7 billion (43% more than in 2008 and 17% more than the average
of totals for the period 2005-2008). Disbursements followed the
trend (€1.8 billion – up by 20% on the previous year) and the share
of the target countries in total disbursements for 2009 reached
record heights at 77%. Half of the projects approved and loans disbursed
were in the domain of social cohesion (especially social housing
and rural/urban modernisation) and over one third of projects approved
concerned the development of human capital, in particular through
education and vocational training. Poland, Portugal, Turkey and
Spain were the greatest beneficiaries of the Bank’s action in terms
of projects approved. Hungary, Poland and Romania were the top beneficiaries
in terms of loans disbursed.
30. Overall, the Bank’s activities under the 2005-2009 Development
Plan were in line with the objectives set and show a steady increase
in financing for the target countries, average annual disbursements
at about €1.6 billion and a generally balanced breakdown of funding
between the Bank’s sectoral lines of action. At the same time, the
Bank strengthened its prudential framework to limit any risk of
default on repayments (by introducing a capital adequacy ratio)
and to reduce its exposure to the highest risks (such as below investment
grade loans). Your rapporteur hopes that these measures will not
have a negative effect on the Bank’s objective of shifting even
more resources to the neediest target countries in the future and
increasing the added value of projects.
31. Following a call contained in the Action Plan of the 3rd Council
of Europe Summit, the Bank undertook to widen its mission by explicitly
embracing policies aimed at the strengthening of democracy, human
rights and the rule of law through projects in the field of judicial
and civil services and infrastructure. The Warsaw Summit guidelines
were incorporated into the Loan Policy approved by the collegial
bodies during the joint meeting of June 2006. Moreover, this undertaking
was explicitly reaffirmed in 2009 when the Loan Policy underwent
operational adaptations as part of the strategic review. However,
only a small number of projects have been approved in this sub-sector
to date, due to the technical complexity of these projects and the difficulty
in securing (co-)financing.
4. The strategic review of the Bank’s role
32. The strategic review of the Bank’s activities was
launched in 2007 with the aim of improving the CEB’s governance
and performance in order to meet the high – and growing – expectations
of its member states. The Committee of Eminent Persons – consisting
of Enrique Iglesias (Secretary General of the Ibero-American Co-operation
and former President of the Inter-American Development Bank (IDB)),
Jón Sigurdsson (Chairperson of the Board of the Financial Supervisory
Authority of Iceland and former President of the Nordic Investment Bank
(NIB)), and Special Adviser Jacques de Larosière (former President
of the European Bank for Reconstruction and Development (EBRD) and
former Managing Director of the International Monetary Fund (IMF))
– submitted its report in October 2008. In addition, the committee’s
work drew on the advice of two consultants in the field of financial
risk and operational performance analysis. Consultations were held
with the members of the Governing Board and the Administrative Council
on two occasions. The committee also met Terry Davis, then Secretary
General of the Council of Europe, Rainer Steckhan, Chairperson of
the CEB Administrative Council, and Lars Kolte, then Chairperson
of the CEB Governing Board.
33. The report entitled “CEB strategic review – Contributing to
a socially cohesive and sustainable Europe in the 21st century”
presents a study on CEB development since its creation and makes
recommendations for its future activities in the form of a medium-
to longer-term strategy. Whilst the economic hardship caused by the
global financial crisis has accentuated the need for more social
investment, it has also triggered a general reflection on ways to
improve the regulation of the banking sector. As far as the CEB
is concerned, the report proposes several directions for action
in the context of a changing working environment. They concern the Bank’s
mandate, relations with the Council of Europe, the financial framework,
relations with other financial institutions and international organisations,
operational performance and governance.
34. Regarding the CEB’s mandate, the report proposes to focus
on four core areas, notably (1) promoting social cohesion and inclusive
economic growth; (2) supporting environmentally sound investment
in infrastructure and projects helping to prevent or deal with the
effects of natural disasters; (3) assisting the development of human
capital through projects for health care and education sectors (including
in disadvantaged areas); (4) strengthening democracy, human rights
and the rule of law through investment in judicial and civil service
training institutions and judicial infrastructure.
35. Relations with the Council of Europe are deemed to be at the
core of the Bank’s identity. In this respect, the Strategic Review
recommends the clarification of roles of the CEB’s owners and the
executive-administrative bodies in terms of responsibility and accountability.
Greater ministerial participation in the Bank’s work should be encouraged
as a means of promoting the visibility of its action, priorities
and values. The CEB and the Council of Europe could intensify efforts
to identify “bankable” pilot projects and to make savings in streamlining
the “interface” secretariat functions. Moreover, the Bank’s Governor
is urged to hold meetings once a year with the Committee of Ministers,
the Parliamentary Assembly and the Secretary General of the Council
of Europe to inform them about the Bank’s action.
36. Concerning the financial framework, the report sees a limited
scope for increased lending to the target countries in the near
future without a capital increase and without threatening the Bank’s
AAA rating. The CEB’s cautious approach to credit risk management
could further be improved with a more explicit assessment of all
types of financial and operational risk using the best practices
of its peers.
37. In its relations with other financial institutions and international
organisations, the CEB is invited to further seek the complementary
action and closer co-ordination with European institutions, such
as the European Union, European Investment Bank (EIB), EBRD and
NIB, in particular under joint programmes and projects for the benefit
of the target countries. The CEB’s co-operation with other international
partners should emphasise operations for addressing the causes and
consequences of international migration.
38. The Eminent Person’s report attaches special importance to
the measurement of the value-added and the development impact of
the Bank’s action. It therefore underscores the importance of permanent
dialogue and strategy work with the Bank’s clients, including, where
appropriate, a local presence – even if such an approach may generate
extra operational costs. A combination of thematic specialisation,
new lending instruments, technical assistance and institutional
learning should guide the quest for excellence, enhanced efficiency
and lasting results.
39. Concerning the governance aspect, the report notes that the
current structure and distribution of functions at the CEB differ
considerably from the generally accepted governance arrangements
of other multilateral development banks. Significant institutional
improvements are thus called for to clarify the functions and responsibilities
of the Bank’s supervisory, executive and management bodies. As part
of the streamlining process, it is proposed to involve ministers
in the annual meetings of the Governing Board, raise the requirements
for the political profile of candidates to the position of Chairperson
of the Governing Board, establish a Board of Directors with reduced
yet balanced membership and eliminate dual representation on governing
and executive bodies.
40. A series of recommendations have also been made in the Strategic
Review proposing to enhance – both externally and internally – the
functions of the Governor by making him/her the highest official
representative of the Bank (“the President”), with all other officials
becoming accountable to him/her.
41. Further to the presentation of the Eminent Persons’ report,
in November 2008, the CEB’s Governing Board instructed the Governor
to prepare a plan of action with a view to implementing the recommendations and
putting in place the accompanying measures. This process runs in
parallel with the shaping of the Bank’s development plan for the
coming five years. Thus, the Development Plan for 2010-14 was finalised
and approved in November 2009. Together, these two documents form
a sort of road map for the Bank’s future.
42. The CEB’s Development Plan for the period 2010-2014 builds
on the results of earlier years and counts on a fragile economic
recovery in Europe, accompanied by higher unemployment and greater
social needs, especially in central and South-Eastern European countries.
Three long-term trends – population ageing, higher cost of energy
and increasing financial needs of local authorities – are expected
to affect all CEB client countries. The Bank therefore plans to
increase its lending volume by 15%, further enhance support to the target
group of countries so that the loans outstanding for this group
would represent 60% of the total by 2014, boost lending to social
infrastructure projects and strengthen co-operation with the European
Union and donor countries on project implementation. These objectives
might further be revised if a capital increase is decided in 2010.
43. Just as the rapporteur started his work on this report, he
learned of the sudden resignation of the Chairperson of the Governing
Board, Mr Lars Kolte, at the Governing Board’s meeting on 27 November
2009. Mr Kolte’s resignation letter was very critical of the recent
developments in the strategic direction of the Bank and the effective
distribution of influence between the Governing Board and the Governor.
It drew attention to the mismatch between “the size of the portfolio,
driven by some high quality borrowers”, and the need to focus more
on the neediest countries in order to enhance the “quality of the
lending purpose”. Mr Kolte also suggested that the CEB should be
more visible “not only to the borrowers but to the public of Europe
which in effect constitutes the shareholders”, “co-operation with
like-minded institutions operating in Europe should be greatly enhanced”
and efforts should be made to overcome “a control and dominance
culture” at the Bank.
44. The rapporteur was able to discuss some points raised directly
with Mr Kolte. He understands that the criticism expressed was aimed
at stimulating discussion on how the Bank could enhance the quality
and impact of its work and live up to Council of Europe member states’
expectations, especially in these economically challenging times.
45. During his fact-finding visit to the CEB’s services in Paris,
the rapporteur received several technical files from the Governor
in response to the criticism expressed in Mr Kolte’s letter. These
documents underscore the management’s commitment to implementing
the Governing Board and the Administrative Council’s guidelines and
decisions, notably as regards the development and the reorientation
of the CEB’s activity. The files point to the continuity of the
Bank’s action to boost support for the target group of countries
with a view to reaching 60% of total disbursements over the period
2010-2014, a “vital role [of projects in western Europe] in the balancing
of risks on the loan portfolio”, numerous co-operation agreements
with the international institutions, an accelerated calendar for
adopting reform proposals and an emphasis on “targeted” communication,
given the limited means available. Admittedly, there were disagreements
between Mr Kolte and the management over the dynamics and, to some
extent, the direction of the changes regarding the Bank’s future
orientations, portfolio structure and institutional set-up, but
in any case the policies decided by the Governing Board and the Administrative
Council were nevertheless implemented by the management under the
supervision of the collegial bodies.
46. The CEB has never refused to support eligible projects, but
more could be done to technically assist potential borrowers in
poorer and newer member states. More resources for technical assistance
could be directed towards these countries and could be made available
in general if the member states decided to increase the Bank’s capital.
It is true that the CEB’s website has been modernised and continuously
enriched and signs posted on project sites. However, there is much
room for improvement, such as by publishing basic information on
the Bank’s “mission, projects and operating principles for the attention
of the general public in the languages of the target group of countries”,
which was proposed in Parliamentary Assembly
Recommendation 1818 (2007), and
in reviewing the attitude that “the Bank’s shareholders are the
member states, not public opinion”, which runs counter to the aim
of enhanced transparency and accountability vis-à-vis European taxpayers.
47. The rapporteur appreciates the opportunity to have been able
to take part in the Joint Meeting of the CEB’s Governing Board and
Administrative Council in Rome (Vatican) on 11 June 2010. He noted
significant difficulties in the dialogue between the Administrative
Council and the Governing Board towards reaching an agreement on
how to implement the reform of the CEB’s governance, means of action
and strategic orientation further to the recommendations made by
the Committee of Eminent Persons in the CEB Strategic Review report.
Moreover, there is also a continuing deadlock over the election
of the Chairperson of the Governing Board, which is likely to persist
over the coming months. This testifies to the urgent need to improve
the process of decision making at the Bank.
5. Follow-up to earlier Parliamentary Assembly texts
48. Various Assembly texts were referred to the CEB over
the period 2007-2009. They concern:
Comments on the CEB’s work:
- Recommendation 1818 (2007) on the
activities and orientations of the Council of Europe Development Bank,
on the basis of a report by the Committee on Economic Affairs and
Development (Doc. 11306), and
opinion presented by the Committee on Migration, Refugees and Population
(Doc. 11358).
See also the reply by the Committee of Ministers (Doc. 11622).
The situation of migrants, internally displaced persons
and refugees:
- Recommendation 1802 (2007) on the
situation of long-standing refugees and displaced persons in South-Eastern
Europe: the Assembly calls on the CEB to step up its co-operation
with the countries in the region with a view to financing more projects
regarding refugees and IDPs through loans, the Selective Trust Account
funding and specific grants in co-operation with the UNHCR.
- Recommendation
1806 (2007) on the activities of the International Organization
for Migration (IOM): the Assembly urges the CEB to study the possibility
of co-funding feasibility studies (trust funds) and joint projects
with the IOM, in particular in order to ease irregular migration
pressures through job-creating projects, including by the use of
micro-credit schemes.
- Resolution
1633 (2008), Resolution
1648 (2009) and Resolution
1664 (2009) on the consequences of the war between Georgia
and Russia: the Assembly invites the CEB to consider action with
a view to assisting refugees and displaced persons, as well as contributing
to reconstruction in the areas affected, including South Ossetia
and Abkhazia.
- Resolution
1637 (2008) on Europe’s boat people: mixed migration
flows by sea into southern Europe: the Assembly calls on Mediterranean
member states of the Council of Europe to make full use of the opportunity
for loans from the CEB for creating the necessary permanent reception
structures for receiving irregular migrants, asylum seekers and
refugees.
- Recommendation
1862 (2009) on environmentally induced migration and
displacement: the Assembly invites the Committee of Ministers to
give priority to the actions of the CEB that contribute to protecting and
improving the environment, especially projects in response to urgent
needs and to sustainable preventive action on environmental deterioration
with a long-term perspective.
- Recommendation
1877 (2009) on Europe’s forgotten people: protecting
the human rights of long-term displaced persons: the Assembly calls
on the CEB to step up its co-operation with the member states concerned
with a view to financing more projects regarding returning refugees
and internally displaced persons.
Relations with the Council of Europe:
- Recommendation 1812 (2007) on the
political dimension of the Council of Europe budget: the Assembly urges
the Committee of Ministers, in its composition confined to the member
states of the CEB, to amend the Articles of Agreement of the CEB
so as to allow it to make financial contributions to programmes
of activities in the Bank’s fields of action corresponding to the
priorities defined at the Warsaw Summit and to provide for the possibility
of the CEB granting the Council of Europe loans on advantageous
terms for certain investment expenses.
- The Ministers’ Deputies replied (Doc. 11689) by referring to comments
from the CEB’s Governing Board where the Bank explained its work
by underscoring efforts to finance “the development of social projects identified
… by the Council of Europe, without the borrower being the Council
of Europe itself”. It also drew attention to the creation, in partnership
with the Council of Europe, of a Human Rights Trust Fund sponsored
by the Norwegian Government and the exceptional nature of making
a staff member available to the Office of the Commissioner for Human
Rights.
- Reply from the Committee of Ministers to Recommendation 1764 (2006) on
the implementation of judgments of the European Court of Human Rights
(Doc. 11230):
the Ministers’ Deputies feel that “the idea of using the Council
of Europe Development Bank (CEB) in order to facilitate, through
its own means of action, the implementation of the Court’s judgments
revealing important systemic problems also deserves careful consideration”.
Economic co-operation and development:
- Recommendation 1810 (2007) on honouring
of obligations and commitments by Moldova: the Assembly invited
the Committee of Ministers, the member states of the Council of
Europe and the CEB to actively co-operate within the framework of
the European Neighbourhood Policy of the European Union, and to support
further economic and social reform in Moldova.
- Doc. 11215 (report
on the state of human rights and democracy in Europe) makes reference
to the CEB’s social housing programmes and Doc. 11432 (report on gender equality
principles in the Parliamentary Assembly) makes reference to gender
balance issues in various institutions, including the CEB;
- Resolution
1672 (2009) on the activities of the European Bank for
Reconstruction and Development (EBRD) in 2008: reinforcing economic
and democratic stability: the Assembly urges the EBRD and the CEB
to improve their co-operation by studying the possibility of preparing
and implementing joint projects in member countries where both banks
are active.
49. The rapporteur notes that modest amounts of the Bank’s
financing in the last few years directly concerned aid to refugees,
migrants and displaced populations. This could in part be explained
by the fact that the Bank’s member states focused on applying for
projects that benefit more broadly the vulnerable segments of the
population, especially those with low income. More specifically,
in the case of Georgia, the country’s absorption capacity for CEB-type
financing is low and good use of CEB funds – in line with the strict
control requirements – cannot be ensured at this stage. Other countries
in the region face similar problems. Regrettably, project activity
in Moldova in recent years was meagre.
50. Regarding the relations between the CEB and the Council of
Europe, the rapporteur feels that members of the CEB’s Governing
Board (who also sit in the Committee of Ministers) should take more
into account the proposals of the Assembly contained in
Recommendation 1812 (2007),
especially in the light of the Council of Europe reform and the
CEB’s strategic review. The Bank could consider putting at the Council
of Europe’s disposal some of its expertise in fund investment with
a view to helping the Organisation to better fructify the resources
being accumulated in a pension reserve fund.
51. Furthermore, the rapporteur believes that the Bank could do
more to help the CEB’s member states to implement the judgments
of the European Court of Human Rights and to ensure better follow-up
to the advisory opinions of the Council of Europe Commissioner for
Human Rights. This could be done by increasing the CEB’s portfolio
for “the strengthening of democracy, human rights and the rule of
law through projects in the field of judicial and civil services
and infrastructure”.
6. The Bank’s co-operation with other institutions
52. Against the backdrop of economic crisis, the importance
of international co-operation and the role of multilateral development
banks come to the fore. The CEB has a number of long-standing co-operation arrangements
with other financial institutions and international organisations,
such as the European Union (including its financial arm – the European
Investment Bank), the European Bank for Reconstruction and Development
(EBRD), the Nordic Investment Bank (NIB) and the World Bank Group
(including the International Finance Corporation (IFC)).
53. A special tripartite agreement binds the CEB with the European
Commission and the Kreditanstalt für Wiederaubau (KfW) for the co-financing
of projects on development of small and medium-sized enterprises
and of municipal authorities in the CEB’s target countries. Yet
another arrangement with the European Commission and the EIB facilitates
the realisation of urban development projects under the JESSICA
programme (Joint European Support for Sustainable Investment in
City Areas). The CEB’s Development Plan for 2010-2014 foresees closer
interaction with the European Union and donor countries in order
to optimise project implementation conditions. Further to the favourable
conclusion of the Four-Pillar Compliance Assessment of the CEB by
the European Commission, the CEB will soon be in a position to disburse
funds on behalf of the European Union. Overall, by the end of 2009,
the European Union had allocated €238 million in grants to projects
financed by the CEB and thus facilitated loans worth €785 million.
54. In 2007, the CEB entered a partnership with the European Commission
and several international financial institutions for more active
involvement in eastern Europe, the southern Caucasus, Russia and Central
Asia. Moreover, in October 2009, the CEB, the European Commission,
several international financial institutions (such as the EIB and
the EBRD) and European Union member states agreed on the creation
of the Western Balkans Investment Framework, which will function
as a joint grant and lending facility for the preparation and implementation
of priority projects in Albania, Bosnia and Herzegovina, Croatia,
Montenegro, Serbia, and “the former Yugoslav Republic of Macedonia”.
Kosovo is also covered by this initiative in line with United Nations
Security Council Resolution 1244. It is foreseen that this facility
should serve as a single entry point for both the submission of
projects by the countries concerned and the selection of projects
by financers. Whilst the European Commission has already earmarked
about €110 million for the facility, the EIB and the EBRD will make
available about €1 billion for project loans and, together with
the CEB, each pledged €10 million in technical assistance and/or
grant support in their respective fields of competence. The Western Balkans
Investment Framework was officially launched in December 2009. Moreover,
the CEB is party to the European Union’s Neighbourhood Investment
Facility Agreement for co-ordinated action of the European Commission,
the EIB, the EBRD and the CEB in favour of eligible countries.
55. In spring 2009, the CEB was unable to join, ostensibly for
statutory reasons, the action of the international financial institutions
(EIB, EBRD, IMF and IFC) and western European banking groups in
the so-called Vienna Initiative (for Co-ordination of European Banks)
aimed at supporting the financial stability of the banking sector
in those central and eastern European countries (Hungary, Latvia,
Romania, Bosnia and Herzegovina and Serbia) that urgently needed
macroeconomic stabilisation measures and financial assistance. Furthermore,
the Bank did not wish to put its relatively scarce resources into
the rescue of the banking sector, but rather through this sector
invest in social projects. The role of the CEB is in this regard different
from other IFIs.
56. The CEB has also established close working contacts with several
United Nations agencies, namely the UNHCR (Office of the United
Nations High Commissioner for Refugees), the UNDP (United Nations Development
Programme) and UNICEF (United Nations International Children’s Emergency
Fund). In 2007 and 2008, the Bank concluded Memoranda of Understanding
on co-operation with, respectively, the UNDP and the UNHCR.
These
partnerships proved particularly useful for managing the CEB’s donations
which totalled €1.73 million in 2008 and which were assigned to
projects in Bosnia and Herzegovina, Georgia, Moldova and Serbia.
7. Challenges for future work
57. Despite its 40-country-strong membership, the CEB
remains a relatively small, although highly relevant, player on
the European scene. The CEB’s main partners from among the key multilateral
development banks based in Europe – the EBRD and the EIB – all have
a far larger subscribed capital
and a higher volume
of loan activities. In fact, in May 2010 the EBRD approved a very
significant increase in its capital (by €10 billion, or 50%) in
order to better respond to the increased needs of its client countries.
58. The CEB has a huge potential but follows a conservative banking
approach that slows the pace of progress in its drive for greater
involvement in non-European Union target countries, where the added
value of its contribution to development would be greatest.
With
the ongoing review of the Bank’s strategic orientation, the opportunity
could be seized to make the CEB’s action programme and development
plan more ambitious. Increasing the CEB’s capital is crucial for
enhanced action in favour of the most vulnerable countries without calling
into question the Bank’s financial solidity.
59. On the basis of existing co-operation agreements, the CEB
could enhance its project co-financing capabilities and risk-taking
capacity by sharing costs, practices, competences, experience and
risks with other IFIs and multilateral development banks active
in the CEB’s priority client countries. The Bank’s member states should
ensure that the Bank’s capital adequacy is in line with the projected
level and volume of future activities by launching a new capital
increase in 2010. This is particularly important in seeking to combine
the aims of a more generous volume of project financing and adequate
risk management in the context of budgetary austerity and the downgrading
of the credit rating of the Bank’s neediest clients, in particular
in the target group of countries.
60. Enhanced continuity of participation through the Bank’s involvement
in a series of projects could increase the added value of its contribution.
Thus, in the framework of follow-up to and the accompaniment in the
realisation of projects, the CEB could initiate new related projects.
For instance, after participating in the building or rehabilitation
of a hospital, the Bank might consider investing further in the
acquisition of medical equipment and the related training of the
personnel.
61. The CEB is the oldest yet the least known multilateral development
bank in Europe. There is much scope for it to enhance its visibility.
The CEB could take better advantage of the Council of Europe’s mainstream activities
and field offices in order to generate more projects in the most
disadvantaged member states.
62. The ongoing CEB strategic review is both a challenge and an
opportunity for the member states to streamline the Bank’s operation.
As these lines are written, there is a deadlock among the financial
and political representatives of the Bank’s member states over the
key reform proposals. It is therefore particularly necessary for
the Assembly to play its role as a democratic watchdog and to urge
the Bank’s member states to reaffirm their commitment to the CEB
as a unique bank with a social vocation – and ambition – for greater solidarity
in the greater Europe.