EC's bank raises its profile: The EIB underwrites pounds 1 in every pounds 20 of fixed investment in Europe. Andrew Marshall meets its new chief

IT IS bigger than the World Bank but not nearly as swanky as the marble- heavy European Bank for Reconstruction and Development. And you have probably never heard of it.

The European Investment Bank, the long-term financing arm of the European Community, is not an institution that courts either fame or notoriety. So when the EC summit at Edinburgh announced a new growth initiative probably one of the few people who noticed that it gave the bank a prominent new role was Sir Brian Unwin, then head of Customs and Excise but once a director of the bank.

'As an EIB old boy, I was delighted,' he said days after taking office as president of the EC's financial arm. But now he has 'to make damn sure that the Edinburgh facility works.' As he says: 'At the presentational level, the Edinburgh summit was a recognition that the EIB is a very powerful, large institution for furthering economic integration,' a recognition for which the bank is grateful.

But it also presents technical and managerial difficulties. Two decisions were taken at Edinburgh that gave the EIB increased prominence, not just in its traditional task of assisting EC integration but also in kick- starting the moribund European economy. The first is a temporary lending facility of 5bn ecus ( pounds 4bn) for infrastructure projects - focusing on transport, telecommunications and energy. In terms of the EIB's normal lending, this is 'more of the same, but with greater urgency and greater volume,' Sir Brian said.

'It requires an immense effort by the bank and the member states to identify projects that can be brought forward.' In February and March, projects worth 1.6bn ecus were agreed and the bank is hoping to get about 2.5bn ecus agreed over the year.

The second aspect of the Edinburgh package, more innovatory and complex, is the European Investment Fund (EIF). It will have a subscribed capital of 2bn ecus, and will provide guarantees for projects, in particular to increase the funds available to small and medium enterprises.

Because of the legal complexities and the need for parliamentary ratification of the statute changes, 'it's on a different time track'. Getting it under way will require participation by the EIB, the Commission and private banks. In discussions held with 100 financial institutions, a quarter have indicated that they want to be associated with the programme.

Even before Edinburgh, the Luxembourg-based bank had already seen a significant increase in its activities, with lending rising from 6bn ecus in 1983 to 17bn ecus in 1992. This year will probably see the figure hit 20bn ecus. This supports a larger weight of investment, since the EIB contributes on average about 30 per cent of financing. In all, the total level of loans represented 1.5 per cent of gross fixed capital formation in the EC in 1992, but supported overall investment of 58bn ecus - 5.3 per cent of aggregate investment in the Community.

In the words of the outgoing president, Ernst-Gunther Broder, the EIB is the house bank of the Community. Its bread and butter is long-term lending for projects that further European integration, particularly in infrastructure and regional development. In the UK, for instance, it lent 2.4bn ecus in 1992, helping to finance Channel tunnel construction, the new bridge over the River Severn, water supply projects, North Sea oil and gas and road building. The EIB also plays a growing role in implementing financial aspects of Community foreign policy.

Ten years ago, the only country outside the EC in which it was involved was Yugoslavia. Now, as well as ACP (African, Caribbean and Pacific) countries, loans have been made in Eastern Europe and the bank is moving into Latin America and Asia. It has also been asked to put up loans in the Baltic states, its first move in the former Soviet Union.

The Maastricht treaty does not set new priorities for the bank, but changes the context. It puts new emphasis on regional spending, and on 'trans-European networks' - missing links in the EC's infrastructure.

Apart from increasing lending, this may imply a further shift in lending towards Eastern Europe. The bank is also to play an important role in the new financial mechanism that has been established as part of the EC deal with the European Free Trade Area, and in the Community's new cohesion fund for Greece, Ireland, Spain and Portugal. The bank 'needs leadership from the top,' the new president emphasises, and officials say that he has already brought a new management style to the institution.

Sir Brian is steeped in the British civil service tradition, but was also closely involved in the changes it underwent under Baroness Thatcher. Before his five years at Customs and Excise, he was deputy secretary at the Treasury responsible for international financial policy and deputy secretary to the Cabinet for economic and domestic policy business.

One of his main concerns is that the expansion of activity does not dilute the bank's quality of lending. Loans used to be predominantly to state bodies. Now, half go to the private sector. 'The question of the quality of the book is a major challenge,' he emphasises, not least because the bank's most precious asset is its triple- A credit rating. 'There's been a tremendous increase in the volume, but also the diversity of lending,' and this imposes new problems.

The bank is also becoming involved in grant financing and in the future the EIF will allow for equity participation. Put together, Maastricht, Edinburgh, and a growing Community presence abroad will provide the bank with a 'vast and more complex lending agenda', Sir Brian said.

Suggestions from the Danish presidency of the EC that it might push for more lending at the Copenhagen summit are not ruled out, but the EIB is clearly concerned that it might be pushed too far. 'If the council (of finance ministers) wants the bank to take on more tasks, we will, but we've got a pretty full agenda.'

Traditionally the EIB has been the least politicised of all the EC's institutions. However, Sir Brian can see the virtue of heightening the bank's profile through the Edinburgh programme. As he says, 'Occasionally, it's sensible to play tunes.'

(Photograph omitted)