UPDATE: EU Mulls Merger Of EIB And EBRD - Sources

March 05, 2008, 10:30 p.m. EST 4 Min Read

(Updates with U.S. Treasury comment.)

LONDON -(Dow Jones)- European Union governments are considering a possibleplan to merge the European Bank for Reconstruction and Development with theEuropean Investment Bank to create a new development bank that would be activewell beyond the bloc's current borders.

According to persons familiar with the situation, a document circulated amongE.U. finance ministers at their regular monthly meeting Tuesday listed themerger as one of a number of options for the EBRD. The document was prepared byItalian Finance Minister Tommaso Padoa-Schioppa, Slovenian Finance MinisterAndre Bajuk and the European Commission, according to these sources.

Besides a merger, another plan includes maintaining it as a stand-aloneinstitution that invests in eastern Europe and the former Soviet Union, as itdoes now. It also briefly notes that closing the EBRD down is an option, saidone source, who has seen the document.

The EIB confirmed reports earlier Wednesday that EIB Vice-President MatthiasKollatz-Ahnen said the EIB was seeking to take a majority stake in EBRD. But thebank said that these were his personal views and not those of the bank.

"The Ministers of Finance have decided to review these issues in 2010, at thetime of the next capital review of the EBRD and the mid-term review of the EIB'sexternal mandates," the EIB said in a statement.

In order to merge the two institutions, the E.U. would have to persuade theEBRD's non-E.U. shareholders to give up their stakes. These include the U.S., Canada, Japan and Russia.

None of them have indicated a desire to withdraw from the EBRD. The document'sauthors note that their presence as shareholders has been "instrumental" to theEBRD's success.

The U.S. Treasury didn't venture an opinion on the EBRD's future. For Washington, the EBRD is one of a small number of development institutions activein Central Asia and the Caucasus, regions in which the U.S. and others retain astrong interest.

"The U.S. has been a key supporter of the EBRD since its inception," said RobSaliterman, a Treasury spokesman. "I am unable comment on this specific reporthowever, without having seen an actual proposal."

Some E.U. members that have reservations about the EIB, but are supportive ofthe EBRD, are likely to be uncomfortable with enlarging the EIB's role.

According to a person familiar with the situation, finance ministers didn'thave time to discuss the document at their meeting Tuesday, instead devotingtheir efforts to agreeing on a candidate to lead the EBRD when current presidentJean Lemierre's second term ends in July. They are backing German Deputy FinanceMinister Thomas Mirow.

Padoa-Schioppa is the current chairman of the EBRD's board of governors. Thatbody represents its 63 government and government-backed shareholders. Bajuk ischairman of the grouping of E.U. finance ministers known as Ecofin, since Slovenia holds the rotating presidency of the bloc for the first six months ofthis year.

The EBRD's future is under examination because by 2010 it will stop investingin all eight of the eastern European countries that joined the European Union in2004.

When the development bank was first conceived in 1990, it was intended to helpthose same countries make the transition from Communist-run, centrally plannedto democratically-governed market economies.

So it will have completed its original mission by the end of this decade. Butas the Soviet Union fragmented, its mandate was soon expanded to include helping Russia and the other states that emerged as independent entities in the early1990s.

The fourth, five-yearly review of the EBRD's financial needs and strategy isdue to be completed in 2010.

The European Investment Bank is the E.U.'s long-term lending arm, created in1958 to finance the infrastructure development needed to knit the separatenational economies together into a more integrated whole.

But it has since taken on a role as the E.U.'s development arm, financingprojects not just in Russia and other countries close to the E.U.'s borders, butin Africa, Asia, Latin America and the Caribbean.

In 2007, it made total loans of EUR47.8 billion, up from EUR45.6 billion in2006. By contrast, in the fiscal year to June 2007, the World Bank made newinvestments of $24.7 billion.

The EIB's investments dwarf those of the EBRD, which invested roughly EUR5billion in 2006. It will announce its total investments for 2007 Thursday, butthey are unlikely to be significantly higher.

However, the EBRD has a great deal of expertise in areas in which the EIB isless experienced, such as financing small and medium-sized companies, developingbanks and other financial institutions, and helping city governments upgradetheir infrastructure with the help of private sector partners.

According to the document, under a merger the EBRD's expertise would beextended to countries that it doesn't now operate in, beginning with Turkey.

The E.U. document also considers an option that would see the creation of aninstitution that would hold all of the shares in the EBRD now owned by itsindividual members, and which would oversee coordination between the EBRD andthe EIB to ensure that the E.U.'s overall objectives were being pursued. Underthis arrangement, there would be a redistribution of tasks between the EIB andthe EBRD.

-By Paul Hannon, Dow Jones Newswires, +44-20-7842-9491, paul.hannon@dowjones.com (Jeff Bater contributed to this report)