Is a European “Hidden Investment State” Emerging in Spain? The Role of Instituto de Crédito Oficial

In the context of protracted low levels of investment following the 2008 Great Recession and, with the launch of the European Commission’s “Investment Plan for Europe,” scholars have argued a new dimension of European integration may be emerging: a “hidden investment state.” Interlocking institutions through European-level policy making, and increased and innovative loans, are interpreted as a means of setting up a multilevel infrastructure for further investment. This chapter investigates how Spain and its state-owned bank, the Instituto de Crédito Oficial (ICO), has navigated—and responded to—this changing scenario. We map evolving networks, portray ICO’s institutional trajectory, compile financial information on borrowing and loans, and categorize the financial instruments deployed, in order to assess whether ICO is becoming part of this investment state. We find that, whilst the ICO reacted vigorously to the Great Recession, since then, its activities have largely returned to pre-crisis normality. We conclude that developments around a hidden investment state in Spain are modest to date.

The Rise of Bpifrance

Founded in 2013 as a unification of dispersed elements of development banking activities in France, Bpifrance has been one of the most active proponents of the new techniques of development financing, such as venture capital and fund of funds investments. Bringing together these new techniques of direct equity investment with more traditional forms of loan and guarantee business, Bpifrance provides a one-stop shop model for the promotion of SMEs and start-ups in France, including the human capital formation of entrepreneurs. This, we argue, represents a reconfigured mode of dirigiste intervention in the French economy. Placing Bpifrance both in the context of the European field of development banking, as well as the historical context of state dirigisme post World War II, this chapter explores both the dangers and merits of such a new dirigiste model, which on the one hand through its synergy effects of different business line provides the state with an efficient tool to foster innovation and entrepreneurship, but at the same time is fragile, as it is potentially subject to overburdening political demands for intervention, demands which in the long run might threaten its financial viability.

The Rise, Fall, and Return of Promotional Banking in Greece

This chapter studies the case of Greece as one of the few countries in which a fully-fledged development bank is still lacking at the time of writing. While a Hellenic Development Bank is in the making, development finance took a contested trajectory over the past thirty years. Beginning with the conglomeration and then privatization of the former industrial development bank, ETBA, Greece became familiar with a fragmented and crowded field of development finance domestically, populated by Greek, foreign, and multilateral development actors. In the context of severe crisis and stark political tensions over the past decades, it is unclear what success a new national development institution will have.

Leveraging Policy Steer? Industrial Policy, Risk-Sharing, and the European Investment Bank

This chapter focuses on the European Investment Bank and the Juncker Plan in terms of its impact on industrial policy and state-market relations. Showing the growth of both the EIB and the EIF over the past two decades, the chapter highlights the increasing importance of engaging private investors in their financial operations. By proposing an analytical distinction between “economic” and “financial” risk, it argues that operating on risk-sharing arrangements has led the EIB—and the Juncker Plan—to effectively accumulate the latter at the expense of the former, which has resulted not only in a trade-off between actual policy steer as envisaged by the Commission and increased leverage as a developmental strategy, but also in political tensions within the field of development banking.

United in Diversity? Interests, Preferences, and Patterns of Engagement of Public Development Banks in the Implementation of the EU Budget

This chapter traces the emergence and expansion of the use of EU budgetary means for financial instruments inside the EU from the 1980s onwards and its implications for the field of European development banking. It details how an initial focus on cooperation between the EIB and the EU Commission gave way to a diversification of cooperation partners for the implementation of financial instruments, now including national development banks. As financial instruments grew both in size and number, their attractiveness and importance for these development banks increased. The chapter details the tensions between the EIB and the national development banks in their lobbying attempts to structure access to these funds. These tensions came to the fore in the negotiations of the InvestEU fund in 2018, when the European Commission stripped the EIB of its unique access to the direct EU guarantee, instead opening up 25 percent of it to NDBs.

Development Finance in the Baltic States and the Process of Europeanization

The Central and Eastern European (CEE) region, where European structural funds make up the lion share of national budgets, provides an opportunity to study how “development financing” is defined and operationalized in the context of dependency on external financing from the European Union (EU). The three Baltic republics (Estonia, Latvia, Lithuania) represent a region with a particular socio-political history, similar economic structures and equally similar asymmetrical relations with the EU, which makes the entire notion of development finance institutions quite different from existing “strategic” qualities attributed to promotional banks as discussed in current literature. We aim to demonstrate that policy trajectories, largely shaped by the EU, and especially an overdependence on EU structural funds, result in a set of incentives that hinder the development of a more strategic approach to economic policies and policy-related finance in particular. We also argue that bureaucratic competences developed within such a context of external financing resemble a “managerial” type of Development Finance Institutions rather than “strategic” investing agents.

State Aid and National Development Banks in the EU

This chapter argues that State Aid has served as an important regulatory tool to guide when, where, and how NDBs are permitted to intervene in the domestic economy. Through a detailed analysis of the evolution of the relationship between State Aid and NDBs from the 1950s to the present, it demonstrates that in the first few decades State Aid greatly limited the activities of NDBs, driving them to near extinction by the 1980s. However, beginning in the late 1990s, and accelerating after the 2008 financial crisis, the EC has loosened State Aid to increase investment in sectors like SME, R&D, and green technology. For their part, NDBs began to assert their positions, not only carving out a role of implementing national industrial policy, but also serving as important financing partners for the EU in recent years.

Introduction

This chapter introduces the puzzle of expanding national development banking in times of market-liberal EU integration. It presents the variegated landscape of national development banks in European Member States and their linkages to supranational institutions and programmes and builds a theoretical framework around field theory and historical-institutionalist European political economy to capture the evolution of development banking in the EU. The chapter argues that the current appearance of development banking in the EU is conditioned by constraints and guidance stemming from the integration process and the specific insertion of Member States in the European political economy. Importantly, it rests on a market-supporting, “promotional” understanding of development banks’ tasks that has consequences for contemporary debates over industrial policy and public investment in the European Union

Managing the Contradictions of Development Finance in the EU’s Eastern Periphery

Eastern members of the European Union have turned to development banks only to a limited extent so far. In this chapter, in order to understand why the “development imagination” of Eastern governments remained restricted, we look at the underlying logics of the national development finance fields. Through the case studies of Hungary and Poland, we uncover marked contradictions within the fields. Initially, development finance was torn between the contradictory logics of neoliberalism and developmentalism, followed by institution-building efforts from the EU that resulted in functioning development banks designed primarily for the EU’s Single Market. Finally, when financial nationalist and authoritarian political parties came to power, development banks came under firm political control, while new development actors appeared. Development banks in Hungary and Poland also exhibit differences in size, structure, and focus that we trace over time. In the end, we argue that today Eastern development banks’ ability to connect, contribute, and benefit from EU structures shows a marked difference from core Member States, one which calls for change in the EU development institutions and policies.

Privatization, Crisis, and the Transformation of Cassa Depositi e Prestiti

This chapter explores the transformation of Cassa Depositi e Prestiti (CDP) from a small Directorate-General within the Treasury to a full-fledged National Development Bank charged with channeling credit toward small firms and Mid-Caps, financing infrastructural projects, providing patient liquidity to the Treasury and equity investment to strategic firms. After a brief historical excursus, the chapter focuses in particular on two watershed moments in the history of CDP: the privatization in 2003 and the sovereign debt crisis. Both junctures paved the way to a substantial expansion and diversification of CDP’s activities in support of the Italian economy. Italy provides an ideal vantage point to explore the relationship between NDBs and their sovereigns due to the unique mismatch between the financial strength of CDP, funded by postal savings, and the financial needs of the cash-stripped Italian sovereign, burdened by an enormous public debt.