The law of unintended consequences strikes yet again

“The fallout from last week’s vote to leave the European Union is rattling business and finance, far and wide. One aftershock is being felt at the European Investment Bank.

The EIB is owned by the 28 member states of the EU. The UK, alongside Germany, France and Italy, is among its largest shareholders, with about 16%.

The bank provides finance to a wide range of projects around Europe, with a particular focus on areas like infrastructure, social housing, renewable energy and education. It invested £5.6bn (6.7bn euros) in the UK last year and has ploughed £42bn (50bn euros) into the country over the last decade.
But after the Leave vote, there may already be a freeze descending on some new investment.

The good news is that the EIB says that its recent deals in the UK should proceed as planned. Those include funding to an automotive parts business in County Durham, to Swansea University, to housing associations in Northern Ireland and to an off-shore windfarm in Scotland.

But the EIB told Newsnight that the uncertainty created by the vote to leave the EU means that some UK projects, which previously would have stood a good chance, are now less likely to be approved.

There are reasons why the EIB might be cautious. It is unclear whether the UK could or would remain a shareholder after it leaves the EU. That might depend on the form of its relationship with the remaining 27 members. The situation is unprecedented and the EIB’s statue doesn’t contain any guidance or provisions for a shareholder leaving the EU.

Where does the money go? EIB lending to UK 2011-2015:

Energy – 28%
Transport – 25%
Water, sewerage, solid waste, urban development – 25%
Industry, services, agriculture – 7%
Education, health – 11%
Small and medium-scale projects – 4%

Source: EIB”