Don’t forget migration, education, gender, health issues - the environment!
Financially and economically, the Covid-19 coronavirus crisis could have an impact on Europe’s economy perhaps as large or larger than that of the Great Depression in the 1930’s. That’s the assertion of Dr. Rolf Wenzel, Governor of the Council of Europe Development Bank. In this interview, Mr Wenzel describes the response of the CEB to the crisis, which includes several loans totalling almost €1.7 billion for social development projects in member states.
Charles Amponsah: The coronavirus pandemic has affected businesses and individuals at every level on the continent, leaving tens of millions of European workers needing varying degrees of financial help. To discuss what can be done, I’m joined from Paris by the Governor of the Council of Europe Development Bank, Dr Rolf Wenzel.
Dr Wenzel, the Council of Europe Development Bank was set-up in 1956, a decade after the end of the Second World War. Some commentators say we could be living in similar financial and economic times now, during this COVID-19 pandemic. What’s your assessment of this most extraordinary time in our recent history?
Dr Rolf Wenzel: Thank you for giving me an opportunity to speak about the Council of Europe Development Bank and our role given the current conditions. Now, I think it is fair to say that the current crisis is unprecedented in many aspects. Financially and economically, we will see that the impact the crisis has on the economy is perhaps as large or even larger than that of the Great Depression in the 1930’s. According to the IMF forecast for example, we will see the global economy shrink this year by 3%. Even if we recover by the end of this year, we will not be able to recover fully what we are losing in the first half of 2020. This is clearly a major shock to the global economy, as supply chains are interrupted, and we have to fix it. There is one good thing, a reason for optimism, and you always have to stress the reasons to be optimistic. First of all, financial institutions, central banks and the governments have reacted quickly. Central banks in the USA and in Europe (the European Central Bank) have lowered interest rates. Governments have launched huge programmes to support their economies, in particular small- and medium-size enterprises. They have relaxed some of the rules that govern state aid. All that is very welcome. One should also not forget that the European Union has more financial instruments than it had in the crises of 2008 and 2012, when many of the large European economies were hit so hard. As in any financial and economic crisis, it is the weak, the vulnerable population, single parents, migrants and refugees, the unemployed, low-skilled workers that are hit hardest by this crisis. This is exactly where we come in, as a social bank, as a bank with an exclusively social mandate. By the way, the Council of Europe Development Bank is the oldest European financial institution. We have to be proactive and respond to the needs of our member countries.
CA: In these difficult circumstances, what is the role of the CEB and what can it do to play its role as a social development bank?
RW: I would like to stress that we are the only European financial institution that has a social mandate and we have to make sure that we do not forget the most vulnerable among our population, as I said, the low-skilled workers, migrants, refugees ... We have to offer our services: first of all, low-cost financing, but also our technical expertise in supporting micro-, small- and medium-size enterprises, and in this particular situation, also the health sector. We have done this in the past, although more under the radar, so to speak. At this critical time, we are called upon to play our part more proactively and that is exactly what we have been doing.
CA: The Council of Europe Development Bank recently issued a 1-billion euro Covid-19 Response Social Inclusion Bond. I understand that the CEB has been issuing a social inclusion bond annually since 2017. What was the purpose of the Covid-19 Response Social Inclusion Bond, and what’s been the response of the investment community to the issuing of that bond?
RW: Well, let me start with the second part of your question. First of all, the response from international investors was huge. We were ourselves surprised because we wanted to raise sufficient funds in the market to respond to our shareholders’ needs. We wanted to raise perhaps 1 billion euros and we had a demand that was much much larger, actually close to 5 billion euros. So, clearly, we have a name in the market. Investors are very conscious of the role that public institutions like ours have to play and they gave us their money at rates that were quite favourable for us, but also more importantly for those who come to us to borrow funds to finance expenditure in the health sector, or for micro-, small- and medium-size enterprises. We started issuing social inclusion bonds in 2017, because we thought there was a growing segment of the international financial markets, investors who were looking to support and finance social projects. We went to investors and explained what we can do as a social development bank, that we are financially sound, that we are a bank like any other bank, except that we have a social mandate. I think it is fair to say that the effort invested since 2017 paid off. When we came to the market in early April, at a time when the market was still very uncertain as to how things would develop, demand for our bank was just huge. That is good news for us as an institution because it shows that our efforts to make the bank more visible, better known in the market have paid off. It’s also good news for our borrowers, potential and old borrowers, because we have the financial power, the ‘ammunition’ to meet their demands for expenditure, in particular in the health sector and for micro-, small- and medium-size enterprises.
CA: Given the current lockdown and restrictions on travel, how is the CEB operating? How does it manage to provide loans where financing is needed in all 41 CEB member states?
RW: That is a good point. Obviously, we have to follow the lockdown conditions here in Paris where we have our headquarters. We have no offices outside Paris. People are working from home. In the past we invested heavily in IT, and that is paying off now because everybody is working with a laptop, remotely as they say. We have had to get used to it, but since lockdown in mid-March it has been working quite well. We keep in touch with our shareholders via videoconference. Financial markets work with electronic trading platforms anyway. It is a new environment but it works, it is efficient. From time to time, something has to be signed physically. Apart from that, and as an institution we have a responsibility to our staff, people working from home works well. We all hope nevertheless that we can return to the office soon, although we know it will take some time and will be a gradual return. We will change our procedures, having learnt from the crisis situation. I can assure you, our investors, our shareholders, and new and old borrowers - just give us a call, send us a mail or a text message, we are at your disposal for work and working well.
CA: Good to hear that. Finally, how do you see the relationship continuing between the Council of Europe Development Bank and its member states following the coronavirus situation?
RW: I would like to commend our colleagues at the Council of Europe for the great support that they give us. We need it. There are formal requirements for us to approve loan requests. That works very well with our colleagues from the partial agreement and it works well with the Council of Europe more generally. What does it mean for the future? That, of course, is difficult to say at this point. We still don’t know how we will come out of the crisis. It will be very important for both institutions to remind politicians, governments - our shareholders, that, as severe as this crisis is, we should not forget issues like migration and immigration, we should not forget issues of education, gender, health issues and more general and environmental issues. All these issues have been pushed a little bit back from the agenda, but they are still on the agenda and we have to deal with them. I already hear a number of governments say, if we talk about launching a recovery of economies on the European continent, we should make sure that we do not go back to the previous situation. We should make sure that we get better protection for the environment; that we become more open, more transparent societies; and that we give better protection to migrants and refugees. It is a responsibility that the Council of Europe and the Council of Europe Development Bank share and we will continue to work together very closely in order to best serve our member countries.
CA: Dr Rolf Wenzel, thank you very much indeed.
RW: Well thank you again for having me. Stay healthy.