Loans and Guarantees Granted by the Bank

The European Investment Bank was created by the For its accounts and balance sheet the Europe ·• Treaty of Rome establishing the European Economic Investment Bank uses the unit of account as defined 1 Community, which came into force on 1st January, 1958. Article 4, paragraph 1, of its Statute. The value of th unit of account is 0.88867088 gramme of fine go/ It is an independent public institution within the Community and operates on a non-profit-making basis. The various national currencies are converted on tl basis of the official parities as at 31st December 1971 ( L The Bank's essential function is to contribute to the balanced development of the Common Market. For this On 31st December 1971, the parities between the un purpose, it grants long-term loans or guarantees to enter of account and the currencies which are most importa prises, local or regional authorities or financing institutes, to for the Bank's activities were as follows: finance investments which help the development of less 3.66 Deutsche Mark advanced or conversion regions, or serve a common 5.55419 French francs European interest. 625 Italian lire The founder members of the Bank are the Member 3.62 Netherlands guilders States of the Community: Belgium, Germany, France, Italy, 1 unit of account 50 Belgian francs Luxembourg and the Netherlands. Each of these countries (u.a.) 50 Luxembourg francs has subscribed a specific share of the Bank's capital 1 United States dollar which was increased in 1971 from 1 ,000 million units 4.0841 Swiss francs (2) of account to 1,500 million. 30 Greek drachma 3 15 Turkish pounds The Bank borrows on the capital markets of the member and non-member countries the funds necessary to carry out its task. Initially confined to the territory of the six Member States of the European Economic Community, the Bank's activities have gradually been extended under the Asso ciation Agreements with Greece, the seventeen Associated African States and Madagascar, the Associated Overseas Countries and Territories and Turkey. Apart from its ordinary loans, it grants to these countries loans on special conditions under its Special Section, on mand~te and for the account of the Member States or of the European Economic Community. This publication is a digest of the Bank's Annual Report (I) The new exchange rate relationships (central rates) ado, ·t in December 1.971 in Washington had not yet been declared for 1971 which may be obtained on request from the official parities by the end of the year. European Investment Bank, 2, place de Metz, Boite (2) Until 10th May, 1971, inclusive: 7 unit of account postale 2005, Luxembourg. 4.37282 Swiss francs. The enlargement of the European Community The Community scene in 1971 was marked by the negotiations on the accession of the United Kingdom, Denmark, Norway and Ireland to the European Communities and, consequently, to the Bank (Art. 129 of the Treaty of Rome). Under the terms The agreement reached concerning the Bank was annexed as Protocol No. 1 to of the Treaty of Accession the "Treaty of Accession ", signed in Brussels on 22nd January, 1972. This treaty is of 22nd January 1972, now in the process of ratification by each contracting country and is scheduled to the United Kingdom, Denmark, come into force on 1st January, 1973. Norway and Ireland Concerning the Bank it contains in particular the following conditions: will become members The United Kingdom, Denmark, Norway and Ireland subscribe to the capital of the European Bank of the Bank for 450, 60, 45 and 15 million units of account respectively. As a result, on 1st January 1973, ... the Bank will have a capital of 2,070 million units of account, distributed as follows among the member countries: Germany 450 million France 450 million United Kingdom 450 million Italy 360 million Belgium 118.5 million Netherlands 118.5 million Denmark 60 million Norway 45 million ... whose capital will be Ireland 15 million increased to 2,070 million units Luxembourg 3 million of account. The part of the subscribed capital to be paid up by the new member countries is determined on the basis of the percentage valid for the original member countries, viz. 20% {25% of the initial capital of 1,000 million and 10% of the capital increase of 500 million decided in April 1971). The entry of the new member countries provided also the opportunity to ) equalize the shares of Belgium and the Netherlands in the capital, to which Belgium ) had initially contributed a higher amount than the Netherlands. The new member countries will also contribute to the statutory reserve and to the provisions equivalent to reserves, as shown in the balance sheet of the Bank established on 31st December of the year preceding the entry into force of the Treaty of Accession. Their contributtons correspond to the following percentages of these reserves: United Kingdom: 30%; Denmark: 4%; Norway: 3%; Ireland: 1%. Each member country will be represented on the Board of Governors, which wi II thus comprise 10 members. 1 1 \ The Board of Directors will comprise 19 directors and 10 alternates, with the following distribution: Germany 3 directors 2 alternates France 3 directors 2 alternates Italy 3 directors 2 alternates United Kingdom 3 directors 2 alternates Belgium 1 director 1 alternate appointed Luxembourg director jointly by the Benelux Netherlands director l countries Denmark 1 director Ireland 1 director Norway 1 director Commission of the European Communities 1 director 1 alternate The Management Committee will be made up of five members: the president and four vice-presidents. The Bank has started the necessary preparatory work for its future activity in the new member countries. It expects to be in a position to commence operations in these countries as soon as their accession has become effective. Aircraft manufacturers in France, Germany, the Netherlands, Great Britain and Spain are working in close co-operation on the construction of the first European jumbo aircraft. the Airbus A 300 B. The Bank has granted a loan worth 14.4 million units of account to the Societe Nationa/e /ndustrielle Aerospatiafe for the investments required to build and test the Airbus A 300 8 at Toulouse and Nantes St-Nazaire. The picture shows a model of the Airbus undergoing tests in a hydro dynamic tunnel. 2 The economic and monetary situation in the Community In 1971, the Bank continued Despite the international monetary situation, the Bank was able to maintain to expand its activities, and even to accelerate the pace of its expansion in 1971. External borrowing by despite the international enterprises for the financing of their investment expenditure, which increased despite monetary crisis and the slower the slowdown in the economy, was on an increasingly larger scale. The requirements pace of economic activity. of the public investment budgets continued to grow. Lastly, the situation improved on most of the capital markets of the member countries as well as on the Eurobond market, which allowed the Bank to increase its borrowings to a considerable extent. The particular trends resulting from the development of the general economic situation were also affected by the monetary events. Whereas in the United States, the United Kingdom and Japan, despite an economic policy increasingly directed towards expansion, recovery was extremely hesitant, the business situation in the Community remained stationary at a high level. Developments in member countries were not uniform. The conjunctural situation was rather bad in Italy, where social disputes continued to hamper production. It was most favourable in France where budgetary policy was redirected sufficiently soon towards stimulation of expansion. In addition, French exports responded to the impetus, at times very strong, of the maintenance of the gold parity of the franc for commercial transactions, while there was a de facto revaluation of the currencies of major countries which are France's customers and competitors. The rise in costs and prices continued in the Community, and accelerated even until the autumn. The cost pressure remained stronger than the price-push, resulting in a marked narrowing of profit margins, a development characteristic of a cyclical phase of cost inflation. As, furthermore, the industrial sales prospects became gloomier in most of the member countries owing to the evolution of the monetary situation, the investment propensity of enterprises showed a distinct slackening. Business outlay on investments already under construction or definitively planned, certainly continued to increase, though at a slower pace, but as self-financing possi bilities of enterprises were limited, requirements for external resources increased sharply. Owing to the uncertainties of the further economic development greater efforts were also made to consolidate. the short-term indebtedness, which until then had been rising steeply. Lastly, the public sector's long-term borrowing requirements also grew considerably. One consequence .of the slower economic growth was the emergence of fairly clear tendencies towards an easier situation on the employment markets. At the same time, the very rapid pace of wage expansion reached its peak and began to slacken off somewhat. This evolution led not only to a brisk rise in private consumer expenditure, but also, and despite the extent of the erosion of purchasing power, to an even more marked increase in private savings. To this were added the effects on internal liquidity of the large-scale inflow of capital which the Community had to absorb as a result of the monetary crisis. No notable reflux has yet occurred, despite the Washington agreements reached in December. Under the influence of these various conjunctural and monetary factors, the improvement of the situation on the capital market made itself more clearly felt in 1971, with some interludes, it is true.

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