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As Croatia accedes to the EU, questions remain over whether EU billions can succeed for Croats


If there’s one thing we can be sure about Croatia’s accession to the European Union on July 1, it’s that the historic occasion will be greeted by rousing speeches and aspirational press releases issuing forth from both Zagreb and Brussels. Yet for the majority of Croats, this new dawn will be embraced much more coolly – opinion polls show that not much more than a third of the population is enthusiastic about joining the EU.

Is this mere ingratitude? After all, membership of the bloc will see substantial EU funding injections: EUR 655 million (1.5 percent of Croatian GDP) has been lined up for this year, with a further EUR 13.7 billion in the pipeline for the seven year period 2014-2020.

More likely, the prevailing scepticism can be explained by two things.

One, a recognition of the scale of the economic tailspin that Croatia has been in for the last five years (country-wide unemployment stands at around 20 percent, with more than half of young Croats jobless), a cycle that it shows little sign of escaping from, and; two, resignation that EU billions can be no panacea in a country where there is insufficient preparedness for absorbing the funds in a sustainable, genuinely transformative way. Indeed, on the latter point, there are valid fears that the new investment monies will go the way of so much previous international assistance to Croatia – into a black hole.

The legislative environment as it relates to future investment projects in Croatia does not look promising in this regard. Bear in mind we do not have a comprehensive national development strategy in place, a blueprint for developing in an efficient, effective way via the prioritisation of key targets and goals – ideally goals that would be imbued with respect for the country’s environment instead of simply ‘X more roads’.  

What we do have, as we stumble across the EU finishing line, is the new Law on Strategic Investments, recently approved by the government and expected to be shortly passed by the national parliament. This law appears solely designed to appease large investors and their long list of – potentially – white elephant projects.

Specifically, the new law will give preference to investments over 150 million kunas (the equivalent of EUR 20 million) under the patronage and approval of an advisory governmental body. The background to this is that for some time now many major ‘strategic investors’ have been turned off as soon as they got a whiff of the number of procedures and estimated approval times that Croatian bureaucracy has insisted on. Under the new law, approval times for large projects will be significantly speeded up.

Startlingly, the original draft of the new law insisted that environmental impact assessments would not be necessary for large projects if the relevant national authorities did not respond within 10 days of being approached – fortunately the European Commission threw out this approach to environmental safeguarding at the consultation stage. Nonetheless, such assessments will be fast-tracked under the new law.

What we’re seeing, then, is the wrong solution – some critics believe it can only further fuel corrupt practices – to an unarguable long-term problem: foot-dragging and endless paperwork related to investment decisions should instead have been tackled by systemic reforms to administration and through capacity building for officials so as to speed up permission processes in a regular, though still rigorous, way.

This new investment landscape will have a bearing on EU sponsored projects, though the threshold for prioritising these is reduced to EUR 10 million. However, the new regime clearly disadvantages smaller scale projects – under either the EUR 20 million national threshold or the EUR 10 million EU threshold. Their implementation will continue to be bogged down in the sourcing of endless documentation, while ‘big’ projects – with potentially much greater ecological and social footprints – enjoy a far easier ride.

Currently, for example, installing just a few basic photovoltaic appliances requires more than 30 different permits. Equally, a small municipality that intends to introduce a sustainable waste management system involving reuse and recycling – usually no more than EUR 5 million – would be stuck in the procedural loopholes of Croatian administration, while a larger municipality, perhaps wanting to take forward a large, unsustainable waste incinerator would be much less detained.

This is the nub of the problem. Relatively small-scale, community driven projects, aiming to tap the EU funds in order to boost jobs, cut fuel bills and do their bit for the EU’s fight against climate change, look set to be distinctly disadvantaged.

These kind of anomalies will hopefully be addressed during the upcoming public debate in Croatia over the selection of priority investments to be funded by EU money. How we will spend our new EU money is to be finally set in stone, according to the official timetable, by the end of November. Crucial in this regard will be the details of the partnership agreement required by the European Commission for the oversight of Croatia’s EU funds: will the Croatian public, local communities and NGOs be granted a voice around the decision-making table?

What is sure is that, having taken ten years to arrive at this point of EU entry, Croatia now cannot afford to squander its new EU billions on pointless, environmentally dubious investments when the country urgently needs – above all – job creation. Localised, green investments can and should play a big role in boosting new sustainable forms of employment.

Green agriculture spending culled in Estonia – NGOs demand proper use of future EU money


As negotiations on the EU budget for 2014-2020 grind on painfully towards a conclusion hopefully next month, and with key voting on the future shape of the common agricultural policy (CAP) due at the European Parliament this week, country level programming is underway for the future seven year budgetary period.

But as we hear from Bankwatch’s Estonian coordinator Triinu Vaab, it’s not just at the top Brussels level that major agri-business interests are flexing their muscles to take the ‘green-ness’ out of EU agricultural spending.

Several weeks ago the Estonian Council of Environmental NGOs sent a letter to Estonia’s minister of agriculture and minister of environment to express the groups’ deep unease with the way the Ministry of Agriculture had discarded the work of different experts during the compilation of Estonia’s Rural Development Plan (RDP) for 2014-2020. Here Triinu explains the background and the implications for Estonia’s agricultural sector. The interview was conducted by Bankwatch Mail editor Greig Aitken.

What’s the significance of RDP to the EU Funds for 2014-2020?

RDP 2014-2020 consists of rural development policy measures that are drawn from the legislative proposal for the new Rural Development Regulation. At the EU level, RDP is part of the common strategic framework – together with the European Reconstruction and Development Funds, European Social Funds, Cohesion Funds and Maritime and Fisheries Funds. At the member state level all of these funding lines comprise the partnership agreement between an individual member state and the European Commission.

For 2014-2020, the overall European Agricultural Fund for Rural Development pot stands at EUR 84.8 billion, out of which Estonia will receive EUR 721 million euros.

From the environmental perspective, most crucial is the designing of the ‘agri-environment-climate’ measure. However, other measures such as support for organic agriculture (especially providing sufficient funding), support for Natura 2000 areas, and the inclusion of environmental considerations in the design of investment measures are also important in order to secure sustainable rural development.

RDP mostly covers a wide variety of rural enterpreneuship and agricultural measures. For the 2014-2020 official priority areas are: transfer of knowledge, competitiveness, operation of the food chain, and environment and rural entrepreneurship. RDP is operationalised through different measures, chosen according to development needs and goals. In the coming period the plan is to put into force over 20 different measures and sub-measures.

It’s important, though, to stress: RDP can either drive rural development towards a more sustainable path or subsidise environmental destruction.

And the latter is what you now fear as a result of what you deem to be broken promises from the Estonian authorities?

Yes, given the progress that had been made, we (and other stakeholders) feel very let down.

Throughout 2012 and the first few months of this year, different working groups (with representatives from environmental NGOs, producers and state institutions) worked intensively on the design of the ‘agri-environment-climate’ measure. This includes several sub-measures, the most significant in terms of budget being the so-called environmentally friendly management.

This is a broad and shallow measure, but in order to avoid it becoming too ‘shallow’ it was agreed that farms would have to choose at least two activities from a list, including various buffer strips, delayed mowing time, reduced fertiliser application etc. Yet this list has now been abandoned, and thus the sub-measure has become effectively been ‘greenwashed’ – though of course it does still hold most of the budget for environment related measures.

The abandonment of the list of voluntary activities has never been officially explained, but unofficially the inclusion of Natura 2000 payments (and the pressure this exerts on the RDP budget) has been given as the excuse.

The Estonian Council of Environmental NGOs has supported Natura 2000 payments via the RDP 2014-2020 budget line since the start of putting RDP together, but the Ministry of Agriculture was initially against. However, the Ministry of Environment pushed hard to include Natura 2000 in RDP.

It now seems that this dilution of the agri-environmental measure is a form of ‘revenge’ for being forced to include the Natura 2000 payments in RDP. Since the Natura 2000 payments are relatively unspecific (although they are important for relevant farmers), the dilution of the agri-environment-climate measure will definitely do more harm than the inclusion of the Natura 2000 payments will do good.

As we were well aware that the RDP 2014-2020 budget is tight, the Estonian Council of Environmental NGOs did provide different specific proposals to address this situation during meetings in the Ministry of Agriculture, in working groups and by sending written comments.

For example, we proposed to use the possibilities present in the new draft Direct Payment regulation to support the farmers in Natura 2000 areas with funding from Pillar I. None of our suggestions seem to have been seriously examined.

We view the dumping of these provisions at the last minute as a betrayal of the members of the working groups. Other than environmental NGOs, the Estonian Farmers’ Federation (representing family farms), the Leader Forum and many other NGOs have been very frustrated by the process – though the Central Union of Estonian Farmers, representing agri-business, will be content.

Does the jettisoning of the green agriculture measures in this way break any national or EU rules as far as you know?

Whether what we’ve seen actually breaks any formal rules is still to be fully determined, but of course nothing can be finally said here since the most important rules (the CAP reform package) are still being debated and decided in the ongoing ‘Trilogue’ discussions, between representatives of the Commission, Council and Parliament.

Is Estonia’s RDF spending all finalised then?

The Ministry of Agriculture views the current draft as final. However, the document has been neither approved by the relevant steering committee nor signed off by the Cabinet.

And from the more formal point of view nothing can be said to be final now, since the CAP reform package, including the Rural Development Regulation that is the legal basis for RDP, has still to be approved by the European Council and European Parliament.

Is there a possibility for the situation to be resolved somehow, or for a compromise solution via the parliament?

The Rural Affairs Committee of the Estonian parliament held an open hearing about the new RDP on June 11. Various parties presented their frustration there. However, the process of RDP preparation is led by the Ministry of Agriculture and is to be approved by the Cabinet; the parliament has a limited say here.

Moreover, parliamentary oversight of governmental activities is currently rather limited in effect, since the government holds a parliamentary majority. Thus the key to the solution is still held by the minister of agriculture.

But you are planning to take a stand against these regressive, non-sustainable measures?

If the Ministry of Agriculture continues to insist that the previously agreed measures are not to be reintroduced and implemented, then the Estonian Council of Environmental NGOs will have to remove itself from the whole process of RDP compilation as all the work will have been in vain.

We cannot be in any way associated with this kind of greenwash, or the potential negative impacts for Estonian agriculture that it will usher in.

A tale of neglect: Energy finance figures from the Western Balkans


I’ve been living in Croatia on and off for almost ten years now, and one of the things that constantly frustrates me about this beautiful country is the inability of the government to make effective use of its abundant potential for sustainable renewable energy and energy efficiency.

With joining the EU in a few days time, Croatia is facing a host of obligations including producing 20 percent of energy from renewable sources by 2020 as well as increasing energy savings by 20 percent by the same date. This will be enough of a challenge on its own – not due to lack of potential, but due to the Croatian state electricity company’s tendency to devote its resources to large, often controversial projects like the Plomin C coal power plant and the Ombla hydropower plant rather than energy efficiency and sustainable renewables. However, EU energy and climate requirements are constantly evolving, for example the 2030 CO2 emissions reduction targets that are currently under discussion in the EU.

What someone with a pot of money can always do is to say ‘No’ to unsustainable projects such as fossil fuel and hydropower projects in sensitive areas.

Read also

More news and updates on our Western Balkans work

Croatia, like other future members of the EU from the Western Balkans, is going to have to run fast to keep up. This is not only a matter of obligation, but also offers numerous opportunities for new economic activities and job creation.

This is where international financial institutions (IFIs) should come in. That the region is riddled with poor planning and corruption in the energy sector, and that its governments are proving slow to react to the challenges and opportunities offered by the decarbonisation agenda is well known, but the IFIs are portraying themselves as leaders in this field – so far without much justification.

A new study we’ve undertaken with 16 other NGOs active in the region shows that – with some positive exceptions – the IFIs have so far not promoted energy efficiency and sustainable renewables in the region to any significant degree. While the slow development in these sectors is no surprise to anyone familiar with the energy sector and IFIs in the region, even a longtime IFI-watcher like myself was surprised to find this:

(See a table with the absolute lending figures below.)

  • Between 2006–2012, fossil fuels received a massive 32 times more financing than non-hydropower renewables from the IFIs and the EU’s IPA funds (Instrument for Pre-Accession) or 1.8 times more than renewables including hydropower.
  • Energy efficiency received only 17 percent of the total EUR 1.68 billion invested by the IFIs and IPA during the period, even though a former EBRD expert has estimated that it is between 1,000 and 10,000 times more cost effective to save a unit of energy than to generate a new unit and the region suffers from massive energy wastage.

There are interesting differences between the IFIs though.

The EBRD in the Western Balkans: fossil fuels still all the rage

The EBRD is by far the largest IFI lender to the sector in the region, and is the one that invested most in energy efficiency in absolute terms. It is also the only one that invested anything in renewables other than hydropower. But it undermined these positive efforts by investing more than half a billion euros in fossil fuels – 27 times more than it invested in non-hydropower renewables and almost 3.8 times as much as it invested in energy efficiency.

The EBRD’s large-scale hydropower construction projects were very controversial too: the loan for the Ombla plant in Croatia has recently been cancelled while the Boskov Most plant in Macedonia is subject to an official complaint to the bank’s complaint mechanism.

What is even more worrying about the EBRD’s investments is that year on year they are not showing any clear pattern of decreasing fossil fuel projects, and indeed the bank is currently looking at supporting the Kolubara B lignite plant (pdf) in Serbia and the Kosova e Re lignite plant in Kosovo.

The EIB in the Western Balkans: Positive focus on energy efficiency

By proportion of its investments, the EIB did best in terms of energy efficiency (70 percent), and deserves recognition for not having invested in any fossil fuels in the region during the period (nor any large, damaging hydropower plants for that matter).

The World Bank in the Western Balkans: Non-hydro renewables nowhere to be seen

Around half of the World Bank Group’s investments went for transmission infrastructure, with 18 percent for energy efficiency and a reasonably low 12 percent for fossil fuels. Yet still it did not touch non-hydropower renewables during the period, and it is considering financing the highly controversial Lukovo Pole hydropower plant in the Mavrovo National Park as well as the Kosova e re lignite plant.

Of course the IFIs would say that they can only finance what is offered to them. This is only partly true: they can often help with developing and assessing programmes, legislation and projects. But what someone with a pot of money can always do is to say ‘No’ to unsustainable projects such as fossil fuel and hydropower projects in sensitive areas, which sends a strong signal to governments to start thinking differently, and this is what volume-driven bankers still too often seem reluctant to do.

But as well as saying ‘No’, there are some urgent matters to say ‘Yes’ to: Number one among these must be residential energy efficiency, which has enormous potential to tackle energy poverty as well as reducing greenhouse gas and other emissions but has hardly been touched. If the IFIs are unable to ramp up their efforts in this field, a serious re-think is needed of how such efforts can be financed.


IFI energy lending in the Western Balkans 2006-2012 (in EUR 100 million)

Little impact of EU aid for Egypt – Ongoing abuses and Brussels scrutiny puts EBRD’s best laid plans in question


I daresay that the EBRD’s very well-resourced media unit, based at its headquarters in London, operates some kind of ‘grid’ system – the media management tool pioneered by Tony Blair and Alistair Campbell in the 1990s to attempt to control political perceptions and events. If such an EBRD ‘grid’ exists, it’s safe to say that it got more than a bit derailed last week as the bank was attempting to hype its signing of a new host country agreement with Egypt – exactly as a new European Court of Auditors (CoA) report was slamming EU aid to Egypt, based on the appalling human rights situation in the country, and the failure of one billion euros of EU money to tackle the ongoing situation, or do much else besides.

With a Blair era top civil servant, Sir Suma Chakrabarti, now president of the EBRD, will the bank – with its grid punctured, and its credibility regarding its expansion into Egypt and other north African countries steadily waning – now revise its thinking? Or, as we witnessed frequently during the Blair era, will the bank stagger on into the region, convinced of its own righteousness despite the facts from the ground staring it in the face?

The EBRD is not an EU aid body, but it is more than 60 percent owned and overseen by EU member states. Part of its founding mandate stipulates that it must only work in countries that are committed to democratic principles, of which freedom and respect for human rights are essential elements. The CoA’s findings on EU aid to Egypt this week, conjoined with the ‘grid-busting’ EBRD host country agreement announcement, should nonetheless be embarrassing for the bank in many ways – if not deserving of a wholesale rethink of its future actions in north Africa.

First off, of course, the CoA verdict is official acknowledgement of the severe human rights violations that are persisting in Egypt. This is not exactly breaking news for Egypt-watchers, let alone for Egyptians themselves.

Indeed, in recent months the European Parliament has given notice of its awareness that all is not well in Egypt, calling even for a halting of EU funds – the use of the death penalty and unrestricted police violence do not, after all, tally with EU values. Moreover, in recent weeks, 43 NGO workers from rights and democracy groups have been sentenced to jail in Cairo and Egypt has been blacklisted by the International Labour Organisation for restricting the freedom of workers.

How, then, given its democracy/human rights promoting mandate, the palpable abuses still being endured in post ‘Arab Spring’ Egypt and the rising EU level concern about such, is the EBRD able to justify a brand new host country agreement with Egypt?

I can tell you how the EBRD will respond.

Dusting off the debris of its fragmented media grid (“It was just a bad day, a slight blip”), the EBRD will tell anyone prepared to listen that Egypt is on the path to complying with democratic principles.

This has been the bank’s mantra since spring 2011 when the G8 press-ganged it – and other neoliberal-inclined international financial institutions such as the European Investment Bank and the World Bank – into being the ‘good brokers’ for a population sick of Mubarak’s cronyism, disguised (though very much felt) neoliberalism and violent oppression.

Yet, according to the CoA report, there has been little or no progress on human rights in Egypt, with womens’ rights and freedom of expression notably taking a step back since 2011. Other relevant European bodies such as the European Commission have also chipped in, observing quite chillingly that there has been “an increased aversion towards civil society and human rights more broadly”.

The path to democracy in Egypt, alas, appears to be a very long one – and that’s being optimistic. The EBRD, though, will counter that by entering the country it will be able to influence Morsi’s government. A quick survey of oppressive regimes such as Turkmenistan, Tajikistan and Azerbaijan, not to mention Russia and Turkey, with whom the EBRD has engaged for up to 20 years, ought to bring some perspective to the bank’s capabilities in this regard.

For the EBRD to enter Egypt now is simply a violation of its mandate. And there are various other ‘off-grid’ realities worthy of note, too. For one, the EBRD claims in this week’s announcement that it will prioritise energy efficiency projects, though omits to mention that the only energy project it has signed off (just last month) in Egypt is a controversial oil project opposed by NGOs and also linked to an offshore financial centre.

Other EBRD investment instruments that it has up its sleeve for Egypt are equally concerning in light of the CoA report. The bank was very upbeat last autumn when it announced an investment in a north Africa regional equity fund incorporated in the well known tax haven Mauritius. Related investments – disbursed to third party financial institutions and banks to then lend to the SME sector – are part of its package for Egypt and could run to billions of euros in the coming years. This kind of ‘intermediated finance’ has attracted criticism for its opaqueness and lack of accountability – if you were to ask the EBRD where X million to Bank Y ended up, it is under no obligation to tell you.

Yet, as the CoA report stresses, the Egyptian economy remains blighted with endemic corruption and poor transparency – and it is into this arena that the EBRD is boldly going with its own non-transparent investment tool.

Where the CoA report did detect positive progress in addressing human rights issues via EU projects was in the funding of civil society organisations (CSOs). However, as documented by the CoA, funding support for Egyptian CSOs was abandoned following the revolution due to disagreements between the European Commission and the Egyptian administration. In signing its host agreement with Egypt, the EBRD, despite having engaged in various talking shops with Egyptian CSOs over the last year, has ultimately shown very little regard for their concerns.

Ironically, our Egyptian CSO partners were supposed to have had a meeting with the EBRD country director in Cairo last Tuesday. The meeting was cancelled at the last minute, no doubt because of the signing of the host agreement on the same day.

Local groups grid-locked out by EBRD events, then, but there is a growing groundswell of opposition from Egyptian civil society to EBRD and other international financial institution interventions in this new wave of ‘development’ money. European shareholders to the EBRD would do well to pay heed to these concerns but also step back and ask a simple question – is the EBRD fit for purpose and able to effect progressive change as it deepens its involvement in Egypt?

[Campaign update] Plomin project promoter not able to justify health risks of coal


I’ve been in Istria and Rijeka in northwestern Croatia this week, at a series of events aimed at presenting the health impacts of the Plomin C coal power plant to the public. The events took place in the run-up to the first hearing on the court challenge launched by Zelena akcija/Friends of the Earth Croatia, Green Istria and local residents against the environmental permit for the project, which was held on Wednesday 19 June in Rijeka.

What’s really worrying is how the project promoter HEP, and Ekonerg, which carried out the environmental impact assessment, are trying to justify the pollution from Plomin C as being insignificant and spread over a wide area, as if it is more acceptable for Slovenians to suffer from health impacts than local people. Another claim is that the pollution from power plants is insignificant compared to that from other sources such as transport, as if that justifies ignoring it. I wouldn’t necessarily expect anything different from the project promoter of a coal power plant, but what about the public authorities? Alarmingly, the Istria county health authority didn’t send anyone at all to the events.

Not only that, but the Croatian Ministry for the Protection of the Environment and Nature, at Wednesday’s court hearing, tried unsuccessfully to exclude Greenpeace’s study on the impact of Plomin C on human health from being used as evidence in the court case. This request seemed to imply that the Ministry is unwilling to engage in debate about the topic and prioritises speeding up the project over protecting public health.

The court hearing was postponed until 11th October, so there is not yet a final decision on whether the environmental permit will be cancelled. Meanwhile the debate about Plomin C’s pros and cons will surely continue.

The G8, tax havens and the need to clean up our own “bank yard”


Tackling tax avoidance was one of David Cameron’s priorities for the UK-hosted G8 meeting during the last two days. The recent disclosure of more than 120,000 offshore companies and trusts by the International Consortium of Investigative Journalists, the scandal over a French minister’s Swiss bank account or the revelations about Google’s, Amazon’s and Apple’s use of tax optimisation via offices in Ireland has put world leaders under pressure to act. Cameron wants to end the era of “secretive companies in secretive locations” that cost exchequers around the world billions of pounds in lost revenue; Hollande seeks to “eradicate” tax havens; both are strongly supported by the European Union with Jose Manuel Barroso hoping that „bank secrecy and tax havens will soon belong to the past.”

Even if we took this high-level enthusiasm and the Lough Erne Declaration at face value, addressing tax evasion requires global coordination, political will, and the guts to challenge large corporations: one G8 summit is not enough to deliver on all that.

The good news is that there are plenty of ideas to tackle the problem of the use of tax havens. Exposing companies that hide accounts in offshore centres with more transparency and access to information is one of them.

Not providing public support to these companies is another one.

The European Bank for Reconstruction and Development: public money in liaison with tax havens

The eight biggest shareholders of the European Bank for Reconstruction and Development (EBRD) are also the G8 countries. Together with the EU, they hold a large majority of the Bank’s shares. When the EBRD extended its activities in the MENA region, it had to be endorsed by the group of 8.

And guess what? The EBRD is lending large sums of money to entities that are registered in some of the most famous offshore financial centres!

One of the most striking aspects of this trend is the EBRD loans to private equity funds. Private equity funds’ contribution to the common good is in itself extremely questionable and it’s generally worrying that the EBRD has become a praised investor in such entities. But focusing on the tax havens angle, it’s shocking to note that almost all of the private equity funds in which the EBRD invested were registered in well-known offshore centres. Jurisdictions where, of course, they have no real activity. Take randomly the last 10 private equity funds deals signed by the EBRD (pdf): three are incorporated in the Cayman Islands; three in Guernsey; Luxembourg, Mauritius and Jersey each host one; and the last one, registered in the Netherlands, is managed by a Swiss fund-of-funds.

Besides these cases, also other EBRD projects are linked to tax havens, from the infamous BTC pipeline – three of the companies involved in the BTC consortium are registered in tax havens – to the very recent Egyptian-Ukrainian KEC oil project for which the EBRD Board just approved a USD 40 millions loan (May 29) despite the fact that the company is registered in Jersey.

G8: clean up your “bank yard”, get the EBRD out of tax havens!

To recap: We have 8 leaders plus the EU, all extremely motivated to put an end to the tax avoidance scandal. And they all own a bank, the EBRD that lends public money to entities that are openly using offshore jurisdictions. The obvious next step for these leaders is to enlist the EBRD in their struggle against tax avoidance by putting an end to its involvement with tax haven companies.

The timing is excellent: The EBRD is already planning to revise its policy on offshore jurisdiction this year.

And there would be a number of advantages:

  • The G8 members and the EU can demonstrate their dedication to get rid of tax avoidance. Committing the EBRD to keep its hands off tax haven companies would be a collective effort to set a good example.
  • Non-G8 EBRD shareholders, and mainly the recipient countries, will benefit from to the ability to collect more taxes. In fact, contrary to EBRD belief, the ultimate goal of the use of tax havens is to syphon off profits from the countries of operation. And yet, these countries could do well with more cash.
  • It’s completely coherent with the EBRD’s mandate to promote market-oriented economies and democracy. Tax havens weaken market mechanisms by giving a massive advantage to transnational corporations that helps them crowd out smaller or local businesses. But tax havens do undermine democracy, by resulting in a tax competition that deprives citizens of the ability to chose the level of tax rates and of redistribution they would like to see in their country.
  • And it would be popular. With austerity measures crippling social services, people are furious about companies not paying their taxes. A recent poll commissioned by ActionAid found that 80% of people in the UK want the government to take tougher action against companies avoiding taxes. Also most small business owners oppose offshore tax havens. What would they think about the public money these companies receive?

On the basis of a precautionary principle, it would make sense for the EBRD to refuse to finance a company registered in a place recognized as an „offshore financial center“ for a project that will take place elsewhere. Companies that have no actual activity in these territories don’t need to be registered in Jersey or the Cayman Islands to support a business in Romania or Tunisia.

You don’t have to be a rocket scientist to recognize the very high risk of scam, and when you manage public money, you’d better be cautious to avoid any risk.

P.S.: Of course the number of EBRD deals could drop, maybe drastically. That’s one of the potential side effect of chosing quality: it can reduce the quantity.

Update June 20, 2013: On his blog, also former EBRD director Kurt Bayer pointed out that international financial institutions need to take a more pro-active approach on dealing with tax havens. Among others he writes:

[I]n spite of all the international clamor about tax evasion and tax havens, the mindset of EBRD (and probably IFC and other) bankers has always been: if we disallowed or discouraged offshore activities, we would lose market shares and investment projects. This is an unconvincing argument, however, since a public-sector bank owned by (in EBRD’s case) 64 countries and the EIB and the EU, does not need to compete with private sector banks, does not need to meet any volume criteria, but, according to its mission, should finance projects which promote the transition towards a sustainable market economy.