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More Western Banking Will Not Help the Mediterranean Pro-Democracy Struggle

(Photo: makeroadssafe / Flickr)

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More Western Banking Will Not Help the Mediterranean Pro-Democracy Struggle

(Photo: makeroadssafe / Flickr)

Writing for the Washington Post on March 10, 2011, David Ignatius reported that “White House officials like” the idea of the European Bank for Reconstruction and Development (EBRD) being given a role as “a bank for economic and political transition” in Egypt and neighboring countries.

The US stance is important because this country is one of the financing members of the EBRD, an institution created 20 years ago to support the transition to democracy and market economies in post-socialist countries. According to Ignatius' article, the bank's president, Thomas Mirow, now thinks the bank is ready to play a similar role in the southern Mediterranean.

Meeting March 10 and 11, 2011, in Brussels to agree on a common European response to the political developments in the Mediterranean region, European Union (EU) leaders negotiated around a draft for a so-called “Partnership for Democracy and Shared Prosperity with the Southern Mediterranean” prepared by the European Commission, the EU executive.

The draft proposes that the EBRD be given a financing role in the southern Mediterranean, where it currently does not operate. EBRD could initially loan to Egypt and Morocco, two countries that are currently shareholders in the bank but not recipients. The EBRD is already talking about possibly lending up to one billion euros ($1.38 billion US) to these countries.

Other money for the region is supposed to come from the European Investment Bank (EIB), the EU in-house bank, which wants to increase its lending to the southern Mediterranean by one billion euros over the next three years.

During the March meetings, EU leaders expressed explicit support for expanding EIB lending to the Mediterranean but kept silent on the role of the ERBD, presumably because the EBRD mandate cannot be expanded without US endorsement. Final decisions can be expected in the near future.

It sounds like the European Union (possibly with support from the US) is ready to put its money where its mouth is and really support the democratic wave in the Mediterranean, but before we start cheering, we should look closer at the functioning of the banks through which all this money is likely to be channeled.

The EIB has already spent ten billion euros in the region since 2002 in the form of loans, but EIB global loans are badly monitored, end up in the wrong hands and, most importantly, fail to meet the aspirations of the people in receiving countries. Lack of transparency over spending of EIB loans is an especially sensitive issue, as corruption was one of the main reasons for the uprisings in the Mediterranean region. Even more, the fact that the EIB has not been able to guarantee, even in more stable political circumstances, that its loans actually benefit local populations and not corrupted leaders and businessmen casts a serious doubt over the bank's capacity to suddenly perform better in the current climate of political uncertainty.

Before the EIB's lending mandate in the region is expanded, the bank should undertake a review of its previous lending in the region and take measures to ensure such funds do not end up in the wrong hands again.

As for the EBRD, its original mission – to assist the countries in Central and Eastern Europe and the former Soviet Union in their transition to market economies and multiparty democracy and pluralism – has been, by the EBRD's own measures, achieved with mixed results. After 20 years of operation, so far only one of 30 recipient countries, the Czech Republic, has graduated to donor country status. With no actual expertise in the Mediterranean and no publicly available information on how the its operations impact poverty, there is no reason to trust the EBRD will perform better in this region than in post-socialist countries.

After 20 years, a sustainable and socially just society is nowhere to be seen in the EBRD region. Many of the countries that the EBRD works in remain poverty-stricken and authoritarian, and the economic liberalization model promoted by the bank has taken a severe battering in the crisis. This is hardly a good moment to declare victory and jump into a new, very troubled region, particularly in light of the current lack of a real government in Egypt.

What could help in the region is a credible EU political initiative, not more European banking. The banks' primary interest is not civic empowerment, but, rather, taking advantage of the instability in the region to multiply business opportunities.

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