Just a year ago calls were growing to wind down the EBRD. Now
shareholders are pondering a possible 20 billion capital
increase. Its president Thomas Mirow explains whats
changed and why he thinks the bank is more important
A year ago the EBRD headed into its annual meeting against a
backdrop of persistent questioning of its future shape and
purpose. At least one shareholder wanted out, others some of
their contributions back in the form of a special dividend.
Critics argued that, with its mission largely accomplished, the
EBRD should prepare for eventual wind-down, or merger with
another institution. An effective takeover by the EIB (European
Investment Bank) was openly touted.
Fast forward to early 2009. The Bank is an institution
revitalized, its purpose no longer questioned. With regional
GDP forecast to decline by up to 6% this year and much of the
problem firmly located in the banking sector, the EBRD feels
like the right institution, in the right place, at the right
Things indeed have totally changed, says EBRD
president, Thomas Mirow. There is a broadly shared view
of shareholders that the Bank should deliver on efficient
crisis management so it is certainly a totally different
feeling for people working in the Bank in terms of being needed
and the institution not being called into question.
Appointed president of the EBRD at last years meeting,
Mirow, the former second-in-command at the German finance
ministry goes into his first annual meeting charged with a few
key tasks: making sure that the Bank has positioned itself
properly in a year in which so much changed, so fast;
clarifying rules of engagement with other actors in the drama,
particularly other IFIs (international financial institutions);
and most of all preparing for negotiations over
the EBRDs capital structure that officially start in
What we need to get is a sense of what amount and what
direction of engagement our shareholders expect from us,
says Mirow. Are they happy with the substantive decisions
we have taken? Do they expect possibly even more from
That question is no empty one: it is clear that the talks with
shareholders will focus on a possible increase in its E20
billion capital base to help it cope with the expanded size of
the task it is charged with. The EBRD expects to lend 7
billion this year, up from 5.1 billion in 2008.
Interviewed in late April by Emerging Markets as he prepared
for the London meeting, Mirow says he inherited an institution
that was in good shape from the two-term incumbent Jean
Lemiere. It was well run, well managed, he says.
There was not a need for immediate change.
That may be so, but there is little doubt that the
all-too-public debate over its future had a corrosive effect on
Says one former long-time EBRD staffer, speaking on conditions
of anonymity: In the last phase the institution was
dominated by the questions Should the Bank pay a
dividend? Would it continue in the same shape?
People were asking what their future was it was
obviously not helpful for the morale of people or the ability
of senior management to remain focused. He adds:
The environment has changed so dramatically; this debate
is not a debate any longer.
But being pushed back to centre stage in the region comes with
a price. We have certainly a situation in which people
have individually to work very hard, says Mirow,
sometimes to the borders of their
That puts One Exchange Square firmly on the map of headhunters.
We are hiring, but not excessively, says Mirow. He
adds that between 50 and 60 people may be taken on, mostly from
the private sector. While the EBRD has always valued rotation
between the private sector and the Bank, before the credit
crunch the lure of private-sector pay packages contributed to a
brain drain from the Bank.
Asked about the mood inside the Bank after Mirows first
year, EBRD staffers say he has made a good impression, taking
time to understand the institution and giving senior management
as much breathing space as is possible in a supercharged
environment. He is often portrayed as a rather colourless
German politician; his office is famously Spartan, and his
style certainly contrasts with that of his predecessor. But
staff particularly value his wide range of contacts at the
international level, honed during his stint at the finance
ministry in Berlin, where his responsibilities included
relations with international financial institutions.
Mirows candidacy attracted some controversy: some critics
saw it as part of a wider French-German manoeuvring over top
slots at international financial institutions, and some central
and eastern countries pressed for a president from the region
itself. But that is firmly in the past. At the very
moment you are elected, you are elected, and I havent
heard any critical opinion since, says Mirow.
Being needed helps, of course: the EBRDs skills are once
more in demand. The EBRD always had a very special role,
in between the private and the public sector, says the
former EBRD staffer. The numbers had to add up but it was
not necessary to make money. It is the only institution
structured to take on risky investments and see them through to
a successful conclusion.
the money goes
The Banks response took more concrete shape in late
February when the World Bank, the EBRD and the EIB announced a
lending package of up to 24.5 billion for the
region. The World Bank is prepared to lend 5.5
billion for banking, trade and infrastructure finance (plus
2 billion for political risk insurance) while the EIB
will lend up to 11 billion to small and medium-sized
businesses. The EBRD is offering up to 6 billion in
loans and equity stakes in banks.
The EBRD has already moved into action: in April it announced
it was taking a 25% stake costing 84.2 million in Parex
Bank, the Latvian bank forced into the arms of the state by the
crisis. Parex got a 22 billion loan from the EBRD as
part of the investment.
In May, the programme moved up a gear as the EBRD announced it
would invest 432.4 million in 10 central and eastern
European subsidiaries of the UniCredit Group, the largest
banking group in the region.
The money will chiefly be used to boost the flow of credit to
small and medium-sized enterprises across the region. Those
kinds of investment demand the key skills built up in the
Banks 18-year existence. Indeed, in some respects,
its back to the future for the EBRD. But Mirow points out
that it is only part of a bigger picture.
The IFI banking initiative announced in February is, says
Mirow, not only an effort to fund together the banks but
a coordinated effort with country regulators and central banks
to tackle problems. As has become all too clear as the
crisis has unfolded across Europe, meshing the interests of
different parties is not easy, particularly when they reside in
different countries or are cross-border
Take the IMF a key player in the policy response to the
crisis. Hungary, Poland, Ukraine and Latvia are already in IMF
programmes, either to shore up economies or as a precautionary
measure. But the IMF suspended lending to Latvia in April,
arguing that the budget cuts contained in the governments
stabilization programme did not go deep enough. Latvias
economy looks set to contract by 12% in 2009 the worst
recession in the European Union and rioting earlier this
year has already toppled a government.
In a region with famously volatile politics, an episode such as
this is unlikely to be the last. This matters, says Mirow:
We cannot meaningfully try to stabilize banks if on the
other hand the states have not agreed with the IMF on macro
The Latvian government hopes to present a budget acceptable to
both parliament and the IMF in June when the next
tranche of the IMF loan is due to be disbursed and the
turmoil has yet to undermine the EBRDs investment in
Parex. Still, it is clear that the EBRDs rescue attempts
will be played out against a volatile background. Mirow
stresses that the EBRD is working as hard as it can to fashion
a joined-up approach to the region by all parties
Few doubt the desire of the IFIs to work effectively together,
but some express concern that the rules of engagement are not
clear enough. The IFIs are unsure about how to respond to
the crisis, says a financier active in the region. That
is a problem with more than one dimension, he argues: The
cooperation between, say, the EIB and the EBRD has been OK, but
it is really difficult to see the projects where they can work
He argues that potential recipients in the region can be unsure
about what they can and cannot get. The supranationals
should be more precise on the terms that they will distribute
money into the real economy.
With its more focused remit and more defined pool of potential
clients, the EBRD is perhaps less open to this criticism; Mirow
argues that to the extent that the Bank is communicating to the
general public, it takes care to explain its mission.
Still Mirow has not been afraid to venture into the high-octane
political debate about the policy response: in March this year
he added his voice to those arguing for a cut in the waiting
time potential Euro members in the region had to spend in the
Exchange Rate Mechanism.
Despite a firm rebuttal of this suggestion, Mirow is still
convinced that the eurozone membership process should be used
as a buttress for the region. There was a clear decision
by the eurozone ministers and the European Central Bank [ECB]
that they would not envisage [fast track-membership] and so I
made an alternative proposal which is still valid today, that
they should team up with the EU 8-2 [minus existing Euro
members Slovakia and Slovenia] and try to agree a comprehensive
plan as to who would do what to join the eurozone by when and
agree that with the EU and the ECB.
Adds Mirow: I still think that this would be an immense
trust-building element if the markets were to perceive eurozone
accession not only as an abstract political goal but an
imminent political avenue which has been concretely
Unsurprisingly, Mirow has little truck with those who argue
that the crisis will delay eurozone membership for the region.
This is laid down in accession treaties, he says.
That is forgotten by some. What I argue for is accession
treaties to be taken seriously.
The EBRDs brief covers, of course, more than potential
eurozone members; it is an institution necessarily forced to
deal with variable geometry. Russia will remain the Banks
single largest area of operation in coming years though the
renewed focus on central Europe will slow the rate of growth in
investment in that country. (Some in the Bank, and outside,
have argued for some time that the EBRD was doing too much
business there, and sometimes with the wrong people.)
Turkey joined as a full EBRD member last year and will
represent another potential call on the Banks resources.
Juggling these demands will call for all Mirows
diplomatic skills, but amidst the noise Mirow is determined to
keep his institution focused on the future. What we are
trying to do is to link a response to the crisis with a
mid-term perspective in view of a forthcoming recovery in the
region, he concludes.