Präsentation von Debora Revoltella, Chefökonomin der Europäischen Investitionsbank, im Rahmen eines Webinars des OECD Berlin Centre am 18. Juni 2020

1. ACCELERATING TRANSFORMATION: THE
ROLE OF INVESTMENT IN GERMANY
AND THE EU TO SUPPORT RECOVERY
FROM THE PANDEMIC SHOCK
17/06/20201
Debora Revoltella
Chief Economist
European Investment Bank
Berlin
June 18, 2020

2. Agenda
17/06/20202
‣ Covid-19 economic crisis
‣ Policy response
‣ Structural issues
‣ Conclusions

3. Covid-19 & lock-down affects corporates across EU
17/06/20203
• A massive economic shock:
• Lockdown as a massive shock across geographies and sectors
• Demand and supply shock, trade collapse and questioning on GVC model
• Rebooting in the face of sectoral, country, regional and
firms heterogeneity
• Huge uncertainty remains:
• Medical (immunization, timing for a vaccine, second round of contagion,
etc.)
• Shape of the recovery (effectiveness of policy answers and consequent
likelihood/severity of second round effects of the crisis)
• Long term structural changes (change in individual preferences, labor
market, value chains security, role of the state)

4. Covid-19 & lockdown: sudden stop of EU economies
17/06/20204
• Q1 GDP -3.2% in the EU. Germany -
2.2%.
• From a few sectors, to widespread
impact on the economy.
• Forecasts point to deep and
uneven recession and uncertain
recovery across EU (change in GDP
-5/-10% in 2020; + 6 in 2021).
GDP growth, EU and Germany
In percent
Germany gross value added,
Germany selected sectors
Change yoy in per cent
Economic Sentiment Expectations, EU and Germany
-8
-6
-4
-2
0
2
4
6
8
q1 2019 q2 2019 q3 2019 q4 2019 q1 2020
Industry (excl. construction)
Construction
Trade, transportation and food services
Business services
Other services
-8
-6
-4
-2
0
2
4
6
8
EU qoq DE qoq
EU yoy DE yoy
-40
-30
-20
-10
0
EU economic sentiment DE economic sentiment
Apr vs. Feb. May vs. Feb
Source: Eurostat, Destatis.

5. Covid-19 & lockdown: stabilisation signs?
17/06/20205
Contagion EU vs US & China
Note: Darker red color indicates more strict containment measures. 0=no measures; 100= extreme measures.
Scores are based on the severity of restrictions affecting 1. schools/childcare, 2. restaurants and bars, 3. Non-
essential shops and services, 4. public gatherings, 5. Internal mobility, 6. external borders, 7. other areas. Note:
Some countries with regional variation on strictness of measures and pace of exit (e.g. FR, DE).
Source: ihs_Markit, ECON.
Moving out of lock-downs
(Expected) severity of containment measures
March April May June July August
IT 100 100 74 58 33 33
HU 50 95 64 36 19 14
ES 49 95 76 60 38 38
BG 49 93 66 29 19 14
HR 86 91 62 41 35 19
RO 48 90 77 38 33 33
SI 74 84 57 22 19 19
AT 48 83 55 31 24 19
FR 43 81 69 36 29 29
BE 35 81 69 53 36 33
IE 36 81 71 57 43 31
DK 43 76 57 41 38 33
NL 38 76 72 53 38 33
PL 42 76 36 17 14 14
DE 41 74 53 31 24 24
LU 41 72 55 29 24 19
PT 37 71 62 38 31 22
CZ 37 68 38 17 10 10
SK 37 68 34 17 10 10
CY 36 68 43 38 26 19
FI 35 67 65 48 48 35
GR 35 67 52 34 27 19
LT 36 67 46 24 22 19
MT 34 67 64 57 52 33
EE 31 57 46 24 22 19
LV 24 43 43 27 22 19
SE 24 43 48 48 41 36

6. V vs U vs L: the importance of the policy response
17/06/20206
• V shaped recovery: Canada post
financial crisis: shock and
rebound
• U shaped recovery: Spain after
the financial and sovereign
crisis, with some prolonged set-
back, due to crisis
consequences, but ultimately
recovery
• L shaped recovery: Greece
following the crisis, with long
term structural adjustment

7. Uncertainty and firm behaviour
‣ Uncertainty at unprecedented high with
Covid
‣ Increased uncertainty depresses
investment, as firms postpone (wait-
and-see) and re-scale plans.
‣ Stronger effect, the more irreversible
the investment is.
‣ Stronger effect during recessions: lower
cash flows strengthen the negative
impact of uncertainty.
‣ Increased input flexibility (labour and
capital) attenuates the wait-and-see
attitude of firms.
‣ Very large firms and intangible-intensive
firms react less negatively to
uncertainty.
17/06/20207
-8
-6
-4
-2
0
2
4
6
8
0
50
100
150
200
250
300
350
400
450
500
q1
2010
q1
2011
q1
2012
q1
2013
q1
2014
q1
2015
q1
2016
q1
2017
q1
2018
q1
2019
q1
2020
Economic policy uncertainty
Investment in equipment (% change yoy)
Covid
Brexit
Policy uncertainty and Investment in Germany
Left: Economic policy uncertainty index, quarterly averages.
Right: Investment in machinery & equipment, quarterly change in per cent.
Source: Policyuncertainty, Destatis.

8. Corporates – Impact from the crisis
17/06/20208
‣ For those surviving, how to make up
for the losses?
‣ Reduce investment
‣ Increase debt
‣ Need to keep high focus on
innovation and diffusion of
innovation
‣ Rebalance funding mix towards
equity
Covid impact on corporate
‣ Drop in revenues and fix costs
‣ Cash buffers depleting fast,
particularly for SMEs
‣ Policy response allowing some
deferrals and temporarily grace
periods
‣ Guarantee schemes supporting
access to finance for firms, but
debt increases ‣ Some will not make it
‣ Loss of intangible capital vs viability of the
business model in the new environment
‣ M&A vs Re-allocation of resources
Grace periods
Liquidity and credit
(and guarantees)
Sustainable
finance and equity

9. Corporates – lockdown and liquidity shortfalls
17/06/20209

10. Corporates – resilience highly dependent on size
17/06/202010
• Net revenues loss is 5-10% assets
• Weighted by size: 4-8% assets = 13-24% GDP

11. Corporates – a trade off between leverage and
investment?
17/06/202011
• A trade-off between leverage and investment
• In the less adverse scenario, investment to shrink by 31%-51%, more than double than in
the financial crisis

12. So far policy makes sure that the credit channel continues
to work
17/06/202012
Approved measures:
• Flexible use of existing capital buffers
• Limiting pro-cyclical assumptions in
loan loss provisioning
• Dividend and shares buy-back
freezes
• LTRO and TLTRO supporting funding
• Credit guarantees by various EU
member states
• Collateral requirements ECB
Source: IMF and ECON calculations
0.0
5.0
10.0
15.0
20.0
25.0
2019 2008
European banks core tier 1 ratio
% risk weighted assets
Possible risks:
• Sovereign - Banks nexus
• Credit risk and level playing field

13. Corporates lending increasing, emergency liquidity needs
prevailing in the short term
Changes in demand for loans to
enterprises and contributing factors
Source: ECB, BLS.
Source: ECB euro area bank lending survey (April 2020)
Lending to enterprises in Eurozone
Transactions to NFC, by maturity, EUR bn
-20
0
20
40
60
80
100
120
140
Total NFC <1Y 1-5Y >5Y
Jan-20 Feb-20 Mar-20 Apr-20

14. Innovative firms highly challenged
14
Source: (1-2-3) Crunchbase and EIBIS 2019: EIB staff calculations
0
5
10
15
20
25
30
EU US
0
50
100
150
200
250
300
I II III IV V
Stages
EU US
Start-ups and scale-ups
Number of start-ups and scale-ups per 100,000
inhabitants
Size of start-ups and
scale-ups
Average number of employees
Size of funds
Median fund size in mn USD)
0
5
10
15
20
25
30
Early stage Launch/Early
revenue
Scale-up
EU27 US

15. Covid and lockdown measures strongly affect
German start-ups & entrepreneurs
17/06/202015
0 20 40 60 80 100
No revenues drop more than 75% 75-50% 49-25% less than 25%
0
10
20
30
40
50
60
up to 1
months
1-2 months 2-3 months 3-4 months 4-5 months 5-6 months more than
6 months
Entrepreneurs NOT seeking / planning to seek support programmes
Entrepreneurs seeking / planning to seek support programmes
Distribution of Corona induced revenue losses
Share of respondents, in per cent
Less liquid firms more likely to seek support
programmes
Share of respondents, in per cent
Development of VC business climate
• Most entrepreneurs planning
to start a business still willing
to go ahead (just 2%
planning to quit)
• Avoiding funding gaps and
‘lost start-up generation’?
Source: KfW Flash Survey (21 April 2020), KfW & BVK (May).

16. Agenda
17/06/202016
‣ Covid-19 economic crisis and the corporate sector
‣ Policy response
‣ Structural issues
‣ Conclusions

17. Policy response: Member States and EU
17/06/202017

18. European policy response: complementarities
17/06/202018
EU Measures
• SURE: EUR 100bn – social insurance
• ESM: EUR 240bn – covid and health
• EIB: EUR 200bn – corporates
• EU next generation: EUR 750 bn +
MFF EUR 1.1 tn
EU measures crucial:
- to grant level playing field in the single
market
- to internalize spillovers (40% of EIB
policy interventions)
- 28 bn Euro frontloading of activities to start
with
- Traditional strong focus on health and
innovation financing (EIB and EIF)
- Backbone of the EU venture capital market
(EIF) and venture debt (EIB)
- Part of Team Europe for the extra-EU
- The EGF: up to 200 bn Euro to address
liquidity and funding issues of firms
- Based on euro 25 bn guarantee from
member states, with strong leverage
effect and expected loss of some 20%
- Mostly SMEs (65% min SMEs, 28% max
mid-large & hospitals (max 5%)), 7%
venture capital and venture debt)
- Providing capped and uncapped
guarantees, ABS, risk sharing, as well as VC
and venture debt
EIB

19. What is the Next Generation EU package?
17/06/202019
How will the EUR 750bn used?
• EUR 250 bn: loans to member states (as part of the Recovery and Resilience Facility)
• EUR 440 bn: grants to member states (as part of the Recovery and Resilience Facility)
• EUR 60 bn: guarantees strengthening other key elements of the EU budget
Complementing MFF 1.1tn (including Cohesion Policy, Horizon, etc)
With EIB Proposed Involvement:
• Just Transition Fund – increased to EUR 40 bn, public loans facility for green transition
• Investment EU + Strategic Investment Fund: additional EUR 30 bn (50% each)
• SIF to develop strong and resilient independent value chains, such as critical infrastructure, green and digital
technologies and healthcare and enhance the autonomy of the Union’s single market. For Important Projects of
Common European Interest. EUR 15bn to generate EUR 150 bn investment.
• Solvency Support Instrument – EUR 31 bn to provide a new EUR 75 bn guarantee to EIB, to
lend up to EUR 300 bn
• Equity support to viable companies and help firms through their green and digital transformation.
• Guarantee to be calibrated – investment targeted to those companies in sectors/countries with greatest need.
• Outside the EU – additional EUR 15 bn

20. Single market remains crucial for German economy
17/06/2020 20
Exports of goods to other Member
States, 2019
EUR bn
Intra-EU and extra-EU exports of goods,
2019
Share in per cent
Source: Eurostat.

21. Potential post-crisis scenarios.
17/06/202021
• Falling behind: incomplete recovery and growing national and regional divergences.
• Resetting the clock: growth in line with its pre-crisis potential, but unable to recoup
the current output loss.
• Catching up: more dynamic recovery, economies not only to return to past
performance but also to successfully restructure & grow faster in the long run
Real GDP index
(2019=100)

22. Agenda
17/06/202022
‣ Covid-19 economic crisis and the corporate sector
‣ Policy response and the corporate sector
‣ Structural issues
‣ Conclusions

23. Structural investment needs are large and urgent
17/06/202023
Competitiveness and
productivity
Social
sustainability
Environmental
sustainability
Digital adoption:
EU (=DE) 58% vs US 69%
VC/GDP: EU 0.05%
vs US 0.33%
EU firms: 13% of
the group of new
top innovators
(vs US 34%)
Covid-19 laid bare
social challenges
(education,
housing).
Economic shock
with greater
impact on low-
skilled workers.
Risk of wrong incentives,
e.g. low oil prices or
prioritization of short-term

24. Strengthening focus on innovation needed.
17/06/2020European Investment Bank Group 24
Q. What proportion of total investment was for developing or introducing new products, processes, services?
Q. Were the products, processes or services new to the company, new to the country, new to the global market?
Innovation activities
share of firms in per cent
Source: Econ EIBIS
Note: NW refers to North-Western Europe incl. FR, DE, LUX, BE, NL, DK, SE, FI and IE.
0
20
40
60
80
100
Germany NW EU Germany NW EU
SME Large
No innovation New to the firm New to the country New to the world

25. German firms lag behind US on digital adoption. Large
firms in manufacturing most likely to adopt.
17/06/2020European Investment Bank Group 25
Note: A firm is identified as partially digital if at least one digital technology was
implemented in parts of the business; and fully digital if the entire business is organised
around at least one digital technology. Firms are weighted using value added.
Firms that implemented at least one digital
technology
share of firms in per cent
Source: Econ EIBIS
Skill constraints by digitalization level
share of firms in per cent citing investment obstacle
0
20
40
60
80
US-2019 EU-2019 DE-2019 SME Large
Partially Fully
0
20
40
60
80
100
Not digital Partially digital Fully digital
Lack of skilled staff Digital infrastructure

26. Germany with opportunities from green transition
but investment in network infrastructure needed.
17/06/202026
0
10
20
30
40
50
60
Energy
Intensive
Non Energy
Intensive
Energy
Intensive
Non Energy
Intensive
Energy
Intensive
Non Energy
Intensive
Germany EU US
0
10
20
30
40
Q: What proportion of the total investment was primarily for measures to improve energy
efficiency in your organisation?
Base: all firms that have invested (data not shown for those who said don’t know/refused)
Note: Investment decision is a binary that takes the value of one when firms surveyed have
invested in energy-efficiency improvements and 0 otherwise
Q: Thinking about your investment activities, to what extent are energy costs an obstacle? Is a
major obstacle, a minor obstacle or not an obstacle at all?
Base: All firms (data not shown for those who said a minor obstacle/not an obstacle at
all/don’t know/refused)
Firms that invest in Energy efficiency, by
energy intensity
In per cent
Share o firms considering energy costs as
obstacle to investment
In per cent
Source: Econ EIBIS

27. Local public investment needed to support recovery
and structural transformation
17/06/202027
0
20
40
60
80
100
roads housing water schools &
training
childcare IT
serious backlog notable backlog no or only limited backlog
Municipal investment gap of EUR 147 bn
Areas with investment backlog
Share of municipalities stating investment backlog, in per cent
Impact of Covid on investment
Share of municipalities stating investment backlog, in per cent
0 20 40 60 80 100
Digitalisation of public services to get
a boost
Investment going to shift to
systemically relevant areas (health,
emergency protection)
Share of investment going to decrease
strongly agree somewhat agree somewhat disagree fully disagree
Source: KfW Kommunalpanel and special Corona survey.

28. Agenda
17/06/202028
‣ Covid-19 economic crisis
‣ Policy response in Europe
‣ Structural issues
‣ Conclusions

29. Achieving a dynamic and sustained recovery in
Germany and Europe
17/06/202029
• Provide targeted demand and income support to facilitate an exit towards a new
normal;
• Address the main bottlenecks to output and growth accompanied by a continued
effort to implement structural reforms;
• Rebuild the capital stock and enhance labour skills, to invest in new, sustainable
growth sectors, including IT, and the ‘greening’ of our economies; and
• Avoid supporting oversupply in structurally unviable industries and inefficient firms.
EC Recovery plan (“Next Generation EU”) is important step in this direction.
• Focus on fostering public investments and reforms to accelerate the recovery, make
Member States economies more resilient, facilitate the green and digital transition,
and reduce economic and social divergences.