Who calls the shots? Development banks and the politics of de-risking in European external finance

To confront global challenges and to assert itself more firmly on the international stage, the EU has not only expanded its overall budget for external action. It has also increasingly deployed de-risking instruments, like blending and guarantees, aimed at leveraging financial resources from other actors. This raises important questions regarding the governance of European external finance. To unpack these issues, this paper reviews the rise and consolidation of blending and guarantees in the institutional and budgetary architecture of EU development policy. It traces how these instruments – originally conceived as vehicles for leveraging private sector finance – have instead led to the rise of European development banks, most notably the European Investment Bank. We argue that development banks offer a middle-ground, as the European Commission seeks to manage the tensions and trade-offs between leveraging financial resources, on the one hand, and retaining a strong steering role in its external action, on the other.