US Commits up to $1 Billion to Stimulate Eastern, Central Europe Infrastructure Investments

(L) Bulgaria’s President Rumen Radev, (C) Estonia’s President Kersti Kaljulaid, (R) Poland’s President Andrzej Duda at the Three Seas Virtual Summit in Tallinn, Estonia on Oct. 19, 2020. Courtesy of Three Seas / Annika Haas

The United States announced that it will match 30 percent of investments toward the development of cross-border transportation, energy, and digital infrastructure projects in the Three Seas region between the Baltic, Adriatic, and Black seas.

The Three Seas Initiative focuses on an area where infrastructure was underdeveloped as a result of Soviet domination during the Cold War.

The U.S. International Development Finance Corp. pledged to match 30 percent of Three Seas Initiative countries’ combined investment, up to $1 billion, U.S. Under Secretary of State for Economic Growth, Energy, and the Environment Keith Krach said Oct. 19 at a summit of Eastern and Central European countries held in Estonia.

The goal is to stimulate investments by each member country so that the more each country invests, the more the United States contributes, Krach added.

The heads of state and ministers of 12 Eastern and Central European countries participating in the Three Seas Initiative, as well as representatives of the United States and the European Union, took part in the summit.

U.S. Under Secretary of State for Economic Growth, Energy, and the Environment Keith Krach at the Three Seas Initiative Virtual Summit in Tallinn, Estonia on Oct. 19, 2020.
Courtesy of Three Seas / Annika Haas

“Our aim is to help the fund reach $3.4 billion. So we can invest all of that $1 billion in all types of infrastructure that can go for roads, bridges, railways, 5G, ports, and energy projects,” Krach said at a press conference.

However, the United States will only support “trusted clean infrastructure, as described in the blue dot standards,” Krach said.

The Blue Dot Network, started by Australia, Japan, and the United States is “a globally recognized seal of approval for major infrastructure projects, letting people know that projects are sustainable and not exploitative,” according to the U.S. government website. Its mission is to promote “quality, market-driven, and private-sector-led investment.”

Blue dot regulations, which set “high standards for governance, transparency, environmental, and financial sustainability” and benefit local countries’ workforce, stand in stark contrast to the Chinese Communist Party’s Belt and Road Initiative (BRI), Krach said.

BRI projects are “financed by the Chinese government, Chinese banks,” use Chinese workers, and are designed only to benefit the Chinese Communist Party, Krach said. There are stories from around the world about the secret agreements and the forced collaterals related to BRI, he added.

U.S. Secretary of State Mike Pompeo speaks during a news conference in Washington, on Sept. 21, 2020. Patrick Semansk/POOL/AFP via Getty Images

“The United States has skin in the game, and we look forward to every member of the Three Seas Initiative contributing as well,” U.S. Secretary of State Mike Pompeo said while addressing the summit, encouraging all members of the initiative to contribute.

“Those member-states that have not yet invested in the Fund should do so now, and other member-states should make additional investments,” Pompeo said, adding “government investments in the Investment Fund are useful, but nothing can match the financial might of the private sector. You, we, must grow the Fund by attracting private capital and investment.”

Since last year’s summit, the Polish state-owned development bank and the Romanian export-import bank created the Three Seas Investment Fund, which “is run by a private entity, free of political influence,” Pompeo said. Most of the countries have already either invested in it or committed to invest.

The two banks have made initial investments of a total of more than 500 million euros ($588 million). Beata Daszynska-Muzyczka, the president of the Polish State Development Bank (BGK), announced at the summit that the bank board committed to increasing its investment to 750 million euros ($883 million).

However the number of infrastructure needs in the region requires investments of about 600 billion euros ($706 billion), Daszynska-Muzyczka said. Seven more Three Seas members decided to join the fund, Polish President Andrzej Duda said at the press conference.

Pompeo also warned the countries against favoring state-owned enterprises or putting politics in the way of private investments. He also advised the countries to establish a Three Seas Secretariat to “ensure continuity and greater progress” between summits.

He also urged the member–states to move projects quickly “from concept to shovel-ready stage.”

“As you move forward, you should know you will not be alone. America is with you,” Pompeo said.

What Is the Three Seas Initiative?

Romania's Midia port on the Black Sea before it embarks its passengers: thousands of sheep to be shipped to Libya for the Eid al-Adha holiday on July 30, 2019. Daniel Mihailescu/AFP via Getty Images

Started as a flexible political platform at the governmental level by Croatia and Poland, the Three Seas Initiative has been joined by member nations of the European Union, with the exception of Austria, that used to be a part of the Eastern communist bloc.

Due to exploitation by their communist rulers and Soviet domination, the infrastructure of the Central and Eastern European (CEE) countries was underdeveloped and focused only on interconnections along the East–West axis, which became an impediment to their economic growth as well as economic integration with Western Europe.

Even as the European Union has made large investments in transport infrastructure projects in CEE countries, the gap between them and Western Europe is still significant. The shortfall in investments in the infrastructure, energy, and digital fields, as estimated by the International Monetary Fund (IMF), has grown over the years to as much as 1.15 trillion euros ($1.36 trillion).

While the average per capita gross domestic product in the Three Seas countries was 78 percent of the European Union average in 2018, their average economic growth rate from 2015 to 2019 was 3.5 percent, compared to 2.1 percent in the European Union, according to the Three Seas website.

The IMF has forecast that in 2020, that rate will continue to be higher than in the EU.

While costs to build infrastructure are high, the benefits are sizable,  and the short-term benefit is job creation and an increase in economic resource utilization, IMF Managing Director Kristalina Georgieva said at an event at the Atlantic Council. In the long term, improved interconnectivity will increase the overall production of goods and services, she said.

Benefits of Infrastructure Improvement

Because of the CCP (Chinese Communist Party) virus pandemic, some European countries may seek to move some of their supply chains out of China.

“The Three Seas region with its qualified workforce and improved infrastructure can play an important role in creating new supply chains,” Duda said at the press conference.

Mark Menezes, deputy secretary of the U.S. Energy Department, said at the press conference that the United States “encourages member nations to commit to creating economic conditions that boost private sector investment in energy infrastructure.” It will not only bring “direct economic benefits, like jobs, and lower energy costs for consumers, but also energy security benefits, reducing reliance on any single supplier for energy,” he added.

The Three Seas Initiative’s “implicit aim, backed by the United States and the European Union, is to compete with the 17+1” grouping of Central and Eastern European countries led by Beijing to promote its infrastructure projects in the region, Edward Lucas, a nonresident senior fellow at the Washington-based Center for European Policy Analysis (CEPA), wrote.

U.S. Reps. Marcy Kaptur (D-Ohio) and Adam Kinzinger (R-Ill.) introduced a bipartisan resolution in support of the Three Seas Initiative that has advanced out of the House Committee on Foreign Affairs.

The initiative will “boost the resiliency of European infrastructure, energy, and digital security in the face of growing Russian and Chinese threats to democracy,” Kaptur said in a statement.

“The Three Seas Initiative will undoubtedly bolster energy independence and infrastructure security in the region, and show strong U.S. support in the face of increased Russian and Chinese influence over these countries,” Kinzinger said in the statement.