PARIS (Reuters) – The European Union’s vaunted investment plan, due to be formally blessed by the bloc’s 28 leaders at a summit this week, may be a day late and several euros short to revitalise a stagnant economy.
Because of Europe’s mountain of public debt, the initiative outlined by European Commission President Jean-Claude Juncker contains no new public money and relies on financial engineering to turn 21 billion euros in existing EU and European Investment Bank funds into a putative 315 billion euros in project funding.
Whether it can revive sagging public and private investment will hinge largely on the choice of shovel-ready infrastructure projects that boost Europe’s growth potential, and on the way that national contributions are treated by the EU bean counters.
Investment in the 28-nation EU in 2013 was on average 15 per cent below pre-crisis levels, according to an EU task force report, with a plunge of more than 60 per cent in the worst affected southern countries.
There is much debate about whether the slump is mostly due to weak demand, tight credit conditions, an absence of economic reform or a lack of business confidence, but EU governments agree that something must be done now.
The Juncker plan, due to be up and running in mid-2015 and last three years, will focus on “viable investments of European significance” mostly in transport, energy and digital networks, as well as research and development.
Juncker has promised “favourable treatment” for countries that take equity stakes in the planned European Fund for Strategic Investment when the EU authorities calculate budget deficits, which must be below three per cent of national output.
Polish Finance Minister Mateusz Szczurek told a conference of the Council for the Future of Europe last week no government would pay into the fund unless it was guaranteed that money invested would not be counted against its deficit.
But economic powerhouse Germany, the biggest stickler for EU budget discipline, opposes bending the fiscal rules, fearing a precedent and abuses of the definition of “investment”.
“Any renewed discussion about tweaking the fiscal rules runs the risk of undermining market confidence,” German deputy labour minister Joerg Asmussen told the conference. It was very hard to define good and bad expenditure, and all spending needed to be refinanced either by taxation or by borrowing, he argued.
Former Italian prime minister Mario Monti wants the bloc to go much further to promote productive investment by excluding from the deficit calculation not only payments into the EU fund but also EU-approved national projects that boost infrastructure and raise a country’s growth potential.