European leaders gave the “green light” to Jean-Claude Juncker’s €315 billion investment plan during the last European Union (EU) Council of the year, which took place in Brussels on 18 December.
The aim of the plan is to boost growth in the EU by mobilising €315 billion of public and private investment.
The newly-elected president of the European Commission has presented this plan as the flagship project of his first term and has described as an attempt to bring a “breath of fresh air” in the EU institutions.
However, there are serious doubts on whether the €21 billion of initial capital (€5 billion from the European Investment Bank (EIB) and a €16 billion ‘EU guarantee’ issued by the Commission) can attract €315 billion of investments, mainly from the private sector.
In the absence of steady growth in Europe, and given the current fiscal environment that is squeezing the belts of EU member states, it is hard to imagine that the markets will be confident enough to produce that sort of leverage and allocate it where it’s most needed.
“It is quite disappointing. It’s just another way to say please invest your money,” Philippe Ledent, economist at ING Belgium told Equal Times.
“If done well, it could be doable to reach this level of leverage, but I am less confident that it could generate a big impact on the Eurozone economy.”
Ronald Janssen, economic adviser with the European Trade Union Confederation (ETUC) told Equal Times that the contribution of member states should be much more ambitious, while expressing doubts that the markets will react as positively as predicted in the plan.
“This is an insurance plan and not an investment plan,” he said, stressing that what’s really needed is to “break the monopoly of the markets, by allowing the European Central Bank to print money”.
“The private sector is not investing because there is no demand and there is no demand because the private sector is not investing. The only actor that can break this vicious circle is the public sector.”
According to Ledent: “I would be happy if all member states would invest €300 billion in a common debt project. This would send a decisive sign for the future of the Eurozone to the people of the EU and to financial markets.”
In an effort to deal with this challenge, the European Commission has proposed the governments’ capital contributions to the fund to be excluded from the public debt restrictions under the rules of the Stability and Growth Pact.
Countries facing serious debt and deficit problems like France or Italy welcomed this proposal.
However, in the final conclusions of the European Council, EU leaders merely “take note of the favourable position the Commission has indicated towards such capital contributions in the context of the assessment of public finances under the Stability and Growth Pact, necessarily in line with the flexibility that is built into its existing rules”.
Invest, yes, but where?
One question that is being raised is where and how the EU money will be spent.
According to a European Commission press release, some 2,000 projects “in key growth-enhancing areas” from around the EU have been identified, for an estimated €1.3 trillion, which is four times more than Juncker’s project.
“The central idea is to provide a pipeline of trustworthy projects which will restore investor confidence and unlock private sector investment to complement finance from member states and the EU,” the release states.
While the EC President has stressed that one of the aims of the package is to support crisis-hit countries, it is still unclear what social and economic criteria will be taken into account when choosing a project.
“If the criteria for investing are the profit and the low risk of the project, the capital will be spent in order to finance projects in the big EU economies. Unemployment, recession and lack of investments should be the actual criteria,” Greek left-wing European lawmaker and vice-president of the European Parliament Dimitrios Papadimoulis told Equal Times.
In a speech delivered in the European Parliament, Juncker explained that a special investment committee made up of experts will validate every project from “a commercial and societal perspective”, based on the added value they bring to the EU as a whole.
But this will likely not find too much support amid private investors and the leading EU economies.
After the EU Summit, German Chancellor Angela Merkel overruled any political intervention in the selection process: “It should not be decided politically, but on the basis of business criteria,” she told journalists.
JPMorgan economists, interviewed by the Reuters news agency, described the plan as “underwhelming”, saying that “the process of identifying projects did not appear well advanced”.
The final Commission proposal, including the specific details of the operating conditions of the plan, will be submitted to the European Parliament in January 2015, with its entry into force set for June 2015.