Jean-Claude Juncker’s €21bn plan will try to stimulate EU

Economics returned to the EU agenda this week as the European Commission unveiled its much-feted €300 billion-plus investment plan. As sceptics were quick to point out, the package is actually a €21 billion fund that will be leveraged to attract private investment worth 15 times the original amount. EU leaders are due to sign off on the package next month, with the programme in place by the middle of next year.

Unveiling the plan yesterday in Strasbourg, commission president Jean-Claude Juncker said it would get some “new winds blowing into Europe” and breathe some fresh air into EU structures and institutions.

Announced less than a month after he assumed his role as commission president, and amid continuing reverberation over the “Luxleaks” scandal, the investment programme can be seen as Juncker’s attempt to put his mark on the commission as he tries to stimulate growth. It is no easy task.

Dismal economic data over the last year has underlined the scale of the economic challenges facing Europe. As Juncker conceded, after the financial crisis, "we expected recovery to come faster".

Addressing the European Parliament, European Investment Bank (EIB) president Werner Hoyer laid bare the investment challenge facing Europe – a 20 per cent annual drop in investment, rising to 50 per cent in some EU countries, since 2007.

Innovation deficit

This “investment gap” has been compounded by an “innovation gap”, he said, with the EU failing to keep pace with the level of research and innovation investment in economies such as

Japan

,

South Korea

and the US.

Further, European Commission vice-president Jyrki Katainen stressed liquidity was not the issue, as had been the case during the euro zone crisis.

Describing a recent conversation with investors in London, the former Finnish prime minister said the investment community needed “viable well-structured projects” in which to invest. This is where the Juncker investment plan comes in, he said, pledging to provide a “transparent” pipeline of projects.

But the central question remains whether the EU’s latest plan to stimulate investment and growth will work.

Commission officials stress that this investment package is different. First, they point out the fund – known as the European Fund for Strategic Investments – will be able to invest in riskier projects than the EIB has traditionally targeted. This will assuage critics of the EIB who have criticised its tendency to invest in low-risk projects in bigger member states.

Investor roadshows

Second, the EU portion of the €21 billion fund will be the first in line to take a write-down in the event of losses, a provision that will encourage the EIB and private investors to invest. In addition, Katainen intends to partake in investor “roadshows” in EU member states to whip up investor appetite over the next few months.

Officials says that government departments in various member states, including Ireland, have been working on projects that could be eligible for the investment plan, though all prospective projects will be assessed by an independent board of assessors.

Juncker warned about overestimating the impact of the project, emphasising that structural reforms and measures from other institutions – presumably the European Central Bank – needed to be maintained. But a number of officials insisted the 15-time "multiplier effect" was a conservative estimate.

The most interesting comments, however, came from Hoyer, who suggested that the EU’s new investment package signalled a “paradigm change” in the EU’s approach to investment and funding.

“What we are seeing in the package is a fundamental shift from subsidies to guarantees and loans. A loan, a guarantee has a much higher multiplier than most subsidies, most grants,” he said, citing research that has shown the impact of EU structural funds. “The new commission is resolved to shift more funds from grant money to loans and guarantees. This is great, great progress.”

Similarly, the fact that no new money is being used to fund the programme was presented yesterday as a positive, rather than negative, attribute.

The Juncker plan is about making better use of existing money rather than increasing already-high public debt levels, officials said.

Whether the EU’s investment plan serves to boost investment in Europe in the short to medium term remains to be seen, but a rethink of how EU money should be used in future is a welcome innovation.