Germany insists stimulus be led by private sector

Berlin has insisted that an EU plan to stimulate European growth through investment must be led by the private sector and not dominated by political pet projects.

Ahead of today's European Council meeting on the so-called Juncker investment plan, however, differences have emerged between Berlin's grand coalition partners on how best to stimulate growth with investment.

Senior officials close to German chancellor Angela Merkel point out that public- sector investment comprises just 15 per cent of total spending in the EU. “Given that, it is important for us to improve the framework for private investment and development, the leader of investment in Europe,” said a senior government official.

Germany, like other member states, has submitted a list of possible investment projects to the European Commission for review.

Unrealistic expectations

However, officials close to

Dr Merkel

are concerned that the Juncker plan has awakened unrealistic expectations in other capitals.

Sources close to the chancellor insist the Juncker commission must identify and back projects only with clear economic potential – and with the close involvement of the European Investment Bank (EIB).

“You cannot say that private capital should be mobilised to support projects laid down by politics,” said one senior official. “Investment decisions have to happen via criteria other than political ones, otherwise projects won’t be capable of surviving.”

The tone from the federal economics ministry, headed by Social Democratic Party (SPD) leader Sigmar Gabriel, is different, however. He has warned against "flash-in-the-pan" investments, but the centre-left politician appears more comfortable with the idea of politically led public investments.

EU leaders are expected to endorse Juncker's flagship investment plan at today's EU summit, the first under the leadership of the new European Council president, Donald Tusk.

However, a number of countries are demanding clarity as to whether possible contributions by member states will be excluded from EU deficit and debt calculations.

The European Commission said last month that it would “treat favourably” contributions by member states when it assesses national budgets under the Stability and Growth Pact rules. However, a number of east European countries in particular are demanding more specific commitments that investments will be excluded from debt and deficit calculations, a certainty that might not be provided until the legislative proposal is presented by the commission in January.

Fund contributions

A senior EU official said yesterday that there had been “a serious discussion in some EU capitals about whether to contribute to the fund”, but only after the fund was in place.

The €315 billion European Fund for Strategic Investment, comprising a core fund of €21 billion which will then be leveraged to attract private investment, is expected to be in place by June 2015.

Member states are being encouraged by the commission to contribute extra investments to the fund.

German officials said yesterday that Berlin was keeping an open mind on how individual state contributions to the EU fund would be treated vis-a-vis their European deficit calculations, given that the plan is in its early stages.

“I don’t see that, tomorrow or even the day after, the point has arrived where member states can decide on a possible participation, there are too many details yet to be discussed,” said a senior government official, though contributions would “have to be judged within existing” deficit rules.

A number of smaller EU member states, particularly in the East, have raised concerns that the notoriously conservative European Investment Bank would only invest in low-risk projects in larger member states.

Government officials in Berlin yesterday insisted there was no difference in the CDU and SPD coalition partners’ view of how best to shape investment and stimulus programmes.