Brussels, 26/11/2014 (Agence Europe) - On Wednesday 26 November, the European Commission unveiled an investment plan designed to generate funding of €315 billion in new investments over three years where the needs are greatest, by making a small part of the EU budget available, but without creating any further debt (EUROPE 11200).
Admittedly, we need “budgetary responsibility” and “structural reforms”, but “now, we need to stimulate investment” through a specific plan which is “ambitious, but realistic”, said the President of the Commission, Jean-Claude Juncker, who reserved the debut presentation of the outlines of this initiative for the MEPs (EUROPE 11204).
Observing that the level of investment in Europe is “370 billion euros” less than before the crisis, the Luxembourg Christian Democrat said that public resources were “at the limit of their capacity”, with the average level of public debt having risen from 60% of GDP to 90% in just a few years. This is why the Commission intends to fund its investment plan out of public money from the EU budget and the European Investment Bank (EIB) and to use this envelope to mobilise “the abundant cash” available. “We will not betray our children and our grandchildren and write more cheques that they will ultimately have to pay off”, said Juncker.
A new fund under the aegis of the EIB. The Commission is proposing that a European Fund for Strategic Investments (EFSI) be created under the aegis of the EIB, by June 2015.
An envelope of €8 billion will be taken from the EU budget (€3.3 billion from the Connecting Europe Facility, €2.7 billion from Horizon 2020 and €2 billion from the budgetary margins). This will lead to €16 billion in public guarantees for the EFSI. The EIB will support the fund to the tune of €5 billion. Of the EFSI's envelope of €21 billion, €16 billion will be used to finance long-term investments and €5 billion will go to support SMEs and companies of medium capitalisation.
The idea is to change the way public EU money can be used, explained the Commissioner for Investment, Jyrki Katainen. Juncker spoke of the “change of culture”, moving away from certainty towards taking a few more risks.
The EFSI will stand guarantor for every investment and will take on the most risky part of a project, covering the first losses in the event that the risk materialises ('first loss approach'). In the highly unlikely event that the losses exceed €8 billion, the member states will be called upon to absorb these. In this way, the fund will be capable of attracting disproportionately high levels of private capital, whilst allowing the EIB to support slightly more risky projects - particularly “in the countries the worst hit by the crisis”, Juncker explained - without jeopardising its AAA maximum financial rating.
The leverage effect could achieve a ratio of 1 to 15: every euro in public money in the fund would raise €15 in private investment. The President of the EIB, Werner Hoyer, described this scenario as “conservative”, as the recent increase of €10 billion of the EIB's capital made it possible to raise nearly €180 billion in private funds.
Is this procedure not tantamount to socialising losses and privatising profit, as with the financial crisis? It is “different”, said the President of the European Parliament, Martin Schulz, who said that it is about “providing assurance to relaunch investment”, something that the EP has called for “in its overwhelming majority for years”.
Flexibility of the Stability and Growth Pact. In addition to the envelope of €21 billion allocated to the EFSI, the member states, alongside the public investment banks, will be able to contribute to the fund on a voluntary basis. Juncker launched an appeal for the member states to do just this, “particularly those with some budgetary leeway”. He also noted that the German Chancellor, Angela Merkel, had, “as if by magic”, defended the very principle underpinning the Commission's plan before the Bundestag.
To incentivise the member states to contribute to the EFSI, the Commission has broken new ground: the 'fresh' public money fed in by the capitals will not be included in the calculation of the public deficit. “We will not betray the rules of the Stability and Growth Pact that we have agreed jointly - this is a matter of credibility. However, if member states chip in capital to the fund, we will not take these contributions into account in our assessments under the Pact”, said Juncker. It is up to the member states to enshrine this provision.
In order to tie the available funds into mature projects which would not come to fruition without this new impetus, the Commission will set up a 'pipeline' of projects, notably on the basis of the work of the EIB/Commission 'task force', which is to present its work to the Ecofin Council of December. “It is not the job of the politicians to select the projects”, said the former Prime Minister of Luxembourg. This subject will be tackled by experts meeting within an investment committee. This team will select projects “on the grounds of merit”: there will be “no specific quote per sector or per country”, said Katainen.
There is consensus as regards the sectors which should mop up most of the funds from the investment plan: energy and transport, digital, social infrastructure and the environment.
EP gives its approval. The main political groups welcomed the presentation of the “Juncker plan”. Speaking on behalf of the EPP group, Germany's Manfred Weber praised the efforts to mobilise private capital without creating any new debt. He called upon the Council to break the deadlock on negotiations on the EU budget and the implementation of a regulatory environment conducive to investment. The President of the S&D group, Italy's Gianni Pittella, described the offer not to take national contributions to the EFSI into account in the application of the European budgetary rules as an “historical breakthrough”, shattering the taboo of the rigidity of the Stability Pact. Syed Kamall (CER, UK) asked how private money would be made available without ultimately calling upon the taxpayers in the event of a failed investment, referring to the example of the Spanish airport of Castellón, which has never been served by a single regular flight. Guy Verhofstadt (ALDE, Belgium), said that the investment plan should be conditional upon the member states committing to reforms. We must liberalise and we need rules to unify the EU market, “or it's money down the drain”, he stressed. Agreeing on the need to stimulate investment in the energy transition, Philippe Lamberts (Greens/EFA, Belgium) said that he feels the hoped-for leverage effect of 1: 15 is “scarcely credible”. “The socialisation of losses and the privatisation of profit, does that remind you of anything?”, he said.
Speaking on behalf of the GUE/NGL group, Dimitrios Papadimoulis of Greece criticised the Commission for acting without calling for the mobilisation of 'fresh' money from the member states or the European Stability Mechanism. Your plan changes nothing: Europe continues to be dominated by Germany and austerity policy, he said. Patrick O'Flynn (EFDD, UK) said that the Commission did not have the money to do what it was proposing. It's not a New Deal, it's not Christmas come early, it's an EU Turkey, he said. His words were echoed by Gerolf Annemans (unaffiliated, Belgium), who said that “Mr Juncker, the great magician, is talking of money which does not exist”. He went on to reproach Juncker in passing for hanging on to his position after the “extraordinary” LuxLeaks scandal. (MB)