Controversial financial details. One should be wary of having too many illusions. The EU institutions and Member States agree on the idea of relaunching big trans-European infrastructure but have very differing views about how to go about it. Their rediscovery of the ideas put forward a decade ago by Jacques Delors is to be welcomed, of course, and the squabbling between Presidency of the Council, the Commission and Karel Van Miert over priorities and merits are of no great importance. The ideas mesh? So much the better - the more ideas and projects, the more entrepreneurs and economic forces will be interested and the greater the likelihood of something tangible emerging. The European Parliament's vigilant support is valuable here. But it would be disingenuous to believe that now the first step's been taken, the projects will simply be carried out of a matter of course. There are deep disagreements about virtually all areas of the projects (including the list of priorities), particularly regarding how the projects are to be funded.
The connection with the Stability Pact. To fund the programme, will Member States be authorised to borrow beyond the limits in Stability Pact? The views of Jacques Delors, as always, took into account both financial and ethical demands. Generally, he feels that excess budget deficits should be forbidden since they amount to spending today money that future generations will have to pay back tomorrow. Some investment in infrastructure, however, is different precisely because it benefits future generations - we are not being irresponsible with regard to our children and grandchildren if they have to provide some of the funding so additional debt could be justified.
All the discussion since then has focussed on this issue, even when the participants thought they were making a new discovery. Supporters and opponents never settled the issue. The President of the Ecofin Council, Giulio Tremonti (who has put his name to an initiative to stipulate growth, where big infrastructure projects are a vital element), has sounded out his fellow economy and finance ministers, with negative conclusions with regard to debt. In his most recent interview ("L'Espresso" of 10 July) he said separating out infrastructure investment (to calculate the deficit under the Stability Pact) is not even worth discussions because it isn't practical politically, not having the necessary political consensus at the moment in Europe. Practical impossibility or relieved abandonment by a finance minister? It doesn't matter, the point is that he has made up his mind - no infringement of the Stability Pact (see our bulletin of 10 July, page 13).
But not everybody shares his resignation at the European Parliament or the European Commission itself, where Regional Policy Commissioner Michel Barnier believes the importance of investment for the EU economy could justify states being able to temporarily stray from the balanced budget target to favour long term growth, as long as the duration, extent and control criteria are decided in common. Each country would have greater freedom to take on more debt, solely for investment purposes (see "Le Monde" of 10 July).
Loans and a potential guarantee fund. If additional domestic borrowing appears to be ruled out, is there another way? In the above-mentioned White Paper, Jacques Delors suggested European borrowing whereby the EU itself would launch a loan solely for infrastructure investment. Giulio Tremonti acknowledges that he found the idea of European bonds attractive at first sight. But he abandoned the idea announcing it to the European Parliament's Economic Affairs Committee (see bulletin of 10 July). The "no" from his colleagues when he discreetly sounded them out stretches beyond financial issues to politics, as he explained in the interview with L'Espresso: EU bonds mean EU borrowing. EU borrowing means an EU budget. An EU budget means a European state. So the answer is no thank you, especially in northern Europe. Not to speak of the UK's horror at the idea.
Michel Barnier therefore suggested another idea (see ("Le Monde" mentioned above): the EU's budget, often in deficit, stands at 1% of EU GDP. It could give EU economies room to manoeuvre through, for example, a fund for large projects kept for priority investment in economic downturns. The Commission is considering a guarantee fund to share risk with private investors (see our bulletin of 11 July, p.12) which it might propose in its autumn paper for the October Summit.
Jacques Delors has not changed his views. In his most recent interview (in Le Figaro of 30 June) he said he had suggested an annual budget of EUR 20 billion, two thirds of which would come from the EU budget and the EIB, with the remainder from loans. This is where the pensée unique is particularly severe, unfortunately. He said he continued to believe that large-scale borrowing will be needed as long as one agrees for it not be profitable in the short-term - were railways immediately profitable? And as long as one agrees that future generations, which will benefit from them, will pay their share. Borrowing is not a fad or easy way out if it funds investment that will be useful 50 or 100 years from down the line, he concluded.
In the current situation, it is hard to expect anything tangible in this connection from the upcoming Ecofin Council, despite encouragement from the Competitiveness Council at the weekend. Finance ministers do not look like they are prepared to give way.
The EIB and private funding. Funding for the programme is likely therefore to remain in the hands of private funding through the vital intermediary of the EIB, with financial support from the EU budget which, given its feeble resources, would be limited to a limited number of priority projects.
Giulio Tremonti has fleshed out his neo-Keynesian ideas for the basic fundamentals (politicians will drive and define the objectives) but moves away from Keynes with regard to implementation which he says must not add to public borrowing or use state companies. Resources must be exclusively provided by the market, in other words the European Investment Bank and private banks, in ways yet to be defined. The target is to get the EU ratio of infrastructure investment to “PIL” to 1.5% (the same ratio as at the end of the 80s), which means at least EUR 50 bn more investment each year. Transport infrastructure would account for the bulk of this but new technologies would also take their share, as would research and training. Tremonti warned here that the market already understands the profitability of getting involves in investment like broad bank telecoms, but things are more complicated when it comes to training.
Karel Van Miert and Loyola de Palacio's views. As usual, we will have to wait for the Commission's autumn document to get a better idea. In March, the European Commission announced cooperation with the EIB, which the Thessalonica European Council took note of and encouraged. The Italian initiative was not welcomed at first by Greece (because Italy announced it under the Greek Presidency) or, more particularly, by the Commission, which had long been working on the same issue and pretended to ignore the announcement made in Rome. Karel Van Miert, who chaired the group defining priority transport projects, unlike the Commission, was not obliged to diplomatically hold his tongue and said that even before his group's report had been finished, the Italian Presidency had plundered it and used it to design a relaunch policy. He said de Palacio and himself had never seen the infrastructure project in this way. They believed it was an economic necessity in and of itself, given the EU's infrastructure delays. But if people want to use our report, he said, to relaunch growth, why not? He added, however, that for the projects to succeed, the funding issue had to be settled. As I explained above, this is far from concluded.
All the same, Loyola de Palacio, Vice-President of the European Commission and Transport Commissioner, wants to be reasonably optimistic and has given five reasons for optimism with regard to the past: 1) the EIB is prepared to provide 35-year funding of up to 75% of total costs (this is a very positive idea); 2) funding from the EU budget for priority projects, while relatively modest with regard to the total costs, will be increased; 3) the concessions system for big projects will be fleshed out and generalised; 4) a management and coordination body will be set up for cross-border projects in order to avert problems that arose in the past with this type of project; and 5)the European Commission will set out measures for removing technical and regulatory obstacles to investment in this area, including R&D investment.
Whichever way one looks at it, we have to be realistic - there will not be rapid progress in attempting to relaunch the economy. Such attempts may first be seen in terms of confidence and the business climate, which would already be significant progress in itself.
(F.R.)