Juncker's EU investment plan risks disappointing

GMT 04:38 2014 Sunday ,23 November

Arab Today, arab today Juncker's EU investment plan risks disappointing

New European Commission chief Jean Claude Juncker
Brussels - AFP

New European Commission chief Jean Claude Juncker has made a 300-billion-euro investment plan a centrepiece of his five-year agenda, but days before a highly awaited unveiling doubts are rife that it can deliver.
Two years after the eurozone debt crisis, the economy is flatlining and unemployment is high, while the lack of response by European Union leaders has again become a concern for the world.
The stakes are huge for the EU, the world's largest economy, its 500 million citizens, and global markets.
The heart of the problem in the 28-nation EU is a drastic lack of investment, which remains way off pre-crisis levels, in stark contrast to the US and emerging economies.
"The EU is crying out for new investment," said Jan Randolph, an analyst at IHS Global Insight in London.
In response Juncker, the former Luxembourg premier, aims to kickstart growth with the 300-billion-euro ($380 billion) investment programme that he will unveil before the European Parliament in Strasbourg, France, on Wednesday.
The plan uses an as yet unexplained mix of public and private financing, while the amount of actual new money is also unclear.
But with cost-conscious and powerful Germany looking on, what the investment plan won't be is a "New Deal" for Europe, an avalanche of state spending to win a quick hit of growth.
- Lack of ambition -
Overall responsibility for the plan will almost certainly fall on the European Investment Bank, a little-known EU institution based in Luxembourg that is often criticised for its lack of ambition.
Details are scarce, but in essence the idea is to use existing cash from both the EIB and EU and an extra injection from rich member states like Germany as seed money for major investment projects.These would be driven almost exclusively by the private sector with the financial markets playing a key role to raise cash and attract investors.
In fact, the whopping 300-billion-euro figure is not actually a lump sum that will be pumped into European businesses, but the total resulting effect of the initial investments that the Commission hopes to create using the financial markets.
In this version, Jyrki Katainen, the commission's vice president in charge of the plan, and Economic Affairs Commissioner Pierre Moscovici would be sent out on roadshows to promote investor interest.
- 'Old wine, new bottles'
The actual amount of new money is up in the air -- and completely dependent on the enthusiasm of the investors whom the EU must win over.
The Commission, the executive branch of the EU, says the plan can amplify initial cash by a factor of ten.
This is a huge leap and one never before reached by similar EU investment schemes.
Brussels investment plans "focus too hard on big headline numbers", said Reinhard Cluse, economist at UBS in London.
"These have relied on significant 'crowding in' of private resources, which has often failed to materialise," he said.
That danger still exists, with critics warning the Juncker team will do no more than pour "old wine in new bottles", in the wording of ETUC, the European Trade Union confederation.
"Will the EU repackage investment that would have been done anyway? Such an approach would have no sense," ETUC said.
- Avoiding 'disappointment' -
Some member states argue public spending will be needed, despite German reticence.
France's pro-reform Economy Minister Emmanuel Macron has aggressively pushed for an ambitious plan, saying he fears a "disappointment" if the scheme remains too cautious.
The pressure is on Germany, the EU's most powerful country, which cherishes its balanced budget and fiscal prudence.
Germany has already indicated it will throw 10 billion euros into the Juncker plan, on the strict condition that the money flow through private sector actors and not straight to overspending governments.
But the German taboos on government spending need to be broken, analysts said.
Jennifer McKeown of Capital Economics said Germany has all the scope "to increase its investment".
The best way to revive Europe would be for Berlin to spark up public spending, "which remains very low" by international standards.
Without a change of attitude by Germany, Juncker's plan "amounts to little more than grandstanding by a new president eager to propose an anecdote to the eurozone's inability to grow," she said.


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