European Council President Herman Van Rompuy announced Thursday evening (28 June) that EU leaders had approved a so-called growth compact, which he said would mobilise €120 billion in "immediate measures."
The measures, already approved in principle a week ago by the leaders of France, Germany, Spain and Italy, include increasing the European Investment Bank's capital, redirecting unspent EU regional aid funds and launching project bonds to co-finance major public investment programmes.
Danish Prime Minister Helle Thorning-Schmidt called the pact "a light in the dark", saying it will "give hope to the Europeans that we are capable of taking decisions that will create growth."
The €120 billion figure is broken down as follows:
- First, the European Investment Bank (EIB) will see its capital increased by €10 billion, which will expand the bank's overall lending capacity by €60 billion. The capital increase comes with a pledge to make sure EIB loans reach “the most vulnerable countries,” Van Rompuy said.
- Leaders also decided that unused structural funds (€55 billion) will be reallocated to measures for small and medium-sized enterprises and youth employment.
- Finally, a pilot phase for new project bonds (€5 billion) will be launched this summer for initiatives in energy, transport and broad-band infrastructure.
Doubts raised over EIB project timescale
However, doubts have been raised as to whether the sums can be mobilised and fast-tracked to boost economic growth in the short term.
Raising the EIB's capital will need backing from EU member states in order to enable the initial €10 billion sum to be leveraged to €60 billion.
Should the leverage work, public guarantees of some €200 million coming from the structural funds will be backed by projects funded up to €4.5 billion through bonds issued by the companies which decide to participate in the projects.
Identifying the project partners and putting in place the financing structure often takes years, making it unlikely that they will come off the ground any time soon.
“Infrastructure takes years, sometimes five years. These are not measures that boost activity immediately,” Florence Pisani, an economist at Franco-Belgian financial institution Dexia Asset Management, told EurActiv France.
Regional funds have 'microscopic' effect on Greek economy
Regarding structural funds for regional development, other questions are being raised as to their effectiveness, especially in Greece.
According to Marc Lemaitre, head of cabinet for the budget commissioner Janusz Lewandowski, their impact is “microscopic. ”
“Greece is in deep recession with an annual contraction rate of 6% to 7%,” he told EurActiv France. “But the structural funds represent 1.5% to 2% of Greek GDP and the country must reduce its spending by 3% to 5% per year. It is these elements that dominate and we perceive very few beneficial effects from injections of that lower order.”
In fact, much of their effect will depend on the quality of projects funded.
“When the EU says go and build infrastructure to an stimulate your growth, Greek politicians, because they are corrupt and stupid, build swimming pools and local recreation centres,” Nicholas Georgakopoulos, a Greek professor at the University of Indiana’s law department, told US radio network NPR.