Two months after launching its €315bn investment plan, the European Commission pushed forward on Tuesday (13 January) a modus operandi for a fund that is supposed to jumpstart the European economy while giving member states more margin for budget manoeuvring if they invest and push through proper structural reforms.
“We are not proposing any changes to existing rules,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs. “The smarter application of the Stability and Growth Pact that we are presenting today will help us make more decisive progress.”
In substance, the EU executive has tabled details on how the so-called Juncker Investment Plan, launched last November, will work in practice and how member states will be able to offset their contribution to the investment fund from debt calculation under the Stability and Growth Pact.
“This EU Investment Plan is not a one of stimulus measure. It is a structural plan- or structural reform. It must be complemented by a series of important Single Market measures,” added Commission vice-president in charge of jobs, growth, investment and competitiveness Jyrki Katainen.
The idea is to create the European Fund for Strategic Investment (EFSI) with €5 billion coming from the European Investment Bank and an €8 billion guarantee from existing EU funds designed to secure a contribution of €16 billion in total from the institutions. The resulting EFSI fund totaling €21 billion is expected to generate €240 billion for long-term investments and €75 billion for SMEs and mid-cap firms over the period 2015-2017. This additional chunk will come from EU member states and private investors.
Investment plan on track
The European Fund for Strategic Investment (EFSI) will be established in close partnership with the European Investment Bank, whose representatives will sit in a newly formed Steering Board, which will decide the overall orientation and investment guidelines. An investment committee, made of independent experts will vet specific projects, and will be accountable to the Board.
The board will use the expertise of a European Investment Advisory Hub (EIAH) to identify projects, so that they promote job-creation, long-term growth and competitiveness in sectors such as infrastructure, education, energy, research and innovation.
“The Investment Plan will not solve all our economic problems. It will not change the whole world. But if implemented efficiently, it will change Europe in a very permanent and positive direction,” said Katainen.
According to an EU document, more than 2,000 projects across the EU hope to obtain a slice of the several billion plus euro investment plan announced by Commission President Juncker. The member states were asked to submit a list of projects to the European executive, in the hope of gaining funding.
These projects range from building a new terminal at Helsinki airport to upgrading flood defences in Great Britain and improving the energy efficiency of public buildings in France.
Incentives for budget flexibility
The Commissioners presenting the plan reiterated Juncker’s commitment to take into account the positive fiscal impact of structural reforms as well as their contribution in the investment plan.
“If member states decide to contribute to the EFSI or to investment platforms alongside the EFSI, the Commission will take a favourable position towards such contributions in assessing that state’s public finances,” Katainen insisted. Member states contribution to EFSI will not be counted when defining the fiscal adjustment under the Stability and Growth Pact.
The EU executive will also assess the structural reforms before recommending to the Council to allow possibly temporary deviation from pact, which sets maximum debt and deficit levels of 60% and 3% of GDP respectively. However, these deviations should not exceed 0.5% of GDP.
“An appropriate safety margin must be preserved so that the 3% of GDP deficit reference is respected,” said Valdis Dombrovskis, vice-president for the euro and social dialogue.
We are making sure that the Stability and Growth Pact is applied in an intelligent, effective and credible manner, he added.
The European Commission wants these proposals to be adopted by June so that the new fund and project pipeline can be operational by the end of the summer.
“We want to get the investments flowing as soon as possible,” said Katainen. “We need Member States and the European Parliament to fast-track these legal texts so they can be approved by June and investment can flow into the real economy.”
EPP Group Vice-Chairwoman Françoise Grossetête expressed her concern that the legislative proposal for EFSI may weaken European research policy. "We should not take away money from research and innovation – the Horizon 2020 programme – to finance the new Fund. The Fund should focus also on Research and Innovation," said Grossetête in an early reaction to the plans presented today by the European Commission.
The Investment Plan should only be applied in countries that conduct real structural reforms. We want real action, not only announcement, said ALDE president Guy Verhofstadt.
Greens/EFA co-president Philippe Lamberts stated that the legislative proposal raises questions about democratic control. “Diverting funds from the EU budget to the EIB would remove funds from democratically-controlled EU programmes, which have clear criteria and governance mechanisms forseen, and shift them to a non-EU agency, which is beyond the normal democratic control procedures of the European institutions and the EU budget governance mechanisms," he said.
BUSINESSEUROPE’s Director General Markus J. Beyrer said that the independent investment committee will have a crucial role in ensuring the new fund is used to foster a less risk-adverse attitude, supporting additional projects of strategic importance that would have not been funded otherwise.
Highlighting the need for further action in this area, Beyrer added: “The package published today is only one piece of the investment challenge Europe needs to overcome. Removing barriers to investment in Europe means: reducing unnecessary and overly expensive regulation, bringing down costs of doing business, allowing better access to finance and scrapping barriers to the Single Market.”
“The success of the funding structure depends on the fund’s governance,” said to Bloomberg Isabel Schnabel, a University of Mainz economics professor and member of the German Council of Economic Experts, which advises the German government. She said the EU will need to use caution on its budgetary guidance so countries aren’t tempted to evade EU rules by reclassifying big chunks of their budget as investment that deserves special treatment.
Juncker's investment plan is nothing more than 'voodoo', according to GUE/NGL MEPs, who took part in a Parliament debate this afternoon on the European Council's endorsement of the Commission's plans. ??Greek MEP Dimitrios Papadimoulis, said: "We are still in the dark about what Mr. Tusk and Mr. Juncker decided about the investment plan at the Council meeting in December."