The Juncker Plan has put an end to Europe’s “investment breakdown”, according to the European Commission President. But many of its projects are no different to those normally financed by the European Investment Bank. EurActiv’s partner La Tribune reports.
Commission President Jean-Claude Juncker likes to highlight his role in relaunching the European economy, particularly through the Investment Plan for Europe (IPE), also known as the Juncker Plan.
On Monday (25 July) he told France 2 “investment had stalled, we have mobilised €115 billion through the IPE, including €13.1bn in France”. The plan aims to mobilise a total of €315bn by 2017.
According to figures from the European Investment Bank (EIB), the “total investment linked to operations approved under the European Fund for Strategic Investments (EFSI)”, the financial vehicle that validates investment projects, was €115.7 billion on 19 July 2016.
These are “approved” funds that will be deployed in the future and that have yet to be signed off. So far only €10.9bn have been signed off and deployed. The plan is moving a little slower than planned, but is broadly on track.
Not up to the task
The €115.7bn mobilised by the Juncker Plan represents just 4% of all investment in the European Union over the four quarters from April 2015 to March 2016 (a total of €2,886.24bn).
As a comparison, over these 12 months, investment is up by €139.5bn compared to the same period in 2014-15. Assuming the projects financed by the EU really are new and have only been financed thanks to this fund, the impact, although not major, is at least not negligible. But it seems that the investment fund is just too small for the task it is designed to address.
Since the beginning of the financial crisis in 2007, investment has been struggling to recover. Despite the return of economic growth in 2015, it is still below pre-crisis levels.
The Commission itself estimated that the EU had an annual investment gap of between €270bn and €330bn, a figure supported by the economic think-tank Bruegel. So at best, the Juncker Plan covers just one third of the need.
“Too little too late” was the verdict from most economists when the plan was announced, and most would not change their diagnosis. Europe’s “investment breakdown” rumbles on. This Friday’s (29 July) figures are expected to confirm modest economic growth.
In short, any hopes that the Juncker Plan would be the silver bullet that kick-starts the European economy appear to have been misplaced.
Lack of added value?
But the most important question is whether or not investments carried out under the Juncker Plan bring net gains to the European economy. The guarantees taken from the European budget were mainly lifted from research and innovation and infrastructure programmes.
The reasoning was simple. Projects financed by the EFSI would be higher-risk and would therefore add more value to the European economy than if the funds were used directly under the European budget. But there is no evidence to show that this is true.
Bruegel economists noticed that the risk profiles of projects financed under the Juncker Plan lacked clarity. There is no proof that the projects financed would not have been supported by the European budget or the EIB.
In its June study Bruegel compared the details of EFSI-backed projects with those financed by the EIB in the past. Of the 55 projects announced in June, 42 bore a “strong resemblance” to projects previously financed by the EIB, 11 bore a “weak resemblance”. Just one project, an aviation-grade titanium recycling plant, appeared to be really new for Europe.
What is more, the Juncker Plan’s geographical choices are surprising. Of the projects accepted, a disproportionate number are in Italy, which has claimed 15% of all available financing. In itself this is a good thing, because Italy is clearly suffering from a lack of investment. Next in line are the United Kingdom, France and Slovakia.
But some countries that have suffered severe unemployment and chronic under-investment have not benefited anywhere near as much from the Juncker Plan. In 14 months, Portugal received €701 million, plus €40 million in aid for SMEs. This represents only 0.4% of the country’s GDP, and largely went to one project, a biomass factory.
Greece has come out even worse, receiving just €650m, of which €400m has gone to regional airports. And the country’s most profitable airports have just been sold to the German operator Fraport. Athens had proposed 42 infrastructure projects for a total of €5.2bn.
Two countries, Malta and Cyprus, have yet to benefit at all from the Juncker Plan.
Not a game changer
This Mediterranean failure is symptomatic of the Juncker Plan’s limits. It refuses to lead where the private sector is not willing to follow. Investing in Slovakia is useful, but the private sector’s presence in the country is already strong due to attractive taxes and cheap labour. Investing in crisis-ridden countries, where investment is really broken down, is a far more important task.
One final weakness of the Juncker Plan is that it is not part of a broader strategy. While the EIB finances investments, the Commission continues to hold on to its policy of “respect for the rules” and to call for cuts to public investment and spending.
The often-cited case of Greece is typical. In France investment by local authorities has been in free-fall for two years as the government tries to cut the public deficit to under 3% of GDP.
Spain and Portugal have been asked to make “renewed efforts” to avoid sanctions and Brussels says it is ready to freeze structural funds – European investment – in these countries. In the first quarter of this year, public investment in Portugal fell by 19.5%.
At the same time, Germany is not being forced to increase public investment to cut its current account surplus of 8%, which is higher than Brussels is supposed to tolerate. In view of the cavernous investment gap, the EU should be coordinating its efforts, otherwise the impact of the Juncker Plan will be seriously undermined.