European Union leaders endorsed a new €315 billion investment programme intended to kick-start economic growth at a summit in Brussels yesterday (18 December), despite deep differences over the substance of the plan.
“We agreed (on) three things,” European Council President Donald Tusk said in a video statement.
“One, we call for the urgent establishment of a European fund for strategic investments; two, a renewed commitment to intensify structural reforms; three, continued efforts to ensure sound public finances.”
“The three together form our strategy to speed up the recovery,” added Tusk, who also tweeted that leaders would not reconvene as planned on Friday, but would conclude the summit after a discussion over dinner on Russia and Ukraine.
The summit, which closed just before midnight, was intended to be shorter than usual, marking a symbolic change of leadership.
Donald Tusk, the former Polish Prime Minister who took over the European Council chair on 1 December, wanted to break with the tradition of two-day summits which bear the hallmark of protracted EU negotiations.
He was well inspired, as the European quarter of Brussels was blocked on Friday morning by protestors and police.
But divisions about the substance of the €315bn Juncker plan soon became apparent.
According to the proposal, governments contributing to the new European Fund for Strategic Investment (EFSI) would not get into trouble if their contributions resulted in their deficits breaching EU budget rules set out in the Stability and Growth Pact.
This key feature of the Juncker plan was meant to placate center-left governments, including those in France and Italy, which have demanded more flexibility with EU budget rules.
Despite the good words, German Chancellor Angela Merkel and French President François Hollande revealed how far apart their visions of the Juncker plan are in their post-summit press conferences.
While Merkel acknowledged that member states’ contributions to the plan would be treated with flexibility, she stressed that the “golden rule” would still need to be observed, referring to the 3% deficit limit in the Stability and Growth Pact.
The German Chancellor also insisted that the plan must retain a strictly economic decision-making process in picking projects, in line with European Investment Bank guidelines.
Hollande, by contrast, emphasised that investments must be accounted for within the Stability and Growth Pact, without specifying exactly how.
The French President mentioned education and training as priority sectors which should benefit from the investment plan. But these are hardly areas of activity that Berlin would view as “economic” in character.
National contributions to be “neutralised”
European Commission President Jean-Claude Juncker said national contributions to the EFSI would be “neutralised,” which could be interpreted either way.
While a formal Commission interpretation of how EU budget rules should treat such investment will only come in January, Commission Vice President Jyrki Katainen told Reuters in an interview on Thursday that fund contributors would not face negative consequences in budget assessments.
That does not go as far as the Italians would like. Italian Prime Minister Matteo Renzi wants such capital investments to be excluded from national balance sheets, thus decreasing the size of national deficits.
The fund will be launched next year with 21 billion euros of EU money. It is intended to attract 15 times more private capital for financing projects in energy and transport infrastructure, as well as education and research.
The EFSI, whose final go-ahead to start operations is to come in June 2015, is designed to help boost feeble European growth and create jobs, without inflating public debts.
EU leaders also discussed how the EFSI should choose which projects in Europe to finance and decided that decisions should be based only on business criteria.
German Chancellor Angela Merkel was clear she wanted no politics in the selection: “It should not be decided politically, but on the basis of business criteria,” she said.
Tusk said no sectoral or geographical criteria for project selection were discussed.
The new president of the European Commission, Jean-Claude Juncker, has announced a plan to mobilise 300 billion euro in an effort to kick-start the European economy.
The details of the plan were revealed on 25 November, and was on the agenda for the December meeting of EU leaders.
Boosting the Luxembourg-based European Investment Bank's (EIB) capital is the central part of the plan, which involves creating a European Fund for Strategic Investment (EFSI) as well as tools to allow the EIB to take greater risks in its investments.
Solidarity with the countries of southern Europe, those worst affected by the crisis and austerity measures, is also an important part of the Juncker plan.