A paper presented by former Commissioner and Italian Prime Minister Mario Monti and French liberal MEP Sylvie Goulard Wednesday (10 December) suggests ways to permanently encourage investment in the Union through an adaptation of EU rules on fiscal discipline.
The paper, tabled at a public event organised by the Council of the Future of Europe in cooperation with Friends of Europe, is obviously inspired by the €315 billion investment plan recently presented by Commission President Jean-Claude Juncker.
Juncker wasn’t present at the event, as he was in Luxembourg, where he and the entire commission took oath at the European Court of Justice. But he sent his greetings in a video message.
The two authors welcomed Juncker’s plan as a “shift in European policies”. They also agree with the IMF that “time is right” for a new investment boost, because of the current state of ageing infrastructures and the very low level of borrowing costs.
However, they take the view that its important idea that public investment should benefit from more favourable treatment under the Stability and Growth Pact (SGP) should be better worked out.
Monti and Goulard basically say that the Commission is largely unable to force member countries to comply with SGP, the result being what they call a “massaged compliance”.
To be able to exclude part of the public investment from the 3% of public deficit threshold under the SGP, the authors propose the introduction of an exceptional mechanism, allowing a specified excess above this ceiling for a limited period, under strict conditions.
Court of Justice in the drivers’ seat?
Monti and Goulard consider that it should be the European Court of Justice, and not the European Commission, who should be responsible of the control of this exceptional mechanism. They point out that one of the elements missing in the current macroeconomic governance of the European monetary union is the lack of judicial action for failure to fulfill obligations.
The price to be paid by the countries that are asking for more room for maneuver should be to accept the binding jurisdiction of the Court in the implementation of SGP, the paper says. This, according to its authors, would require only a limited treaty change.
Monti and Goulard call on the Commission to launch a major reflection with the view of providing, within six months, agreed principles for expenditure that could qualify for eligible investment. They point out at seven questions to be examined carefully: the productive character of the investment, the type of investment, the nature of investment, the origin of the money, the risk of hijack (to avoid that subsidies become hidden state aid), the accompanying measures (changing the business climate), and finally, the risk of corruption.
“In order for the EU, let alone the Eurozone, to remain a “community”, there are two essential requirements today: compliance with agreed rules and, at the same time, more growth. We will either achieve both or neither,” Monti and Goulard write.
Germany warns against ‘tricking the rules’
Jörg Asmussen, State Secretary of the German Ministry of Labour, who was present at the event, argued that introducing flexibility to the SGP should not mean “tricking the rules”. Any such attempt would undermine market confidence, he said. The key to recovery, he added, was strengthening national policies and implementing European polices.
He welcomed the Juncker plan, adding that it was now up to national governments to achieve its best possible implementation.
Asmussen also said he would be reluctant to change SGP and create a definition of what is “good” and “bad” expenditure.
If we do this, where do we start, where do we end,” he asked. Whether new expenditure is good or bad, you need to re-finance it, by raising taxes or borrowing from the markets, he said.
“This question in my view hasn’t been overcome and becomes more and more critical, when we look at the different debt levels we have in Europe. […] The answer in my view how to set fiscal policy should very much depend on where the country’s debt stands, not so much about the level of deficit,” Asmussen said.
Mateusz Szczurek, Minister of Finance of Poland, spoke in critical terms concerning the relatively small amount of public money in Juncker’s investment plan.
"If you have a capital structure where the seed capital is very, very small [...] you end up with projects that are normally financed by the private sector anyway. There is a risk of crowding out something that is done in the markets anyway," Szczurek said.
"We do hear complaints from the private sector that the EIB is a powerful competitor for their activity," he added.
Szczurek also said unless the Commission made it completely clear that money invested in the EU investment fund would be excluded from deficit calculations, no government would opt to buy in.
Italian Finance Minister Pier Carlo Padoan struck a similar note.
"We have to ask ourselves: What are the incentives for countries which already have very heavy budget positions to participate in this and just wait hopefully that some of the money of the fund will come to fund national projects?" he said.
18-19 December: EU leaders will discuss and make decisions concerning Juncker's investmant plan.
- SylvieGoulard.eu: Fiscal Discipline and Public Investment in Europe