European economy and industry ministers met in Brussels yesterday (25 September) to discuss ways of funding an ambitious plan by incoming Commission President Jean-Claude Juncker to invest €300 billion over the next five years.
Boosting the Luxembourg-based European Investment Bank’s (EIB) capital is the central part of the plan, which Juncker is expected to present in November, shortly after taking office.
In France, the government is looking for new, creative sources of financing, and eyes tapping into the European Stability Mechanism (ESM), an €80 billion fund set up in the midst of the eurozone crisis to bail out states on the verge of bankruptcy.
“If we could mobilise 20 to 40 billion from the ESM, for example to recapitalise the EIF [European Investment Fund], you then have a multiplier effect on the EIB [European Investment Bank],” said a French official who was speaking to reporters in Brussels yesterday (25 September).
“You see, you can reach almost 200 billion of public money,” the official said.
The main risk, as Paris sees it, is that the EU’s €300 billion plan ends up being “fake money” – or recycled funds drawing from existing programmes. The other pitfall is that the fund, once created, sits idle because of excessively strict conditions attached to its use.
“We have players around the table who are quite reluctant to spend,” the French official said in reference to the European Investment Bank. “We recapitalised the EIB with 10 billion in 2012, but when you take a look, she prefers to fund projects in Germany and a little bit in France rather than peripheral countries. It is very averse to investment and its triple A is a treasure with which we will perhaps eventually all die but which is not being used.”
Werner Hoyer, the EIB’s director and a former German European affairs minister, has sought to downplay expectations, telling reporters recently that “expectations are somewhat exuberant” on what the bank can do to help restart the European economy.
Wary of maintaining its prized triple A credit rating, the bank seeks only viable, revenue generating projects, which makes the EIB “more conservative than a typical private bank,” said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy.
“The EIB is no magic wand,” Erixon told the AFP news agency.
Germany opposed to ‘creative ideas’
Using the bailout fund is a red flag for German finance minister Wolfgang Schäuble, who reiterated his opposition to divert ESM money to help boost growth and job creation.
“The 80 billion in the European bailout scheme are not at the disposal of all possible creative ideas,” said Schäuble. “They are a provision to ensure the European currency remains stable and retains the confidence of financial markets,” he said on Thursday.
Germany, together with other advocates of austerity, is also suspicious that the focus on investments diverts attention in Paris from the promised economic reforms. President François Hollande has recently pleaded for patience with France and asked European partners for more time to reform before it meets deficit targets, admitting that results were coming too slowly.
Speaking in Brussels, Emmanuel Macron, the recently nominated French economy minister, restated his country’s commitment to reform but insisted at the same time on the need for fresh investments to restart the economy.
“Investment is not a way to circumvent reforms. It is the essential tool to boost supply and innovation,” Macron told reporters in Brussels after the EU ministerial meeting.
“We need a practical approach: spend well, have criteria and priorities,” Macron said.
European leaders agreed on a €120 billion "European Growth Pact" at an EU summit in June 2012, shortly after the election of François Hollande in France.
The measures included increasing the European Investment Bank's capital, redirecting unspent EU regional aid funds and launching project bonds to co-finance major public investment programmes.
However, doubts were raised as to how fast the money could be raised as infrastructure projects often take years to materialise.
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- Bloomberg Business Week: Hoyer Warns of Exuberant Expectations of EIB’s Role in Recovery
- Reuters: Germany's Schaeuble unhappy at debate on ECB buying ABS, bonds
- Le Monde: Soutien aux investissements : les Européens en désaccord sur le financement
- La Tribune: Les 300 milliards magiques de la Commission
- Les Echos: Plan d’investissements : Paris veut utiliser le fonds de secours européen
- Challenges: La France veut relancer l'investissement avec le fonds de secours européen?
- EURACTIV France: La France craint que le plan européen de relance soit une coquille vide