The European Commission presented a 315 billion euro plan on Wednesday (26 November) to boost Europe’s stagnant economy, but some doubted private investors would provide the funding, 15 times the EU contribution, needed to make it work.
France and Italy, which have been demanding action to boost economic growth, cautiously welcomed the scheme but some business leaders and economists were sceptical the investments would materialise.
New Commission chief Jean-Claude Juncker acknowledged the plan lacked major new public spending, with just 8 billion euros of European Union money helping capitalise a special fund, but said that adding to public debt would not help.
“We don’t have a money-printing machine,” he told the European Parliament.
Parliament’s main centre-right, centre-left and liberal groups cautiously welcomed the plan as a good start, but said they would have liked the investment fund to be bigger.
However, far-right, left-wing and Green deputies said the high leverage made the plan a fantasy which ensured the risks would be public but any profits private.
“It’s a farce, it’s recycling and re-labelling. It is useless, and it’s hocus-pocus and abracadabra,” said Gerolf Annemans of the far-right Belgian Vlaams Belang party.
Defending his proposal, Juncker said it was the third leg of a strategy to get Europe’s millions of unemployed back to work, along with structural reforms and the reduction of debt and deficits run up during the financial crisis.
“Europe needs a kick-start and today the Commission is applying the jump leads,” said the conservative former prime minister of Luxembourg, who took office this month.
The executive Commission estimates the plan could add 1 percentage point to economic growth each year for the next three years and create a million jobs.
It aims to show a European Union working for its citizens at a time when many are disillusioned by high unemployment and years of economic weakness.
French Economy Minister Emmanuel Macron said the plan was “very positive and goes in the right direction” but that more was needed.
“There are plenty of components to this plan we can improve on … I think we need more subsidies and more own funds,” Macron said, adding the proposals would be debated at the EU’s regular December summit.
Meanwhile, Italy’s Pier Carlo Padoan said that without a shock to promote growth, there was a serious risk of drifting towards stagnation.
Plan’s high leverage underwhelms
Businesses, from the head of Austrian steelmaker Voestalpine to an executive at French bank Societe Generale , cautiously welcomed the move to boost investment. But Italy’s employers association Confindustria said the leverage multiple of 15 was high and the real resources unclear.
JPMorgan economists described it as underwhelming, saying private investors might not stump up an estimated 284 billion euros, the process of identifying projects did not appear well advanced and some of the projects may have happened anyway.
The EU is setting aside just 8 billion euros and the European Investment Bank €5 billion to help provide 21 billion in capital for a special fund to be managed with the EIB.
The cash, designed to tempt in private investors, could multiply into 315 billion euros of investment over the next three years to create a million jobs.
Commission Vice-President Jyrki Katainen said he would take a roadshow across the EU in the coming seven months, with stop-offs also planned to woo investors in China and the Middle East.
Juncker said Europe is in an “investment trap”, with private investors hesitating to commit funds despite being awash with liquidity, some of it provided by the European Central Bank as it tries to stave off deflation.
By providing guarantees to absorb the initial risks of key projects that could improve Europe’s infrastructure, Juncker said the EU could draw in more private investment.