Social Europe

politics, economy and employment & labour

  • Themes
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Why Juncker’s Investment Plan Is A Good Try But Not Enough

Martin Myant 29th January 2015 1 Comment

Martin Myant, Investment Plan

Martin Myant

Jean-Claude Juncker received approval for his long-awaited investment plan at the European Council meeting on 18 December 2014, giving more details and clarifying some of the open questions on 13 January 2015. Forecasting at least €315bn additional investment over the three years 2015-2017, it was billed as the central plank in his determined effort to spend five years saving Europe, alongside member states’ ‘commitment to intensifying structural reforms and to pursuing growth-friendly fiscal consolidation’.

The commitment to investment represents a noble effort to start reviving the European economy with the very limited resources allowed by current political constraints. It will lead to some more investment, but it suffers from serious shortcomings, meaning that the investment will be limited in volume and biased towards the countries that need EU help the least.

A proposal for a credible European investment plan needs to answer a number of questions. It needs to explain why investment is necessary and where it should be directed, why it has not been happening already, how it will be financed, what governance structures will be created, what other measures might be needed to make it effective and why such a programme should be directed from the European level.

The first of these receives the most convincing answer. A so-called Special Task Force, with representatives of member states, the Commission and the European Investment Bank (EIB), argued in its final report in December 2014 that investment had fallen 15% below its pre-crisis peak with far greater declines in some countries. Juncker’s plan would cover about one fifth of that gap over its three years.

In general, investment would provide a short-term stimulus. It is also needed to overcome the wide divergences in economic and social levels across EU member states and to help meet the long-term need in all countries for infrastructure, facilities for education, training and research, innovation and new technologies, energy transformation, urban renewal and social services. These are largely typical public sector activities and the public sector should be expected to be involved in, if not lead, much of the investment. Member state governments were immediately able to identify 2000 projects awaiting implementation with a cost of €1300bn, of which € 500bn would come in the next three years.

To explain why this investment has not been forthcoming, the Task Force pointed to ‘a wide array of barriers and bottlenecks’, justifying a similarly wide array of policies, including reducing regulation, completing the single market and continuing with ‘structural reform’. This latter term has frequently been used to mean policies to reduce employment protection, the scope of collective bargaining and ultimately wages, but there is no basis in the Task Force’s analysis for expecting such measures to contribute to higher investment. Rather, the key constraints on private investment are recognised at various points in the Task Force report as ‘low demand growth’ . This is not a matter of a lack of confidence in general, but a lack of confidence reflecting an accurate perception of reality. Demand is low and there is therefore every reason to hold back on investment, as also confirmed by the European Commission`s Business Surveys. Where bank lending is constrained, the key factor is usually also low demand and poor business prospects leading to doubts over the safety of lending.

The barriers to public sector investment are detailed within the Task Force report on projects that are ready to be started. Of 46 they selected as illustrative from the full list of 2000, finance appears explicitly as the key barrier in all but three. For some, the barrier was a lack of long-term finance, for some it was the effects of Eurozone budget rules and the cuts that have been imposed while for others it was the unattractiveness of the projects to private lenders. Regulatory issues appear even in a secondary role very rarely.

Financing is to depend on a fund, the European Fund for Strategic Investment (EFSI) with a starting value of €21bn; of this €5bn will come from the EIB and the remainder will be a guarantee from the European Commission. This will then be used to guarantee, in turn, credits from private sector long-term investors to favoured projects reaching the value of € 315bn, fifteen times the original commitment. It is hoped that the initial sum will be increased by contributions from member state governments.

Jean-Claude Juncker's investment plan is not enough according to Martin Myant (photo © European Union 2015)

Jean-Claude Juncker’s investment plan is not enough according to Martin Myant (photo © European Union 2015)

This part of the plan suffers from the following weaknesses:

– the high leverage rate is derived from estimates of what has been achieved in the past from the most secure long-term investments. It does not reflect the position in countries in the greatest difficulty. The total investment will therefore either be strongly focused on countries in the least difficulty or fall well below the target level.

– member states are expected to commit extra resources to the EFSI out of a general desire to help EU economic recovery without any promise of return or any direct ability to influence investment decisions. A small number of governments (Spain, Finland, Slovakia) came forward quickly to say that they would be willing to contribute, but action is yet to be seen. The initial funding of €21bn is therefore unlikely to increase much, if at all.

– repayment for public sector projects will be especially difficult for countries constrained by Eurozone debt rules. The solution proposed is ‘an increased adoption of the user-pays principle’. The implication is that investment will be biased towards projects offering quick financial returns and towards countries facing the least budget difficulties, with very little on offer to public sector projects elsewhere.

The proposed governance structures threaten to exacerbate the weaknesses of the proposed financing mechanism. Decisions are to be taken by an Investment Committee of the EFSI made up of ‘independent market experts’. The EFSI will create a ‘pipeline’ of investment projects judged adequate to guarantee, with selection based on certainty of returns and without reference to any geographical or sectoral priorities.

Private sector investment funds have particularly welcomed the fact that they expect to be able to choose the projects they lend to, meaning that they can avoid countries they consider, or they fear their depositors may consider, risky. The bias is therefore likely to be towards those countries with the largest supplies of long-term lending resources, meaning the most wealthy – and those with the most extensive finance sectors.

The emphasis in accompanying measures is on ‘structural reforms’ and maintaining existing rules on budget deficits and public debt levels. This makes financing public sector projects extremely difficult. It also raises questions over their usefulness: there is, for example, little point in building and equipping new schools and research facilities if there is no funding to run them once completed. In a small concession towards reducing the effects of austerity in the Juncker proposal, member states that contribute to the EFSI will not be penalised for a resulting small and temporary breach of the Stability and Growth Pact.

The continuing emphasis on ‘structural reforms’, when this is partly a euphemism for reducing employment protection and pay levels and for limiting the scope for collective bargaining, should also be judged counter-productive. Cutting wages has contributed in a number of countries to lower demand, without obvious positive effects in raising exports. Cutting wages can also nullify the positive effects of investment in areas which need to attract and retain qualified employees.

A final remarkable feature of the Juncker plan is that there is no obvious argument for such a programme to be run from the European level. There are some cross-border projects, but they are a small part of the total. For the most part, the same effect could be achieved from programmes run separately in individual countries. Countries and businesses will have no new access to finance beyond what could be financed from their own budgets – were there to be a slight relaxation in budgetary rules.

Thus, a reasonable forecast is that the Juncker plan will lead to some increase in investment in EU ‘core’ countries. It is not the magic bullet that will revive the EU economy. To achieve more would require dropping the strict insistence on the core elements of austerity and developing a more substantial and better-funded investment plan. The current proposal ignores the great potential strength of a plan run from the EU level. A EU fund, or institution such as the EIB, if adequately capitalised, could raise substantial finance at very low rates of interest and use it to finance investment across the EU, above all in countries in the greatest difficulty. That would require overcoming the political barriers that restrict the availability of finance for starting such a project. Without that, the EU economy faces the prospect of continued stagnation.

Martin Myant

Martin Meant is Senior Researcher and Head of Unit European Economic, Employment and Social Policy at the European Trade Union Institute (ETUI) in Brussels.

Home ・ Politics ・ Why Juncker’s Investment Plan Is A Good Try But Not Enough

Most Popular Posts

schools,Sweden,Swedish,voucher,choice Sweden’s schools: Milton Friedman’s wet dreamLisa Pelling
world order,Russia,China,Europe,United States,US The coming world orderMarc Saxer
south working,remote work ‘South working’: the future of remote workAntonio Aloisi and Luisa Corazza
Russia,Putin,assets,oligarchs Seizing the assets of Russian oligarchsBranko Milanovic
Russians,support,war,Ukraine Why do Russians support the war against Ukraine?Svetlana Erpyleva

Most Recent Posts

Sakharov,nuclear,Khrushchev Unhappy birthday, Andrei SakharovNina L Khrushcheva
Gazprom,Putin,Nordstream,Putin,Schröder How the public loses out when politicians cash inKatharina Pistor
defence,europe,spending Ukraine and Europe’s defence spendingValerio Alfonso Bruno and Adriano Cozzolino
North Atlantic Treaty Organization,NATO,Ukraine The Ukraine war and NATO’s renewed credibilityPaul Rogers
transnational list,European constituency,European elections,European public sphere A European constituency for a European public sphereDomènec Ruiz Devesa

Other Social Europe Publications

The transatlantic relationship
Women and the coronavirus crisis
RE No. 12: Why No Economic Democracy in Sweden?
US election 2020
Corporate taxation in a globalised era

Hans Böckler Stiftung Advertisement

Towards a new Minimum Wage Policy in Germany and Europe: WSI minimum wage report 2022

The past year has seen a much higher political profile for the issue of minimum wages, not only in Germany, which has seen fresh initiatives to tackle low pay, but also in those many other countries in Europe that have embarked on substantial and sustained increases in statutory minimum wages. One key benchmark in determining what should count as an adequate minimum wage is the threshold of 60 per cent of the median wage, a ratio that has also played a role in the European Commission's proposals for an EU-level policy on minimum wages. This year's WSI Minimum Wage Report highlights the feasibility of achieving minimum wages that meet this criterion, given the political will. And with an increase to 12 euro per hour planned for autumn 2022, Germany might now find itself promoted from laggard to minimum-wage trailblazer.


FREE DOWNLOAD

ETUI advertisement

Bilan social / Social policy in the EU: state of play 2021 and perspectives

The new edition of the Bilan social 2021, co-produced by the European Social Observatory (OSE) and the European Trade Union Institute (ETUI), reveals that while EU social policy-making took a blow in 2020, 2021 was guided by the re-emerging social aspirations of the European Commission and the launch of several important initiatives. Against the background of Covid-19, climate change and the debate on the future of Europe, the French presidency of the Council of the EU and the von der Leyen commission must now be closely scrutinised by EU citizens and social stakeholders.


AVAILABLE HERE

Eurofound advertisement

Living and working in Europe 2021

The Covid-19 pandemic continued to be a defining force in 2021, and Eurofound continued its work of examining and recording the many and diverse impacts across the EU. Living and working in Europe 2021 provides a snapshot of the changes to employment, work and living conditions in Europe. It also summarises the agency’s findings on issues such as gender equality in employment, wealth inequality and labour shortages. These will have a significant bearing on recovery from the pandemic, resilience in the face of the war in Ukraine and a successful transition to a green and digital future.


AVAILABLE HERE

Foundation for European Progressive Studies Advertisement

EU Care Atlas: a new interactive data map showing how care deficits affect the gender earnings gap in the EU

Browse through the EU Care Atlas, a new interactive data map to help uncover what the statistics are often hiding: how care deficits directly feed into the gender earnings gap.

While attention is often focused on the gender pay gap (13%), the EU Care Atlas brings to light the more worrisome and complex picture of women’s economic inequalities. The pay gap is just one of three main elements that explain the overall earnings gap, which is estimated at 36.7%. The EU Care Atlas illustrates the urgent need to look beyond the pay gap and understand the interplay between the overall earnings gap and care imbalances.


BROWSE THROUGH THE MAP

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us on social media

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube